• 3 hours The EU Begins Backtracking On China Trade
  • 1 day Americans Are Sick Of Unfair Taxation
  • 3 days No Jab, No Job: The New Hardline Policy of U.S. Employers
  • 5 days What’s Included In Biden’s $6 Trillion Economic Plan?
  • 6 days The “Great Car Comeback” Brightens Oil Demand Outlook
  • 7 days The 3 Most Profitable Covid-19 Vaccine Stocks
  • 9 days Beijing Launches Digital Currency To Break AliPay-WeChat Duopoly
  • 10 days The New Economic World Order After Covid-19
  • 14 days 3 Signals To Watch For A Stock Market Correction
  • 16 days Netflix Earnings Red Alert: Subscriptions Could Underwhelm
  • 17 days Wall Street Banks Are Back
  • 17 days Elon Musk’s SpaceX Scores Big Win Over Jeff Bezos’ Blue Origin
  • 18 days Which Country Is The World’s Largest Investor In Batteries?
  • 20 days Are Bitcoin’s Environmental Risks Overblown?
  • 20 days Why The Gold Rush Ran Out Of Steam
  • 23 days Coinbase IPO Explodes, But Fails To Keep Its Momentum
  • 23 days China Slaps Alibaba With Record $2.75B Antitrust Fine
  • 24 days The Pandemic Has Culled The Middle Class
  • 25 days Legacy Automakers See Massive Spike In Sales
  • 26 days Tesla's Biggest Competitor Is Going Cobalt-Free
What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

The Problem With Modern Monetary Theory

The Problem With Modern Monetary Theory

Modern monetary theory has been…

  1. Home
  2. Markets
  3. Other

Mexico: The First Ripple From the US Financial Crisis

With financial markets now under constant watch and the industrialized economies broadcasting bearish news on a daily basis, a country such as Mexico is easy to overlook. However, it might just be worth noticing that while most people are concerned about how the dollar is faring, some attention should be paid to what goes on south of the border with the peso.

A telling sign of relative economic strength in the US is workers' remittances to Mexico. This figure, tracked on a monthly basis, serves as both a barometer of the US economy and as a nice proxy for the quarterly current account figures in Mexico. Regarding the latter, remittances accounted for 2.35% of GDP in 2007 and provide a stabilizer to the external balances when the US is doing well. When the US economy slows, however, not only does Mexico sell fewer goods north of the border, but fewer dollars come south - which can be a problem for the current account balance.

Remittances fell by 12% year on year in August (the sharpest drop since the series started) and 4% in January-August 2008. Last year was not a particularly great year for Mexican expatriates as growth in money sent home remained static. Now, this sharp drop suggests harder times ahead, and perhaps even liquidity concerns down the road if this key source of support narrows further.

Chart 1

We forecast that US import demand will soften significantly over the next 12 months, which will negatively impact Mexico's balance of payments situation. Also, the marked drop in oil prices will be another hit to export earnings looking forward. It would indeed be hasty to suggest that a balance of payments crisis is looming for Mexico, but it is worth remembering that when the waters in the US get choppy, they have a nasty way of spilling across the Rio Grande. And considering the breadth and magnitude of the current financial crisis, it may be a good time to reassess Mexico's near-term outlook.

 

Back to homepage

Leave a comment

Leave a comment