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IMF Says Mexico's GDP To Fall More Than 0.3% In 2009

   By Anthony Harrup 
   Of DOW JONES NEWSWIRES 
 

MEXICO CITY -(Dow Jones)- The International Monetary Fund said Friday it expects Mexico's economy to contract more than 0.3% this year as recent deterioration in external conditions weighs on the country.

In a report following its Article IV Consultation with Mexico, the IMF said worsening global conditions have tested the country's economic resilience and its policy framework.

"The weakening outlook for U.S. activity, remittances, and international oil prices all weigh on prosects for Mexico," the IMF said.

In the report, the fund projected an economic contraction of 0.3%.

"However, recently released data and developments in late 2008 suggest that the Mexican economy is slowing faster than we anticipated in our report, and it is likely that growth this year will be lower than our current forecast," IMF's Mexico Mission Chief Vikram Haksar said.

In a conference call with reporters, Haksar said the government's recent estimate of a 1% year-on-year drop in fourth-quarter GDP would take about one percentage point off the IMF's 2009 projection, although other factors such as effects of the U.S. economic stimulus plan and the unfolding of the global financial squeeze would be considered in the revision. He declined to give an exact new estimate.

The Mexican government estimates that GDP grew 1.5% in 2008, down from 3.2% in 2007, and sees 2009 GDP between zero and a decline of 1%. The Bank of Mexico has estimated a contraction this year between 0.8% and 1.8%.

IMF officials noted that Mexico is in a better position than it has been in the past to confront the current crisis, as the government has been able to implement counter-cyclical fiscal policies and take measures to address tightening liquidity conditions. Central bank monetary easing, begun last month, is also seen helping.

"Fiscal policy is set to provide timely support to the economy with a stimulus of about 1.5% of GDP planned for 2009," which should "cushion economic activity, protect employment and augment infrastructure," Haksar said.

David Robinson, Assistant Director in the Western Hemisphere Department, said that Mexico, "while clearly much more resilient, is being seriously affected by the global slump."

Mexico will see a widening of its current account deficit as non-oil export volumes fall largely on lower U.S. demand, and oil export revenue and remittances also decline.

Robinson said that despite pressure in some areas, the IMF thinks Mexico's balance of payments will be "manageable" in 2009.

The economic weakening has had an effect on Mexico's peso, which depreciated 21% last year and has recently been trading at historical lows against the U.S. dollar.

"We find the peso is somewhat undervalued from a medium term perspective," Robinson said, adding that it's not surprising given currency reactions to economic turmoil.

-By Anthony Harrup, Dow Jones Newswires; (5255) 5001 5727, anthony.harrup@dowjones.com

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(END) Dow Jones Newswires

February 13, 2009 12:46 ET (17:46 GMT)


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