Late yesterday, Mexico’s Finance Ministry reported that the economy contracted at an annualized rate of 7% in the first quarter due to plummeting exports. The most recent figures raise fears that the economy could shrink by more than the 3.8% to 4.8% that the Central Bank had previously forecast for 2009.
Making matters worse, the swine flu epidemic has prompted the federal government to suspend all non-essential services and urge businesses to close from May 1 to May 5 to reduce the spread of the virus.
Mexico’s revenues from tourism, which represent 8% of GDP, are also likely to fall precipitously as a result of the epidemic. Earlier this week, Cruise lines announced that they would cease all port calls in Mexico. And today, Continental Airlines announced that it is cutting flights to Mexico starting Monday. Despite this grim news, the peso appreciated against the dollar in late trading yesterday on news of a $3 billion loan from the Inter-American Development Bank to help Mexico combat the disease.