Mexico cuts growth forecast

Mexico's budget has been cut by $365 to make up for falling earnings

For the second time in a week, the Mexican government has reduced its growth forecast for the year as the effects of the US economic slowdown are beginning to bite.

Trade between Mexico and the US has slowed

The latest forecast of 2.5% growth for the year is significant for an economy that expanded at the rate of 6.9% in 2000.

Earlier this week, the official forecast for growth in gross domestic product (GDP) for 2001 was reduced to 3%, down from a previous estimate of 4.5%.

On Friday, a senior economics official suggested that Mexico's economy might suffer a slowdown even more severe than previously thought.

"We forecast economic growth of between 2.5% and 3% in relation to GDP," said Eduardo Sojo, one of the President's key men on economic affairs.

Budget cuts

The statement by the coordinator of public policies in the economic area was made at a news conference where an austerity plan which involved $365m worth of budget cuts was presented.

A quarter of the cuts, or about $90m, will hit road construction and maintenance, with almost $70m cut in government spending on farming and fishing developments coming in second.

The state-run electricity sector will also have less money to spend this year.

Budget cuts here will amount to $54m.

The government is looking to the private sector for cash that can help bolster the nation's electricity supply.

Oil cuts

The budget cuts were required to pay for a shortfall in earnings during the first quarter of 2001, mainly due to exporting cuts by the state oil company Petroleos Mexicanos (Pemex).

Pemex slashed its exports to comply with the oil cartel Opec's agreement to cut production.

But output has been cut in other industries too during the first few months of the year, notably in the car sector which reported a 13.2% cut in output in April compared to March.

Car exports during the same period fell 7.5%.

Connected economies

About 90% of Mexico's exports arrive in the US.

But just as a slowdown in the US hurts Mexico: A subsequent slowdown in Mexico will affect the US economy.

Mexico is the world's second largest importer of US manufactured goods and the third largest importer of US agricultural produce.