Mexico flu outbreak could add to economic pain

MEXICO CITY (Reuters) - Significant worsening of an outbreak of a fatal new flu strain in Mexico could damage the retail and tourism sectors in an economy already stinted by the global economic crisis.

Mexican authorities closed schools on Friday and urged people to take extra precautions to avoid spreading illness, and the World Health Organization said it was monitoring the situation.

"This could become a serious problem for the economy," said Gabriel Casillas, an economist at UBS, who noted a large outbreak could lead to a further slowdown in consumer spending if shoppers stay home out of fear of the illness.

Tourism at beach resorts like Cancun and Puerto Vallarta brings in $13 billion a year for Mexico, but experts say foreign visitors could easily be scared away.

Canada's government has advised doctors to be on the alert for reports of illness from people who recently traveled to Mexico, although it has not advised against visiting the popular beach vacation destination.

"Tourism tends to get affected rather quickly. It's all about perception, and when you've got a disease of this nature that's being described as unusual, that tends to flow into the psyche of people planning trips," said Enrique Alvarez of IDEAglobal in New York.

Analysts polled by the central bank at the end of March predicted Mexico's economy would shrink 3.3 percent this year.

As many as 60 people may have been killed by the previously unknown type of swine flu that has prompted unease among the population.

Mexico's economy has been battered by a U.S. recession that has hit the country's export-dependent manufacturing sector hard.

The tourism sector has been a bright spot, however, with the number of visitors rising in early 2009 despite grim headlines about drug violence that has killed over 2,000 people this year.

In addition to the threat to tourism, Casillas warned that a serious worsening of the epidemic could hit already struggling supermarkets, shops and restaurants as people avoid crowds. That might delay Mexico's economic recovery further.

The economic downturn is already taking a toll on Mexico's retail industry, where sales slumped 8.6 percent in February, according to data released on Friday.

A widespread flu outbreak is unlikely to have much of an effect on manufacturers, who are already working at a slower pace and whose operations are heavily integrated with those of U.S. firms across the border.

(Editing by Dan Grebler)