Mexico warns swine flu may deepen recession

MEXICO CITY Wed Apr 29, 2009 4:19pm EDT

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MEXICO CITY (Reuters) - A deadly swine flu outbreak could push Mexico deeper into recession, but the epidemic's impact on the economy may be short-lived, Mexico's central bank said on Wednesday.

Mexico's economy is already limping badly because of falling demand for its exports and the central bank said in a report that the economy contracted by as much as 8 percent in the first quarter.

Mexico's Central Bank Gov. Guillermo Ortiz warned that the outbreak of swine flu, which has killed up to 159 people, could exacerbate the slowdown.

"Certainly there will be negative effects on the economy," he said in a conference call," he said.

"As long as this doesn't go on for too long I think the effects (on the economy) will not be so important and there will be a quick recovery," Ortiz added.

His comments followed the central bank's publication of a quarterly report that warned "the recession could be bigger and longer-lasting than currently expected."

"This could weigh especially heavily in the current situation in which we face the problem of swine flu," the bank said.

Ortiz, who said the economic impact of the outbreak would depend on how long the health crisis lasted, welcomed a report by the health minister that the number of new swine flu cases being reported had declined in recent days.

TOURISM HIT HARD

The flu outbreak is hitting Mexico's tourism industry, which accounts for roughly 8 percent of the economy. With the disease spreading to other countries, two countries have banned flights to Mexico while the United States has advised against non-essential visits to its southern neighbor.

Many groups of foreign tourists and students on Wednesday left the country earlier than planned.

Ortiz noted that other countries affected by epidemics in recent years, such as the avian flu, have usually seen swift economic recoveries.

"What normally happens is that the negative impacts on economic activity and tourism last for a relatively short period and the rebound is relatively rapid," he said.

In its quarterly inflation report, the central bank said the economy could shrink by as much as 4.8 percent this year. It noted that its forecasts did not take into account the impact of the flu epidemic. The bank's previous forecast was for a contraction of up to 1.8 percent in 2009.

The Mexican central bank also revised upward its forecast for inflation in the fourth quarter of 2009 to as much as 4.5 percent, due partly to the sharp depreciation of the peso currency since late last year.

Mexico sends about 80 percent of its exports to the United States where consumers are struggling through the deepest recession in decades.

The U.S. recession is also hitting Mexico because of the reduced amount of money sent home by Mexicans working in the United States.

Migrant remittances fell 0.54 percent in March from a year earlier and were down nearly 5 percent in the first three months of this year from the comparable period in 2008.

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