Mexico faces deep recession on flu outbreak

By Jason Lange - Analysis

MEXICO CITY (Reuters) - A deadly swine flu outbreak could push Mexico into a recession so deep it might rival the mid-1990s "Tequila Crisis" financial meltdown, as the economy shuts down and tourists stay away.

Mexicans are already trudging through a sharp recession caused by a collapse in U.S. demand for their exports.

But the flu epidemic, which has killed up to 176 people in Mexico, is dealing another big blow. Mexico's government late on Wednesday called on large swaths of the economy to shut down for five days in an effort to stop the disease from spreading further.

"There's no doubt that the economic slowdown is going to be deeper," Finance Minister Agustin Carstens said as the government urged all businesses not crucial to the economy or public safety to close between May 1-5.

Carstens said the government wants the shutdown to be as wide as possible to deal a heavy blow to swine flu.

The outlook for Mexico's economy has become increasingly miserable in recent weeks, with some analysts predicting it could contract by 5 percent this year. That would be close to the 6.2 percent drop in 1995 during the Tequila Crisis.

"We're in a range that's getting very near to that," said Santander economist Rafael Camarena.

Carstens was slightly more optimistic than that, saying the economy could fall as much as 4 percent this year.

Mexico's economy and banking system went into a tailspin in the mid-1990s after the peso currency collapsed.

Although the banking system and public finances are in much better shape now, exports have fallen off a cliff this year as recession-stricken Americans buy fewer cars and televisions made south of the border.

TOURISM INDUSTRY SAVAGED

Mexico reported late last week that a never-before-seen flu virus -- with elements of swine, avian and human varieties -- was spreading rapidly through the country.

The flu outbreak is savaging the tourism industry, which accounts for roughly 8 percent of Mexico's economy.

The European Union, the United States and Canada have all advised their citizens against non-essential travel to Mexico.

Tourists were rushing to leave Mexico on Wednesday amid worries that flights would be canceled after news the virus claimed its first fatality outside Mexico.