Mexican economy likely to suffer side effects of epidemic

MEXICO CITY -- Lisandro Soto looks around the empty showroom at Durkin Chevrolet and watches pedestrians in face masks hurry by outside, trying to avoid the deadly swine flu virus that is paralyzing Mexico's economy.

Car-buying is the last thing on anyone's mind.

"Mexico was already having problems; this has just made it worse," the salesman said Wednesday. "And it's not just Mexico that is going to get hurt. If nobody is buying Chevrolets here, jobs up there (in the United States) are going to be affected, too."

Mexico's economy already has been clobbered this year by the global financial crisis and a wave of drug-related violence. Now economists worry that the flu outbreak could trigger a complete meltdown as shoppers stay home, restaurants close to prevent infection, tourism plummets, and workers deal with the cost of child care amid school closures ordered nationwide.

"The death toll of businesses could be much worse than the number of people who die from the flu," says Alejandro Álvarez Bejar, an economist with the World Economic Studies Network, a think tank based in Puebla, Mexico.

Mexico's central bank predicted Wednesday that the country's $880 billion economy could contract up to 4.8% this year, and that grim forecast doesn't take into account the flu outbreak.

That also means bad news for the U.S., which exported $151.5 billion in goods to Mexico last year — primarily cars, electronics, plastics, manufacturing machinery and petroleum products. Mexico is the second-largest customer of U.S. products after Canada.

Past economic upheavals in Mexico, such as the "Tequila crisis" in 1994-95, led to a large number of migrants crossing into the USA. In that crisis, the United States put together a $50 billion bailout package for Mexico. This time, Mexico has secured a $47 billion credit line from the International Monetary Fund.

In Mexico City alone, closures and cancellations are costing $57 million a day — about a third of the local economy, the city's Chamber of Commerce says.