Mexico is feeling economic effects of U.S., global woes

MEXICO CITY —  Inflationary pressures are rising. Remittances are falling. Mexico’s economy is slowing. So is job growth.

Mexico’s central bank released a string of bad news Wednesday confirming that the nation is feeling the effects of a U.S. slowdown and exploding global prices for food and fuel.

The Bank of Mexico revised its inflation expectations sharply upward to a high of 6% for the fourth quarter. That’s well above the 5.26% annualized rate recorded in June and double the central bank’s long-term target.

Some analysts now believe that Mexico’s central bankers will almost certainly hike the benchmark overnight lending rate at their next meeting in August, on the heels of increases in June and July.

“The [report] depicts a significant deterioration of the inflation outlook,” said Alberto Ramos, senior Latin America economist with Goldman Sachs in New York. “[It’s] bearish for rates.”

The move would drive up the cost of credit for businesses and consumers and be another millstone for an economy whose growth is already slowing. The Bank of Mexico now predicts that the nation’s economy may expand as little as 2.25% in 2008.

That’s bodes ill for job creation, which is already sluggish. The central bank predicts that the Mexican economy will create just 370,000 formal-sector jobs this year. The nation needs at least 1 million new positions annually just to keep up with population growth.

Mexicans have long fled to the United States when things got tough at home. But tight employment conditions north of the border may dissuade some from making the trip.

Money wired home by Mexicans living outside the country, most of them working in the U.S., totaled $11.6 billion through the first six months of the year, according to figures released Wednesday. That’s down 2.2% from the same period last year -- the longest sustained drop since the Bank of Mexico began tracking the flows in the mid-1990s.

Experts say the decline reflects tougher border enforcement and a near-collapse in the U.S. construction industry, which employs 1 in 5 Mexican immigrants.

Remittances have helped cushion previous downturns in the Mexican economy, but it appears that the country won’t be able to count on that shock absorber this time around.

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