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Effects of the current U.S. crisis on Mexico Carlos Yanez Matt Anzardo Econ. 465 Ramon A. Castillo Summary Relationship with U.S. economic decline and Mexico GDP: Investment, Trade, Consumption, and Government Spending Unemployment Consequences on; Immigration Remittances Poverty GDP GDP Growth 6.00% 4.00% 2.00% 0.00% 2006 -2.00% 2007 2008 2009 Mexico United States -4.00% -6.00% -8.00% Mexico experienced the Largest decline in GDP growth in 2009 since the last 30 years. Investment US provides half of Mexico’s FDI Almost 70% is in manufacturing and assembly plants. US FDI into Mexico has decreased by 16% in 2008 and 23% in 2009 Significant decline in manufacturing jobs Trade Over 80% of Mexico’s exports go to the US Current account deficits The value of the peso declining Mexico relies on 35% of foodstuffs from imports, therefore more hunger may result if their currency can not buy as much. Caused more job losses in Mexico Trade Current Account of Mexico 0 2006 -2 2007 2008 2009 -4 million -6 -8 -10 -12 -14 -16 -18 Current Account of US 0 -100 -200 Billion -300 -400 -500 -600 -700 -800 -900 -1000 2006 2007 2008 2009 Consumption Because of job losses, people are cutting down on spending Government hopes tourism will raise consumption. Swine flu The value of bad credit card debt shot up from $1.3 billion in November 2007 to more than $3 billion in November 2008. Government Spending Cuts in public spending and increased taxes on income and consumption. Public officials and public sector. New general consumption tax Still left with a 22.3 billion dollar deficit Unemployment Significant decline in manufacturing jobs Many moved to informal sector such as street vending Since the beginning of the current economic crisis, Mexico’s unemployment rate has gone from 3.7% to 5.67%, US has gone from 4.6% to 9.4% Unemployment 10.00% 9.00% 8.00% 7.00% 6.00% Mexico 5.00% United States 4.00% 3.00% 2.00% 1.00% 0.00% 2006 2007 2008 2009 United States: Unemployment Rate on Mexican Immigrants Remittances Mexico’s largest source of income Reasons for the decline U.S. recession Unemployment in the U.S. Tighter security at borders 3.6% ($931m)in 2008 to $25bn. First decline in 13 years Remittances Remittances • Michoacan, Mexico is where most remittances are sent to. • Baja California , $36m Immigration Higher cost of Migration Poor job prospects in the U.S. / Mexico Illegal aliens returned home rose 20% Mexico (NSEO) estimates that 433,000 Mexican migrants returned between (2008, 2009) Immigration Level Immigrants returning home could drive down wages and put pressure on social services. About 11% of everyone born in Mexico is currently living in the U.S. Poverty Poverty 44,700,000 Mexicans are now living in poverty. 14 million are considered living under extreme poverty. Poverty levels are predicted to be similar to 1996. Poverty http://www.youtube.com/watch?v=XjGXXOfoTek Conclusion As the result of the close relationship between Mexico and the United States, Mexico will continue to face all the factors mention above till the day Mexico dices to limit its relationship with the United States