Mexico's economy caught in the global slowdown.

In its September 27, 2007 edition, The Economist (London) observed that when the economy of the United States (US) slowed in 2001, Mexico's economy went down and stayed down for the two succeeding years. And then the magazine asked a rather pointed question: "As fears of an American recession deepen, will it be different for Mexico this time?"

Even a casual glance at the graph above yields the short answer.

No.

And the explanation is simple. Again according to The Economist something like 70 percent of Mexico's exports are traded to the US. The makeup of this output changed with the North American Free Trade Agreement (NAFTA) (effective date January 1, 1994) basically stimulating Mexico's industrial sector, and enhancing the importance of exports of manufactured goods to US companies.

So as the US economy slows--particularly manufacturing--the impact is strongly felt by Mexico.

Most disturbing of all in the above graph is the persistence of the downward trend in Mexico's Index of Economic activity. The international financial press appears to be doing its best to shore up opinion in regard to what is happening in Mexico--several reports reviewed for this piece threw around forms of the word `resilience'--but the conclusion mandated by the graph on page 1 is inescapable.

The US slowdown, and the slowdown in the global economy generally, catches Mexico at a particularly vulnerable time. Every two years the Organization for Economic Cooperation and Development (OECD) takes a detailed look at Mexico's economy. The most recent report, the "Economic Survey of Mexico 2007," was published by the OECD in October 2007.

For the most part, the OECD was happy to acknowledge Mexico's progress in recent years. Here's a typical comment from the report specifically relating to the country's structural reforms. "These efforts have yielded relatively good performance."

The mild tone of the comment arises out of the OECD's identification of several weaknesses exacerbated by the US slowdown. The structural reforms the OECD praises have not gone far enough. The reform of public finances is mired in bureaucracy. And even though the country has made enormous strides in diversifying its roster of trading partners, tariffs should come down further. The OECD adds, "It is also important to reduce non-tariff barriers, including inefficient customs procedures and irksome technical requirements, which hamper trade flows."

But while the language is circumspect, there is no mistaking the OECD's concern for Mexico's infrastructure. It comes through clearly. The roads, the rails, the phones, the electric grid, are all a mess. The OECD (indirectly) blames Mexico's political process. "The sector regulators do not always have sufficient authority to be effective."

Thus, Mexico's consumers suffer from many of the same problems that affect other countries in the region. Formal economy unemployment is low, "but many workers are engaged in low-productivity and unrewarding jobs."

Finally, there is a serious problem in developing Mexico's "human capital" to meet the demands of the evolving global economy. This is an abstract way of saying that consumers are not afforded sufficient educational opportunities.

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