U.S. Economic Problems Have Ripple Effect in Mexico

U.S. Economic Problems Have Ripple Effect in Mexico

The U.S. financial crisis is affecting its southern neighbor. Photo:<a href="http://www.flickr.com/photos/fromrocks/6488377/"> Allen Ormond (flickr)</a>
The U.S. financial crisis is affecting its southern neighbor. Photo: Allen Ormond (flickr)

As Americans grapple with plunging retirement savings, declining home values and rising gas prices, our neighbors to the south are suffering, too.

A decline in both exports — most of which go to the U.S. — and remittances are putting the brakes on the Mexican economy.

Mexican manufacturers rely heavily on U.S. consumers; Americans buy more than 80 percent of the country's exported goods. But as American consumers cut back, Mexican manufacturers are laying off workers. The Arizona Republic ran a story quoting one factory manager who cut nearly half his staff after sales dropped 40 percent.

The slowdown in the manufacturing sector has a trickle-down effect. In Nuevo Laredo, taco vendor Jorge Flores has lost 40 percent of his business in recent weeks due to the economic hard times.

Also hurting the Mexican economy is the decline in money sent back to Mexico from Mexicans living in the U.S., also known as remittances.

One in four families in Mexico relies on remittances as its primary source of income. And remittances have dropped by 12 percent in the past 12 months.

Fewer visits to Western Union are partly due to a fall in U.S. home construction, an industry staffed heavily by Mexican laborers. One day labor center in Los Angeles, for example, says there's been a drastic drop in demand for workers.

Help is on the way, according to Mexican President Felipe Calderon: Yesterday Calderon proposed a 65.1 billion pesos ($5.26 billion) stimulus package to shore up the flagging economy.

Curated news and insights about innovative, market-driven solutions to poverty explored through news, commentary and discussion.

Learn more »

Global Envision newsletter