Mexico economy shrinks 10.3% in second quarter

Mexico's economy had its worst performance on record in the second quarter, hard hit by falling exports and the swine flu outbreak, according to official statistics.

Gross Domestic Product shrunk 10.3 per cent between April and June, compared with the same period in 2008, INEGI national statistics institute said in a statement.

Mexico appeared to be heading for its worst year since the so-called 1994 "Tequila Crisis," when a sharp devaluation of the peso led to a seven per cent year-on-year fall in GDP. Latin America's second largest economy went into recession in the first quarter, when GDP dropped 8.2 per cent compared with the previous year.

INEGI blamed the latest decline on poor figures in the industrial and services sectors, which are closely tied to the United States and have felt the full force of the economic crisis.

The economy also took a sharp blow from the outbreak of swine flu in April and May, which paralysed many sectors, including tourism, the country's third-largest source of legal foreign income.

Despite signs of mild recovery for Mexico and the US, prospects for sustained improvement were still unclear.

Consulting group Bursametrica predicted Mexico's GDP would fall 6.5 per cent in 2009, with negative growth slowing down at the end of the year.

"The government is doing everything possible to take measures, but it has very narrow room for manoeuvre," said analyst Maria del Carmen Alcibar.