Trade, investment, and capital flows: Mexico’s macroeconomic adjustment to theGreat Recession

Abstract

After decelerating for two years, in 2009 the Mexican economy suffered a contractiononly matched, in its modern history, by the one recorded in 1995, in the wake of thepeso crisis ofDecember 1994. As in the latter crisis, the economy immediately bounced back,posting positive growth in 2010. Compared with the sharp rebound of exports, though,the overall recovery was weak, with GDP and industrial production surpassing (barely,in the latter case) their pre-crisis levels only in2011. Motivated by these observations, the paper studies the transmission channelsbehind the 2009 recession in Mexico, the reasons for the weakness of the 2010–2011recovery, and —based on that analysis— some of the risks the country faces forsustaining stronger economic growth in the future.