Facebook Twitter

ECONOMIC TURMOIL NOT LIKELY TO AFFECT U.S.

SHARE ECONOMIC TURMOIL NOT LIKELY TO AFFECT U.S.

The turmoil engulfing Mexico's currency and economy is likely to create only minor ripples north of the border in the huge U.S. economy, economists said.

The approximately 40-percent slide in the value of the peso is expected to cut the price of Mexican goods imported here, particularly fruit and vegetables, silver jewelry and leather.Grocers, electronics stores and others catering to Mexicans who cross the border to shop in states such as California and Texas are likely to see sales fall because of the peso's woes. Reports from the border area say sales already have dropped.

And U.S. industries that export to Mexico - such as auto parts, telecommunications equipment and plastics, among others - are likely to see sales there drop in the short run. The peso's weakness makes U.S. goods more expensive in Mexico.

But economists expect no shock waves that would really affect the robust growth and low inflation the U.S. enjoys.

"Although Mexico is an extremely important trading partner, recent events there are unlikely to have a major affect on the U.S. economy," said David Gould of the Federal Reserve Bank of Dallas.

"We have two countries that are very integrated with one another, which leads investors to think that when one has a problem the other will suffer," said Mark Spiegel of the Federal Reserve Bank of San Francisco.

"But I just don't see it, because the Mexican economy is so small relative to the United States," he added.

The U.S. output of goods and services worldwide last year was nearly 20 times that of Mexico. Put another way, the United States accounted for about a quarter of world economic output in 1993, according to World Bank data.

Mexico is vying with Japan to be the United States' second largest trading partner after Canada.

The North American Free Trade Agreement that joined the United States, Mexico and Canada into a huge trading bloc at the start of 1994 has helped fuel U.S.-Mexican trade, said the Commerce Department. U.S. exports to Mexico have been running a record average rate of $1 billion a week since May.

But because trade with Mexico accounts for only a fraction of the $5.4 trillion U.S. economy, the impact of the turmoil in Mexico on overall U.S. inflation and growth is expected to be slight, said economists.

U.S. exports to Mexico of goods, services and receipts of income from investments in Mexico accounted for about 1 percent of U.S. Gross Domestic Product in 1993.

Economists expect the flow of U.S. exports to slow, at least in the near term.