NUEVO LEON ECONOMIC OUTLOOK IMPROVING SLIGHTLY

UNCLAS SECTION 01 OF 02 MONTERREY 000292

SENSITIVE
SIPDIS

STATE PASS USTR

E.O. 12958: N/A
TAGS: EFIN ETRD EIND EINV ELAB ECON MX
SUBJECT: NUEVO LEON ECONOMIC OUTLOOK IMPROVING SLIGHTLY

MONTERREY 00000292 001.2 OF 002



1. (SBU) Summary: The State of Nuevo Leon's Secretariat of
Economic Development (SEDEC) estimates that the 2009 GDP decline
for the state will be less than the national average and that
employment will increase during the remaining months of the
year. SEDEC expects monthly exports to stabilize at around US$
1.1 billion per month. Although many small companies have
closed, large companies are in a position to resume higher
production when demand increases. However, the state's recovery
will depend on the speed of the U.S. economic recovery and the
severity of an expected increase in H1N1 influenza cases in the
fall. End summary.



GDP Decline Estimated to Be Less than National Average,
Unemployment Higher

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2. (SBU) Figures recently compiled by the State of Nuevo Leon's
Secretariat of Economic Development (SEDEC) forecast that 2009
GDP in the Mexican border state will decline by 5.7 percent,
less that its prediction of a 6.3 percent drop in the national
GDP. State employment, heavily dependent on exports to the
U.S., has suffered more than the national average during the
recession according to Mexican Institute of Social Security
(IMSS) figures. The automotive, electrical products and metal
products sectors have been most affected. (Note: IMSS figures
are only a rough estimate of the employment situation in Mexico.
Mexico has a significant informal economic sector, which does
not participate in the IMSS, making aggregate unemployment
figures unavailable. End note.)



Decline in Exports Expected to Stabilize

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3. (SBU) SEDEC Director of Economic Studies David Martinez told
EconOff on July 29 that he expected a halt in the decline of
Nuevo Leon exports as the U.S. economy stabilized and diminished
inventories are replenished. He estimated an average of US$
1.25 billion in monthly exports for the rest of 2009, down from
around US$ 1.7 billion monthly before the recession hit in the
second half of 2008.



Small Companies Close, Larger Companies Cut Costs

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4. (SBU) Martinez noted that small companies had borne the
brunt of the recession and many had closed. Larger companies,
with greater resources, have weathered the recession better.
They have cut personnel costs through layoffs and cutting back
on workers' hours and so could rapidly resume higher production
rates. Monterrey AmCham officials told EconOff that companies
have cut nonessential costs, such as membership dues in trade
organizations, resulting in a 20 percent decrease in AmCham
membership over the past year.



Foreign Investment Postponed

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5. (SBU) Martinez stated that many foreign companies have
postponed investments in Nuevo Leon due to the current economic
climate. SEDEC Undersecretary for Foreign Investment and Trade
Andres Franco estimated that foreign direct investment for 2009
would be around US$ 1.1 billion, a drop of US$ 400 million from

2008. However, he said this was better than SEDEC had expected.





MONTERREY 00000292 002.2 OF 002


Better Days Ahead?

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6. (SBU) Martinez was optimistic about the state's economic
future. He pointed to studies showing an improvement in
consumer confidence in the country and predicted employment
would continue to improve in Nuevo Leon. (Note: The state was
one of the few in Mexico to post a net job increase in June,
albeit a modest one - 4,667 jobs per IMSS figures. End note.)
Martinez predicted a quicker recovery in Nuevo Leon than in
other parts of the country due to the state's reliance on the
now stabilizing U.S. market.



Hurdles Ahead

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7. (SBU) He was reluctant to give a timeframe for Nuevo Leon's
rebound from one of the worst economic downturns in the last 20
years, noting that this would depend on the speed of U.S.
economic recovery. Martinez pointed to the recovery period
after the 2000 - 2001 recession, almost 44 months, and noted
that this recession was worse in terms of GDP decline. An
intensification of the H1N1 influenza epidemic could also
forestall the state's economic upturn, he added.



Comment

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8. (SBU) Nuevo Leon's export-driven economy is well-positioned
to benefit from a U.S. economic upturn and should rebound more
quickly than most other Mexican states when that occurs.
However, the state faces a number of hurdles along the way.
Economic data in the state focuses on the activity of large
companies, so the damage to smaller companies and the informal
sector may not be immediately remediable by brighter economic
news. The uncertain future of the U.S. automotive industry may
also delay a recovery to post-recession prosperity. Finally, a
resurgence of the H1N1 epidemic in the fall could hobble the
recovery for some time to come.
WILLIAMSONB