Why has Mexico encountered such a significant collapse from

Why has Mexico encountered such a significant collapse from an economic perspective?

Solution

From an economic perspective Mexico had a significant collapse due to two major factors:

1. The first one was a collapse in export demand

2. The second one being the susequent constraints that it had in accessing the International Financial markets.

Due to the above factors Mexico started feeling a significant negative effect. As the negative effects increased, the country\'s fiscal position weakened. This was mainly due to the fall in oil revenues. Additionally, a drop in international energy prices brought about by the global recession along with a sharp decline in domestic oil production attributed to the crisis.

A downward rigidity in public expenditure was observed which along with the above mentioned factors raised concerns about the sustainability of fiscal policy.All these factors played a major spoilsport and generated doubts about the country’s capacity to finance the growth in the current account deficit for 2009.

The Mexican economy was forced to adjust to a new external environment that was characterised by lower foreign currency revenues with a limited access to external borrowing.