Economic growth here is expected to slow to approximately 4% over the next two years, after the country posted a solid 5.4% increase during the first
six months of 1998, President Ernesto Zedillo announced in his state of the nation address this week.
The peso has weakened - depreciating 25% in a matter of weeks - and interest rates have shot up. The fundamentals of the economy are intact, but Mexico is suffering from a lack of differentiation among emerging markets, government officials said.
Mexico suffered the worst recession in its modern history after a botched devaluation of the peso in December 1995, yet it was in the middle of a recovery. If current high interest rates persist, the economy will suffer structural damage, Finance Minister Jose Angel Gurria acknowledged.
Imports of consumer goods - which had been growing at a steady pace - are now expected to decline. Consumers may pull back on spending, particularly of big-ticket items if already tight credit is squeezed further.
The effect on ad spend is not yet clear. Broadcasters Televisa and TV Azteca will soon begin to negotiate upfront ad spend for 1999. One pan-Latin American ad executive says he has yet to see any reining in of overall investments by his clients, but that some are holding back on marketing efforts. "They want to wait and see like everyone else," he says.
Televisa's CEO Emilio Azcarraga Jean says his company will be affected by lower programming sales to Asia and lower revenue from some of their reciprocal agreements with other broadcasters, according to local press reports.
Copyright September 1998, Crain Communications Inc.