Crisis and Recovery in the Mexican Economy: The Role of the Capital Goods Sector

Abstract

Since the beginning of 1982, the Mexican economy has been subject to a severe crisis, which because of Mexico’s very large debt continues to have world-wide repercussions. Between 1977 and 1981 the country’s g.d.p. had expanded at an extraordinary rate of 8 to 9 per cent per annum; however, in 1982, the g.d.p. fell by 1 per cent, and in 1983 it contracted further by 5 per cent. Since the floating of the peso in February 1982, the peso-dollar exchange rate has depreciated to nearly a seventh of its value; the annual rate of inflation had soared from less than 30 per cent in 1981 to about 100 per cent in the first half of 1983. As implied by the size of the fall in g.d.p., there has been a huge increase in unemployment and an enormous under-utilisation of industrial capacity. In 1983, real wages in industry are estimated to have fallen by 25 per cent.