Mexico economy contracts record 10.3 pct in 2nd qtr

In this article, the author describes an outrageously big contraction of the Mexico economy, which is expected to reach seven percent for this year. The important thing to notice is that a major part of this decline is attributed to the economic downturn in the United States. 80% of Mexican exports go to the United States, where the demand for goods manufactures in Mexico is low right now.

More importantly, according to the author, the shift in spending pattern of the Americans towards saving, can fundamentally affect Mexican economy in the future. It is worth mentioning, that this interdependence exists due to the NAFTA, which is an agreement signed by the US, Mexico, and Canada. The agreement has as its ultimate goal the elimination of trade and investment barriers among the three countries.

The question is, whether the described situation can be regarded as one of the market-based economy failures. I think that such severe susceptibility to outside changes can be regarded as one of the drawback of the market economy, as it encourages free flow of goods, services, and investment, which, in turn, prompted Mexico to sign NAFTA. However, at the same time an uplift in the Mexican economy can be attributed to the same connection with the US economy, which brings us to another market economy drawback, which is susceptibility to business cycles.