Americas: Economy & trade.

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An export-led recovery is being hit by events in Asia. While so far having weathered the worst of the Asian financial crisis, Mexico's reliance on maquiladora exports is compromising trade and investment prospects this year. As a result, the trade miracle which resuscitated the economy--despite an absence of domestic credit and only a minor recovery in domestic demand-- is now showing signs of failing.

After a nearly three-year string of monthly trade surpluses, the trade balance turned negative in late 1997. The country still managed to post a small $624m surplus for the year, but the EIU expects a deficit of $5.2bn in 1998. Events in Asia, which have resulted in reductions of as much as 75% in labour costs, are a clear threat to Mexico's maquiladora industry.

The first effects of the Asian devaluation are being felt in the textile and garment industries, on which the government pinned its hopes for large-scale job creation in the export industry. Local suppliers of textiles say some Asian producers are under-pricing them by 20-30%. Footwear-- another labour-intensive industry--is sure to suffer as well. With imports rising 22.7% in 1997 and exports only 15%, Mexico will soon face current account problems too.