'Only after an economic recovery in the United States, probably in the fourth quarter, do we expect the economy to grow at higher rates again.'

Mexico's economy has run out of steam, largely because the US economic engine has stopped humming.

'Mexico is highly dependent on the US economy. More than 85 per cent of Mexican exports go to the US,' Dr Mewes said.

'The economic slowdown in the United States is the most important factor in the declining growth in Mexico. After two quarters of negative growth, Mexico is in a technical recession.'

As productive activity falls and exports dip, Banco Nacional de Mexico (Banamex), is also revising its forecast downward by 1 percentage point. The bank had earlier forecast 1.8 per cent growth for the year.

While export values have fallen as a result of lower oil revenues, Banamex analyst Arturo Vierya, points out that 'the export recovery will take place in the last quarter of this year'.

Imports also declined as capital goods and consumer goods imports fell. This has led to a shrinking trade balance.

The decline in manufacturing, as a result of the export slowdown in the first half, also triggered job losses caused by the slowdown in foreign trade, which has been affected by external factors.

'Nearly all export-oriented sectors are suffering from lower US demand,' Dr Mewes said, noting that the most affected were 'industries in the Maquiladora area with close links to the American market'. Maquiladoras are the foreign-owned (mostly US) assembly plants along the Mexico-US border.

'A main problem is the lack of export diversification in geographical terms. Mexico needs to find other export markets in Asia and Europe to reduce the dependence on one market. A free trade agreement signed with the European Union last year will offer opportunities to develop new markets for Mexican products.'

But seen in the global context, Banamex, notes that 'lower sales to the US market compare favourably with those registered by some Southeast Asian countries'.

Other external factors, such as the financial turbulence in Argentina, have not dented Mexico's economic appeal. Dresdner Bank Lateinamerika's Dr Mewes is forecasting greater inflows of foreign investment.

'Mexico is a very attractive destination for foreign direct investment. Nafta membership makes it possible to produce at low cost in Mexico and export to the US and Canada,' Dr Mewes said.

'Positive economic developments are reflected in higher inflows of foreign direct investments. Capital inflows will increase to US$20 billion this year, compared with US$13 billion in 2000. Companies from the US and Europe are the most important investors in the Mexican economy.'

The UN Economic Commission for Latin America, said a few months ago that Mexico and Brazil received more than half the total investment into Latin America last year, with Brazil receiving US$30 million and Mexico US$13 million.

This, during a period when investment into Latin America fell by 20 per cent to US$74 billion from US$99 billion in 1999.

And while Argentina was reeling from a crisis, Mexico came to be viewed as a haven for capital. Banamex says the uncertainty turned 'Mexico into a regional oasis for foreign capital'.

Considering Mexico's political and macro-economic stability, economists say the slowdown has not diminished the country's long-term growth prospects.

President Vicente Fox said recently, that Mexico is ready 'to embark on growth once the world economy starts its recovery'.

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