What did Mexico and Canada Do for Recovering
from the 2008-2009 Crisis?

Photo: ECLAC

As partners and neighbors of the United States, Mexico and Canada tackled the 2008-2009 international crisis and recession by implementing countercyclical policies. But why was the recession in Mexico more severe and the recovery quicker? The answer can be found in the document Estudio comparativo de las economías de Canadá y México en el período 1994-2011 (Comparative Study of the Economies of Canada and Mexico for the period between 1994-2011) by Jaime Ros, consultant at the Economic Development Unit of the Economic Commission for Latin America and the Caribbean (ECLAC).

The most recent document published by the ECLAC's Subregional Headquarters in Mexico acknowledges the fact that the smaller partners of the North American Free Trade Agreement (NAFTA) show unequal economic development levels, although they share a privileged trade relationship with the United States. These two facts determined the way each country faced and recovered from the crisis.

Before 2009, the Canadian and Mexican economies shared features such as having financial institutions that were less exposed to high-risk credit markets; national debt was relatively low in proportion to the gross domestic product (GDP); and both countries had a good fiscal situation. As a negative point, both economies are strongly linked to the American economy, the epicenter of the crisis. For instance, 80% of Mexican exports and 77% of Canadian exports were targeted to the United States in 2008.

"Given these common features, it is important to highlight both economies' differentiated performance during the crisis, which showed that the recession was more severe in Mexico – GDP having decreased by 6.1% in 2009 – than in Canada, where GDP fell by only 2.5%, one of the lowest among the Organisation for Economic Co-operation and Development (OECD) members, where the average fall was 3.5%."

Another effect was a lower net flow of Mexican immigrants to the United States, which resulted in a decrease of remittances amounting to US$4 billion between 2008 and 2010.

To tackle the crisis, Canada and Mexico took fiscal policy actions. "The fiscal stimulation package was more significant in Canada than in Mexico (4.1% against 1.3% of the GDP). Likewise, the interest rate reduction was also more pronounced in Canada," reads the comparative study.

"While the crisis was more severe in Mexico than in Canada due to a more determined implementation of countercyclical policies in the latter, recovery was quicker in Mexico. This can be attributed to the dynamic behavior of its exports, contrasting with the slow expansion of Canadian exports," states the study.

As a result, when comparing the Canadian and Mexican GDPs in the third quarter of 2011 with the first quarter in 2008, both economies were exactly in the same situation, with GDPs approximately 2% higher than before the crisis (see diagram).

Diagram

Recovery from the Crisis
GDP of Canada and Mexico, I-2008/III-2011
(Rates based on I-2008 = 100)

Source: Created by ECLAC with data from the INEGI Economic Databank, for Mexican figures, and Statistics Canada CANSIM, for Canadian figures.

Note: In the case of Mexico, a quarter-over-quarter, seasonally adjusted GDP series built on constant prices from 2003 was used. For Canada, figures were based on a seasonally adjusted GDP series built on constant prices from 2002.