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article imageMexican economy to bounce back fast from quake: analysts

By Yussel GONZALEZ (AFP)     Sep 29, 2017 in World

The earthquake that turned huge swathes of Mexico City into a disaster zone last week took a toll on the country's economy, but analysts say it will bounce back fast when rebuilding starts.

The teeming city of 20 million people ground to an eerie halt after the September 19 quake, which killed more than 340 people across five states and the capital.

The earthquake caused some $2 billion in damage, together with an earlier quake this month, according to the Mexican government.

That will inevitably stunt the growth of Latin America's second-largest economy for the third quarter. Private bank Cristianamente predicts GDP will shrink by 0.35 percent.

But the downturn will be short-lived, economists say.

Ironically, natural disasters such as earthquakes and hurricanes are often followed by an economic uptick in the medium term, as money pours into reconstruction and creates jobs.

"There will be a very short-term (negative) impact. But in general economic activity is already returning to normal," said economist Rafael Camarena of Santander bank, who has kept his growth forecast for the Mexican economy at 2.5 percent for 2017.

The government has $500 million in an emergency relief fund, and President Enrique Pena Nieto has pledged money and special low-interest loans for rebuilding.

"While it's hardly a crumb of comfort at this time, the reconstruction effort should help the economy to regain some of its lost output over the final months of the year," said the consultancy Capital Economics.

Mexico City, whose rubble-strewn streets looked like the set of a post-apocalyptic movie after the 7.1-magnitude quake, is slowly returning to its usual bustle.

"We don't have many customers, but we're here, working. Let's just hope there are no more earthquakes or hurricanes," said restaurant employee Fernando Flores in the trendy but hard-hit Roma neighborhood.

- Not 1985 -

Children whose homes were seriously damaged by the September 19 quake play in a street turned into a...
Children whose homes were seriously damaged by the September 19 quake play in a street turned into an improvised shelter in Mexico City
PEDRO PARDO, AFP

The earthquake hit on the anniversary of another one in 1985 that killed more than 10,000 people and caused GDP to plunge by an estimated 2.39 percent.

Many Mexicans worry the economic chaos will repeat itself.

But analysts downplayed that fear.

"Mexico's public finances are a lot stronger than what they were in 1985 and it is expected that it will be able to absorb the shock relatively well," said Eurasia Group.

One key sector may take a hit, however: tourism, which accounts for 8.7 percent of the economy.

Mexico City's tourist-magnet neighborhoods of Roma and Condesa were devastated by the quake, and many foreigners canceled trips in the aftermath. Reservations fell by 50 percent, according to travel agencies.

"We've had a lot of cancellations," said Erick Vargas, front desk manager at one hotel that lost some 300 confirmed nights and nearly $40,000.

- Insurance? What insurance? -

These are uncertain times for the Mexican economy, which is heavily dependent on the United States -- the destination for 80 percent of its exports.

US President Donald Trump's insistence on overhauling the trade agreement between the two countries and Canada is causing jitters in Mexico, which he accuses of taking American jobs.

The sense of uncertainty now hits much closer to home for the many Mexicans who lost homes in the earthquake and had no insurance.

Mexicans often ignore the need for insurance until it's too late, said Sergio Betanzos, a broker.

He received hundreds of calls after the quake, mostly from people looking to take out new home insurance policies.

"We think of buying insurance at the moment when we have the emergency," he told AFP.

Despite the fact that Mexico is earthquake- and hurricane-prone, just five percent of homes are insured, according to industry figures.

The latest disaster may cause an upturn -- at least temporarily.

"After Hurricane Wilma (in 2005), at first there was a surge" in people buying insurance, said claims director Luis Alvarez of the Mexican Association of Insurance Institutions.

"After they see what can happen, people try to protect themselves," he told AFP.

"But then, four or five years later, that awareness dies down again."

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