Not Fooling Anyone

In a brief note that was presumably supposed to show the good side of the peso's recent weakness (cheaper Mexican goods on the world market), the final paragraph offers an irrefutable rebuttal: despite the fact that they would be almost 50 percent cheaper to Americans than last year, Mexican clothing exports to their northern neighbor in January were down 16.5 percent from 2008. 

Last week, Agustín Carstens, dismissing the six-month-long slide, said that the peso is undervalued, and implied that it should bounce back up before too long. But if American consumption is to remain low indefinitely, maybe the peso isn't undervalued. Who else is going to be buying all sorts of Mexican exports, and what would those exports be? It's hard to imagine auto-part production growing. Oil prices are going to remain low, and Mexican production is dwindling in any event. Americans will still buy Mexican food exports, but items with more elastic demand? The noise about tourism has been mixed in recent months, but given an international economic climate that is increasingly hostile in developed (read: tourist-producing) nations, tourism alone won't be enough to prop up the peso. I need to speak with someone with more expertise on the matter, but it seems like the benefits of a weaker currency are still a long way off for Mexico.