By Jason Lange
MEXICO CITY, Jan 9 (Reuters) - A slump in Mexico's crucial manufacturing sector will likely worsen as the snowballing U.S. recession hammers demand for exports like cars, televisions and refrigerators.
Factories across the country are cutting workers by the thousand because of falling orders, and sour outlooks for U.S. consumer spending and employment mean the pain might be just beginning, analysts said.
"With the collapse of demand in the U.S., things are going to get really, really nasty," said Eugenio Aleman, a senior economist at Wells Fargo in Minneapolis.
The U.S. economic crisis, triggered by a steep decline in the housing market, is slamming exporters across Asia, Europe and Latin America whose livelihoods depend on big-spending Americans.
In Tijuana, a factory city on Mexico's border with California, output at many electronics plants has plunged by up to 30 percent, said Saul Garcia, the head of the city's association of maquiladoras, or assembly-for-export factories.
Dozens of companies there are slashing workers' hours, and thousands were laid off in 2008, he said.
"We're worried because the worst is yet to come," Garcia said in a telephone interview.
The U.S. economy, which takes in about 80 percent of Mexican exports, is expected to have contracted by more than 5 percent during the last three months of 2008. The decline is widely expected to continue well into this year.
EXPORT POWER
Mexico vaulted into the exporting big leagues after entering the North American Free Trade agreement, or NAFTA, with the United States and Canada in 1994.
Now, with hundreds of factories dotting Mexico's border with the United States, only China and Canada sell more things to Americans. Mexico exported around $211 billion in goods and services to its northern neighbor in 2007, more than four times what it sent in the year before NAFTA came into effect.
Factory jobs in Mexico pay some of the best wages in the country and the sector is a vital motor for economic growth.
A plunge in car sales in the United States is hitting Mexican car and auto parts plants, and Mexico's manufacturing exports fell 7 percent in November from a year earlier.
December is also looking grim for factories, with nearly 100,000 workers cut from manufacturing payrolls in that month alone, sharply higher than the almost 60,000 axed in November, according to labor ministry data released this week.
Mexico's IMEF manufacturing index hit an all-time low in December, pointing to future contraction for a sixth straight month.
Finance Minister Agustin Carstens predicted on Thursday the Mexican economy will not expand at all this year, down from expected growth of around 2 percent in 2008, and many private sector economists are even more pessimistic.
"For Mexico, this is going to be a really tough year," said Gray Newman, an economist at Morgan Stanley in New York who expects the economy to contract 1.5 percent this year. (Editing by James Dalgleish)