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Dallas Fed examines Texas economy, federal budget, the telecommunications sector and Mexican banking

For immediate release: January 30, 2002

DALLAS—The latest issue of the Federal Reserve Bank of Dallas Southwest Economy examines the Texas economy and the federal budget outlook. It also evaluates the weakened telecommunications sector and Mexican banking.

In "The Unsinkable Texas Economy Takes on Water," Dallas Fed economist Fiona Sigalla reveals that the Texas economy weakened significantly in 2001 and possibly entered into a recession. Texas has a history of strong employment growth, but the U.S. and Mexican recessions, falling energy prices and sharp cutbacks in high technology have dragged down the Texas economy. She suggests that Texas has likely been pulled into a very mild recession but concludes that despite a sharp drop in the Texas Leading Index, at worst, a Texas recession will be less than half as bad as the recessions of the 1980s.

In "The Federal Budget: What a Difference a Year Makes, " senior economist and policy advisor Alan D. Viard looks at three major events that transformed the federal budget outlook in 2001: a broad-based tax cut, a recession and the response to the Sept. 11 terrorist attacks. He notes that resources were shifted away from debt repayment and preparation for long-term needs and toward meeting current needs, particularly tax relief, economic recovery and the battle against terrorism.

Associate economist John Thompson writes that the telecom sector has been greatly affected by the economic downturn in "Is Telecom Disconnected or Just on Hold." Thompson asserts that the industry is still suffering from glutted capacity and burdensome corporate debt, and the downturn has caused widespread credit rating downgrades and some bankruptcies. The terrorist attacks hit the telecom sector with a short-term blow, but much of the fallout was simply an erasing of excesses in the system. Thompson concludes that even in the downturn, Texas is poised to remain a leader in telecommunications because of its competitive business environment, supply of skilled workers and infrastructure.

Finally, international financial analysts Robert V. Bubel and Edward C. Skelton examine globalization in Mexican banking. In "Financial Globalization: Manna or Menace? The Case of Mexican Banking," they note that Mexico is now the largest economy in the world with such widespread foreign ownership of the banking industry. Almost 80 percent of Mexican commercial bank assets are controlled by foreign financial institutions. Thus, the country provides a fertile testing ground for assessing the arguments for and against financial globalization. Although Mexican banks have yet to realize the full benefits of globalization, the writers conclude that the early signs are positive.

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Media contact:
James Hoard
Phone: (214) 922-5307
e-mail: james.hoard@dal.frb.org