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From Stratfor

Mexico Braces for Hurricane Patricia

Summary

Hurricane Patricia poses a threat to trade, tourism and security on Mexico's west coast. Landfall is imminent for the hurricane, a Category 5 storm, which will hit the west coast of Mexico's Jalisco state and then head northward. Evacuations are underway along the coast, and Mexican authorities have declared a state of emergency for 56 municipalities in the storm's path in Colima, Nayarit and Jalisco states. The storm not only threatens life and property in its path, it also bears major economic consequences for Mexico and tangentially for the United States.

Analysis

Hurricane Patricia is the strongest storm recorded by the National Hurricane Center, with maximum sustained winds of 200 mph and a minimum central pressure of 880 millibars, the lowest ever recorded in the Atlantic and eastern North Pacific basins.

According to academic studies of thousands of tropical cyclones, Hurricane Patricia has the potential to cause enough damage to reduce Mexico's projected GDP per capita by as much as 15 percent during the next several decades. Other models predict slightly less of an impact, with a decrease from the projected per capita income of more than 7 percent. Besides the immediate effects on trade and tourism, rebuilding will take time and divert investment from other areas.

However, storm strength is not the only factor to consider; where the storm hits and how fast it dissipates could affect its destructiveness. For example, Hurricane Katrina was not the most intense hurricane to make landfall on the U.S. Gulf Coast, but it was the most costly. Hurricane Patricia, on the other hand, is expected to encounter very mountainous terrain after landfall, which could weaken it more quickly.

The population center of Guadalajara and the port of Manzanillo will be affected by the storm. If the storm remains on its current path, it will not hit Manzanillo directly, but given the size of the storm the port may still be impacted. Any prolonged closure or reduction in operations there would seriously affect the supply chain not only for Mexico but also parts of the United States. Manzanillo connects directly to the United States via rail and accounts for nearly 50 percent of containerized traffic entering Mexico. It is also a vital port for imports from Asia. If Manzanillo is forced to close or reduce operations, the port of Lazaro Cardenas to the southwest could become more congested, or both could lose traffic to U.S. ports.

Manzanillo is more than a major intermodal trade hub — several industries have sizeable facilities at the port and in the general path of the storm. The complex itself has a number of warehouses, food canning and seafood operations. Major building materials company CEMEX has cement production plants in the region. Holcim Mexico, another cement manufacturer, also has large operations in Colima state near the port. Mexico's largest iron mine, Pena Colorada, is located nearby and has processing facilities at the port. Flooding in the area could halt production at the open pit iron mine.

Most of Mexico's auto manufacturing plants are inland, but Honda has a production facility in Jalisco state. Beyond the possibility of damage at the Honda plant, the entire auto manufacturing industry in Mexico would be vulnerable to disruptions in the supply of material traveling through the Manzanillo port.

Puerto Vallarta is the main tourist destination in the storm's path. When Hurricane Kenna hit near Puerto Vallarta in 2002, the storm surge caused $100 million in damages to resorts and surrounding towns. Hurricane Patricia is certain to damage facilities in Puerto Vallarta and lead to many canceled vacations, putting a dent in Mexico's tourism industry.

Mexico's security forces are already stretched thin. Authorities in the states of Guerrero, Michoacan and Oaxaca already have their hands full with security problems, and adding a major natural disaster will not help. But whatever the consequences, Mexico has already deployed troops to the area in preparation for the storm.