The never-ending year lurches on in Mexico. Verano becomes otoño, drug violence headlines become H1N1 headlines. Good news is Mexico has a track record of ably handling the pandemic. Bad news is upwards of 5 million in Mexico are expected to contract the infamous strand of influenza this winter. Perhaps 2,000 could die as a result. Already this month there have been as many as 483 diagnosed in one day, eclipsing April’s peak.

With such a scale, Mexico may face challenges it did not have in April. Last week 3,000 schools closed as a result of H1N1. That number quickly dropped to just over 100, and Education Secretary Alonso Lujambio recently told senators that the government is working out criteria for future school closings. Government officials are hinting that mass closings are unlikely, and given past management of the crisis their word should be taken. Solace comes from preparation and what the CDC terms a “lucky break.” Flu shots are not expected until October, but so far the virus shows no signs of mutating, meaning the antidote should match the poison. Will rural hospitals get their hands on ample stocks? This time around distribution, not diagnosis, is likely to be the measuring stick by which the Mexican government’s response is judged.

The cliff diving Mecca of Acapulco has come to symbolize Mexico’s ailing economy. The sheer cliffs of La Quebrada are famous for the professional divers who hurl themselves over the 140-plus foot cliffs. If they time the waves wrong, they can go splat. Tourists can watch the spectacle from a nearby restaurant carved into the side of one of the cliffs. They are still diving, but with fewer onlookers at the restaurant, the risk seems less worthwhile.

Tourism is Mexico’s third-largest source of revenue and given recession in the US, ongoing drug violence, and fears of swine flu, the industry is convulsing. Revenues are down 40%. The other pillars of the economy, remittances and oil, aren’t faring much better.

The second quarter of 2009 saw a 10.3% drop in GDP over the same period last year. Mexico’s economy is expected to contract by 7% this year, according to forecasts. Believe it or not, this isn’t the worst-case scenario. Had first quarter figures stayed on track, the economy would have contracted by 20% this year. But the question remains: When will the economy rebound?

Some already see light at the end of the tunnel. Once the US economy rebounds, so the thinking goes, the Mexican economy will revive. On August 20, Deputy Finance Minister Alejandro Werner told the Wall Street Journal the economy probably hit bottom in June and growth will resume in the next quarter. Moody’s Economy.com states that Mexico “will possibly be leaving recession by the end of the third quarter.”

I am less optimistic. After a promising respite, cartel killings have resurged throughout Mexico. The country is bracing for the imminent return of H1N1, unsure if Tamiflu will provide succor. (Immunization requires two shots spaced a month apart. Emerging evidence indicates the poor are not leaving work for the second shot.) PEMEX, Mexico’s state-owned oil company, provides nearly 40% of the state’s tax revenue, but its production has been decreasing since 2004. In July, output was reported to have fallen by almost 8% in the previous year, marking the steepest drop since 1942. The company is so inefficient it requires oil prices above $70/barrel to operate in the black. Finally, most businesses can only access loans at high rates, dousing any hope for strong domestic demand to take up some of the slack once the US turnaround picks up steam.

In Acapulco, irreverence has faded. As the busy season winds down, there are few concrete signs of a rebound in the near term. Maybe the Spring Break crowd will return in force next year. Maybe cruise lines and air carriers will begin operating closer to capacity in the months ahead, bringing weekenders from the US who are eager prove their patriotism by being spendthrifts in Mexico once more. Maybe. Until then, the Mexican economy is hurtling off a cliff.

Normality is returning to Mexico City. Unfortunately, the Mexican economy is not. The economy is clearly beginning to lag, which has enormous implications for public finances and employment. The Ministry of Finance has just revealed that federal income has decreased while government expenditures have increased. This cannot be good for the national debt. It seems that the H1N1 virus turned out to be less harmful for the country than the international financial crisis.

Apparently, the outbreak of the H1N1 was effectively managed. This does not mean that the dozens of deaths were meaningless, that tourism was not affected, or that the stress in Sino-Mexican relations will soon be forgotten. In spite of this, it seems that the federal government did avoid a major health incident. Although the country did not have a vaccine for the social effects of the outbreak, it controlled it and now things are beginning to return to normality.

The Mexican economy, however, did get a vaccine against the effects of the financial crisis—a loan from the IMF. Yet, the economy has been hardly hit and only a long and painful treatment will be able to get Mexico back in shape. But how did a healthy economy manage to get so sick? Well, maybe the economy was not doing that well in the first place. Remember the reduction in remittances and the weak peso of October 2008? It is unfortunate that the IMF loan was only approved in April 2009. By then, the Mexican economy was already infected.

The schools are closed. Soccer matches are played in empty stadiums and movie theaters have closed their doors. There are no public events and it is no longer possible to have lunch in a restaurant. The army has been giving out masks out on the streets. Shopping malls are nearly empty, as well as the hallways of supermarkets. This is life in Mexico City.

The outbreak of the swine flu has left the city paralyzed and the country closely monitored by its neighbors and international organizations. Countries around the globe are considering canceling flights to Mexico. Tourism has already dropped: who would go to a country hit by a deadly virus? This will not help the Mexican economy.

The Mexican government seems to be on top of things. Indeed, the number of suspected cases of the virus decreases day by day. However, a city of more than 24 million people cannot leave on takeouts and children need to go to school. The question everybody in Mexico City is asking is when will this be over? More importantly, how will the country recover from the economic and social consequences of the outbreak? Only time will tell.