President Felipe Calderon says there are signs Mexico's economy is heading toward recovery following the worst quarterly contraction since comparable record-keeping began in 1981.

Calderon says the recovery "will be slow but positive for Mexico."

In a televised addressed Tuesday, he said "there is initial data, still insufficient but very encouraging," that the economy will expand again.

Anemic growth

As the worldwide recession was unfolding, Mexico's economy was hit especially hard by the swine flu outbreak. After Mexico was identified as the source of the outbreak, the tourism sector dried up. Hotel occupancy rates were cut in half, and many airlines cancelled flights to the country.

The government unveiled a $1.5 billion package to stimulate the key economic sector. The government in the capital city even offered free health insurance to all travelers.

The Mexican economy has lost the equivalent of $2.59 billion on account of the swine flu outbreak, the finance minister said in May.

That, coupled with Mexico's heavy dependence on a wobbly U.S. economy, combined to make Mexico's gross domestic product shrink 10.3 per cent in the second quarter.

The central bank predicts a full-year decline of between 6.5 per cent and 7.5 per cent for 2009, while the Treasury department forecasts a 5.5 per cent decrease.

With files from The Associated Press