“Following a sharp decline in 2009, output growth has rebounded strongly, attesting to Mexicos strong fundamentals and skillful policy making. Strong exports are leading the recovery, with a rebound in domestic demand sustaining the momentum. Strong growth is envisaged to continue this year and into 2012, bringing output in line with potential, amid benign domestic inflationary conditions. Presidential elections will take place in July 2012, with the new government in office in December. Risks: Important downside risks persist, linked to the global outlook. A more protracted slowdown in the U.S. would be a material drag to Mexicos growth, given its close integration with the U.S. economy. Although the direct impact from unsettled market conditions in Europe would remain contained (with the bank channel considered to be well ring-fenced), a surge in global risk aversion and generalized flight to quality could affect even strong sovereign credits, like Mexicos.”
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