The Mexican & American Economy

Growth has slowed considerably in early 2001 in response to the firmly downturn in the US economy. The stark(a) Domestic Product (GDP) growth in 2001 is gauge to slow to 2%, from 6.9% in 2000. A rebound of growth in 2002 volition depend on an upturn in the U.S. economy and go alongd conventional frugal management. A flatening of financial insurance should enable rising prices to fall to below 7% by the end of 2001. With hopes in 2002 of a except reduction in inflation, provided the peso depreciates gradually.The first year of the make administration, combined both the fiscal and monetary tightening that leave characterize the administration, this bequeath limit GDP growth to exclusively 2% in 2001. A pick-up in growth to 4.5% can be imagine for 2002 as private consumption and export-oriented industrial output rebound with the solution of a turnaround in the US economy. A sharper lag than currently forecast is possible if the US economy goes into recession.A slowing domesticated economy, combined with tight monetary and fiscal policy, pull up stakes vouch that inflation pass overs to fall in 2001-02, although non as quickly as officials spend a penny intentioned. With inflation already at single-digit levels and the peso likely to depreciate during the next year, further large reductions in inflation exit be difficult to achieve. To reach its inflation target of 6.5% for 2001, Banxico will have to tighten monetary policy again following several tightening moves over the olden 12 months. Even considering a relatively tight fiscal famine target ceiling of 0.6% of GDP, year-end inflation will probably be around 7.5% in 2001 and about 5% in 2002. peremptory investor sentiment towards Mexico, fuelled by expectations of an investment upgrade, has resulted in a strengthening of the peso in 2001. However, with the trade deficit widening on the back of the US slowdown and a possible cooling of sentiment towards Mexico, the peso seems bound f or depreciation against the US long horse of much than 10% in extreme during 2001-02. The depreciation would be more bare except for rate cuts by the US Federal Reserve (the US primeval bank), which began in January and are likely to continue during the year in reaction to a slowing US economy.Both exports and consequences will grow at a much slower rate in 2001-02 than in the previous two years, reflecting a slowdown in the US economy as well as in domestic demand. Mexican exporters are facing an invidious environment for their products for the first time since the beginning of NAFTA in 1994. In 2000 growth in the import bill outstripped export wages growth, a trend that will continue into the next year. Were the peso to depreciate more suddenly than currently forecast, export fee growth could trend higher than import growth, resulting in a downward rescript of the forecast for the current-account deficit. If the peso depreciates as expected, the current-account deficit will widen in 2001 and will further expand in 2002.