Mexico's economic recovery broadens

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Page 5

After three years of weak activity,Mexico's economic recovery strengthened and became more broadly based in the first half of 2004, with real growth picking up to 3.8 percent at an annual rate. Real GDP grew only 1.3 percent in 2003 and 0.6 percent in 2002.

Business confidence and investment have risen, foreign direct investment inflows have strengthened, exports have picked up sharply, market perceptions of Mexico have remained favorable, and modernization of the financial sector-which shows healthy balance sheets-has continued, according to the IMF's annual economic assessment.

On a 12-month basis, consumer price inflation rose to 5.1 percent in September 2004 compared with 4 percent at end-2003, boosted by supply shocks, including higher oil and commodity prices. The IMF's Executive Board said Mexico needed to enhance economic performance on a lasting basis by bringing inflation down to the medium-term objective of 3 percent, reducing debt vulnerabilities, and reinvigorating structural reforms. But the Board noted that achieving the medium-term inflation target- which is close to being met-is problematic in an environment of repeated price shocks, and thus viewed the recent monetary tightening...