The current economic slowdown may soon run its course, but recovery is likely to remain subdued with that of external demand so that real GDP growth drops from almost 9 percent in 2000 to 3 percent this year and firms only moderately to 4 percent next year. Sharply increased debt and debt-servicing costs since the February financial crisis have severely complicated economic management. The softening in economic activity over the past year is likely to be halted by tax cuts, lower interest rates and improved agricultural performance, but lingering structural impediments and a more moderate export performance suggest that real GDP growth will remain around 5 percent this year and next. Jun 2001 Prudent macroeconomic policy in recent years has provided the underpinnings for domestic and external economic stability. However, unemployment remains high and the achievement of substantially faster growth has proved elusive.
Prospects continue to be constrained by low domestic saving and weak foreign investment inflows.
Popular support in the May elections for congressional representatives aligned with President Gloria Macapagal-Arroyo has helped stabilize political conditions disrupted by the leadership transition earlier in the year. Widespread dislocations created by mismanagement and neglect of the Estrada administration, however, are likely to impede growth over the near term. The government has again turned to expansionary fiscal measures to counter the abrupt slowdown caused by the drop-off in exports, but the current policy mix and renewed weakness in the neighboring currencies risk reinforcing rising market expectations for a realignment of the exchange rate peg. Jun 2001 Growth is declining sharply this year from last year's high rate as monetary and fiscal policies tighten and the U.S. economy slows The Fox Administration is pursuing fiscal reform, which, if implemented, will help to reduce Mexico's vulnerability to declining oil prices, financial contagion from Argentina, and the U.S. slowdown. An eroding trade balance and contagion from Argentina have put pressure on the exchange rate, worsening inflation prospects and inducing monetary tightening.