united states. as central banks in these regions are navigating unchartered waters, the consequences are impossible to predict. meanwhile, portfolios have been adjusted away from emerging markets, with lower capital inflows and even outflows in some cases. asset prices, at the same time, including those of emerging market bonds and currencies, have seen downward pressure. 4 also, spikes in financial volatility have hit amid geopolitical jitters, including fears over brexit. these developments reflect tensions and headwinds against emerging markets, testing the strength of their fundamentals. in mexico, the unprecedented shrinkage of the oil balance has resulted in a larger current account deficit. this gap still remains, however, only slightly below 3 percent of gdp. for an econometric estimation of the effects of u. s. manufacturing production and the bilateral real exchange rate on mexico ’ s manufacturing exports to that country, see banco de mexico ( 2016 ). quarterly report october – december 2015, box 1. analysts ’ estimates for gdp in latin america and mexico are, respectively, – 0. 6 and 2. 4 percent in 2016, and 2. 0 and 2. 8 percent in 2017. see consensus economics inc. ( 2016 ). “ latin american consensus forecasts, ” may. for an online progress report of mexico ’ s structural reforms, see presidencia de la republica, reformas en accion, http : / / reformas. gob. mx /. see koepke, r. and farnham, s. ( 2016 ). “ may 2016 em portfolio flows tracker, ” institute of international finance, june. bis central bankers ’ speeches the enlargement of the current account deficit has caught the attention of many observers, perhaps not so much because of the sheer magnitude of the total balance, but likely because of the underlying trends, which may eventually trigger external financing restrictions. this type of concern should not be neglected, and must be properly assessed. one fact is precisely the weakening of the oil trade balance, reflecting lower extraction and a significant deterioration of the oil terms of trade. a second is that the other component, the nonoil balance, has been improving, partly aided by real exchange rate depreciation. nevertheless, this performance has not been sufficient to completely offset trends in the oil balance. in a word, recent less favorable balance - of - payments developments reflect mexico ’ s oil situation. to preclude the

and upcoming electoral processes, both in advanced and emerging market economies, given their potential implications for global economic integration. as per some measures, economic policy uncertainty has continuously increased during 2018, although it is still below the historical maximum reached in 2016. 6 going forward, there is little doubt that external financial conditions faced by emdes are set to tighten further. obviously, projections for capital flows to these countries in the next couple of years are subject to a lot of uncertainty. however, recent estimates by the imf provide an idea of the challenges faced. according to this institution, portfolio inflows to emerging markets would decline by about usd 40 billion on average per year over 2018 - 2019 under a smooth fed normalization scenario, and by up to usd 60 billion if policy tightening were to be accompanied by a rise in risk aversion. 7 kutlina - dimitrova, z., and c. lakatos ( 2017 ) : “ the global costs of protectionism ”, world bank policy research working paper no. 8277, december. world bank ( 2018 ) : global economic prospects, june. this and other related indexes can be obtained from : http : / / www. policyuncertainty. com /. international monetary fund ( 2018 ) : global financial stability report, april. naturally, a substantial degree of heterogeneity underlies these projections, as global investors can be expected to differentiate amongst individual countries depending on the strength of their economic fundamentals. indeed, a number of emdes took advantage of benign conditions in international financial markets to move in this direction. however, it is also true that even for these economies the outlook may prove to be challenging in view of the following : a decompression of term premia in the united states may have important global ramifications, given their close correlation with those in other major advanced economies. a significant overvaluation of risky assets across a wide spectrum of market segments is observed. recent structural changes and rapid growth in the asset management industry may be leading to an underpricing of liquidity risks, increased interconnectedness and, in general, accentuate financial stability challenges. crossover investors not specialized in emerging economies have enlarged their presence in the markets for these countries ’ instruments, thereby increasing the potential for wide fluctuations in these assets ’ prices. for the already noted reasons, the balance of risks for the world economy is clearly tilted to the downside, especially in the medium and long terms