united states, which are especially important to cyclical economic activity, mexico ’ s potential long - term economic growth has substantial upside if the nation continues to fortify its fundamentals, which include healthy fiscal finances, low inflation, and a liquid and well - capitalized banking system. its upside potential will also be greater if it promotes pending structural reforms fostering productivity growth and investment. concluding remarks the increasing economic integration of mexico with the united states during the last three decades has benefited both countries significantly. advantages to mexico include greater product specialization and efficiency, and for both nations, a wider variety of goods and services at lower prices. being next to the largest and most diversified economy in the world is a strong advantage for mexico which should not be underestimated. recently, international financial instability has affected mexico mainly through substantial currency depreciation, similar to that experienced by other emerging market currencies, and, to a lesser extent, through slightly higher interest rates. meanwhile, the mexican economy has continued a recovery process which has included more moderate growth in the industrial sector, mainly reflecting slower exports to the united states. mexico ’ s economic outlook remains dependent on the strength of the u. s. economy, but long - term upside potential can be realized if mexico ’ s fundamentals are strengthened, and pending structural reforms approved. finally, monetary policy will continue to be consistent with preserving the convergence of inflation to the permanent 3 percent target. bis central bankers ’ speeches

may be sensible if it is the result of a natural market evolution, it becomes risky if it implies the application of policy measures that introduce distortions and inefficiency. some diversification of mexico ’ s trade and investment relations may continue to occur as a natural outcome of more global trade opening and better transport and communications possibilities. however, being next to the largest and most diversified economy of the world is a strong advantage that should not be artificially limited. financial volatility and economic rebound since the end of august 2011, international financial markets have been buffeted by heightened risk aversion and a generalized flight to quality resulting from the perceived worsening of the financial and fiscal problems in the euro area and, to a lesser extent, the fear of another recession in the united states. the general result has been a tendency toward volatility and lower asset prices in many stock, bond and currency markets. in the case of mexico, the most notable financial impact has been increased instability and substantial depreciation of the mexican peso against the u. s. dollar. from the end of august to the end of november 2011, mexican peso depreciation reached more than 10 percent, a rate that is similar to that experienced by other currencies, such as the new zealand dollar and the brazilian real. against the backdrop of widespread risk aversion, very few currencies other than the u. s. dollar have played the role of safe havens. kehoe and ruhl ( 2010 ) demonstrate that welfare from foreign trade in mexico has increased more than the real gdp data indicate. see kehoe, t. j. and k. j. ruhl, ( 2010 ), “ why have economic reforms in mexico not generated growth ”, journal of economic literature 48 ( 4 ) : 1005 – 1027. as a proportion of mexico ’ s total exports, exports to the united states rose from 56. 4 percent in 1982 to almost 90 percent in 2000, but fell to about 80 percent in 2010. magee ( 2008 ) shows that in the case of nafta and other regional trade agreements, trade creation considerably surpasses any trade diversion. see magee, c. s. p, ( 2008 ), “ new measures of trade creation and trade diversion ”, journal of international economics 75 : 349 – 362. bis central bankers ’ speeches the international financial turbulence has also negatively affected the peso bond market, although to a much lesser degree