absorber - and sporadic interventions in the foreign exchange market, monetary policy has been supported by other policy tools. the strengthening of fiscal policy in recent years has been of crucial importance, given the pernicious effects that weak fiscal positions can have on inflation expectations, interest rates and the exchange rate. efforts spanning over several decades to strengthen the financial system have also been instrumental, as the latter has allowed an efficient transmission mechanism for monetary policy and a sharp increase in interest rates without significant adverse side effects on banks or other financial institutions. despite the fact that some ground still needs to be covered on the road to bringing inflation back to target, and the remaining important risks, the results obtained thus far are encouraging, especially in light of the magnitude of the shocks that have affected our economy. inflation has been on a downward trajectory over the course of 2018, with headline figures falling from 6. 77 percent at the end of 2017 to 4. 65 in june of this year, consistent with the banco de mexico ’ s projections. furthermore, long - term inflation expectations have remained stable, although at around 3. 5 percent. on the other hand, the recent materialization of some upside risks may imply a revision of the period over which inflation is expected to converge to the 3 percent target. it is worthwhile to highlight that economic activity has not been significantly see banco de mexico ( 2018 ) : “ banco de mexico modifies its monetary policy communication strategy ”, press release, 30 april. affected by the monetary policy stance, as evidenced by the 33 consecutive quarters of positive annual gdp growth recorded as of early - 2018, and expectations of an output gap around zero during this year and the next. to conclude, let me say a few words about nafta, that may contribute to understand why this is at present one of the main sources of uncertainty for the mexican economy. even though the economic integration of the mexican, canadian and us economies had been underway well in advance of the enacting of this agreement in 1994, and while some have argued that said process would have continued even in absence of nafta, 7 the key role it has played in the acceleration, deepening and widening of the linkages among its member countries over the nearly 25 years it has been active is indisputable. naturally, the main channel through which nafta has boosted the region ’ s integration has been trade. in fact, by 2017, the value of merchandise traded between the three member countries had nearly quadrupled

relative to the levels registered in 1993, while bilateral trade between mexico and the united states showed a six - fold increase during the same period. in light of the above, it comes as no surprise that, with an 80 percent share of the total, the united states is the main destination for mexico ’ s exports, while mexico is the second largest foreign market for us goods, surpassed only by canada. taken together, us exports to both mexico and canada amount to over one third of that country ’ s shipments to the rest of the world. notwithstanding the breadth of the us - mexico trade relationship that may be depicted by the above figures, a more detailed look at the data reveals some additional features that are worth highlighting. mexico is among the top 2 export destinations for 27 us states, a figure similar to that of the states that count mexico as one of their 3 main sources of imports. texas, for instance, is not only the main destination for mexican exports within the us, but also overall, as it accounts for nearly 22 percent of all mexican sales abroad, a figure significantly above those for countries such as canada ( 2. 8 percent ), germany ( 1. 7 percent ) and china ( 1. 6 percent ). conversely, mexico ’ s imports from texas are greater than those from china, and we buy more from california than we do from countries such as japan, germany and south korea. see hufbauer, gary et al. ( 2005 ) : “ nafta revisited : achievements and challenges ”, institute for international economics, october. the region ’ s economic integration that has come about as a result of nafta goes far beyond the free international flow of goods and services. it could hardly be argued that this is just a case of three separate economies trading finished goods among them. on the contrary : they are producing many of those goods together, specializing in different stages of the corresponding production processes through the implementation of cross - border supply chains that enhance their competitiveness, both individually and jointly, in markets abroad. therefore, as in other regions of the world, intermediate goods in north america cross borders multiple times before reaching final consumers. an input - output analysis of the productive activity in mexico and the united states shows that, in both countries, around 20 percent of the total value added generated domestically by these countries ’ manufacturing sectors is destined to activities abroad immersed in global value chains ( gvcs ). 8 by including protective rules and procedures for cross border investors, as well as