indicators highlight slower expansion in the mexican economy, largely caused by global economic weakness. by next year, as the external environment improves, mexico ’ s economic activity is expected to post a healthier pace. also, in the medium term, structural reforms could enhance productivity. the financial volatility of the last few weeks has had significant implications for emerging markets. adjustments in mexico have been orderly. in the face of the possibility that uncertainty may continue, prudence should prevail on the part of creditors and debtors, and the authorities should remain alert in order to ensure that at all times financial markets operate normally. finally, an increase in annual inflation so far this year is due to negative supply shocks, reflected especially in the noncore component of the cpi. given the temporary nature of recent pressures, it is likely that inflation will soon resume a downward trend toward the 3 percent permanent target. bis central bankers ’ speeches

, global risk aversion has remained relatively tame since 2010. third, individual characteristics of different countries contribute to explaining why capital inflows have not been equal in all emerging economies. in particular, mexico ’ s attractiveness could involve factors such as the openness of the capital account, the free - floating exchange rate regime, the certainty of no discretionary intervention in the markets, moderate country risk, and positive prospects for structural reforms. 3 during the last few weeks, sentiment has changed in global financial markets. favorable u. s. economic data and various federal reserve officials ’ statements have fueled market and analysts ’ expectations for an imminent start to the tapering of quantitative easing in the united states. hence, the april employment report published in may approximately coincided with the beginning of a rising trend in long - term government bond rates in the united states and other nations. at the same time, the u. s. dollar has been appreciating with respect to many currencies. economic growth expectations for mexico in 2013 dropped from 3. 6 to 3. 0 percent between january and may 2013, while those for 2014 have remained at 4. 0 percent during the same period. see banco de mexico ( 2013 ), survey of private - sector economic analysts ’ expectations, may. two empirical analyses of factors that explain capital flows, including idiosyncratic factors, are ghosh, a. r., et al. ( 2012 ), “ surges, ” imf working paper, wp / 12 / 22, january ; and fratzscher, m. ( 2011 ), “ capital flows, push versus pull factors and the global financial crisis, ” ecb working paper series, no. 1364, july. bis central bankers ’ speeches the resulting volatility in global financial markets has brought about considerable increases in mexican government bond yields. for some maturities, the upward shift in the yield curve has offset the downward shifts seen in the first four months of the year. like other emergingmarket currencies, the peso has been depreciating against the dollar. adjustments in mexico ’ s financial markets have occurred in an orderly way. fx market volumes have continued to be high, bid - ask spreads have remained slim, and foreign holdings of peso - denominated bonds are still near record highs, although portfolio duration has been declining throughout the year. recent global financial volatility is a foretaste of what could happen when the process of u