The Mexican economy experienced the most serious decline in economic growth in Latin America after the global financial crisis began in 2008. Mexico's dependence on manufacturing exports and strong ties to the U.S. economy have made the country very vulnerable to external events and changing economic conditions in the United States. Public sector revenues declined as a result of the crisis, and a number of estimates indicate that Mexico's gross domestic product (GDP) contracted by 6.6% in 2009. Though GDP is expected to grow in 2010, some economists predict that Mexico's economy will not return to its pre-crisis level for some time. Although Mexico has done much to modify its economic policy over the last 20 years through trade liberalization, privatization efforts, and a floating exchange rate regime, these policies have not been enough to protect Mexico from fluctuations in the U.S. economy. Many analysts argue that structural weaknesses in the Mexican economy have prevented the country from experiencing higher levels of growth and decreasing its dependence on the U.S. economy. Mexico's economy is of interest to U.S. policymakers because of the strong economic linkages between the two countries, the proximity of Mexico to the United States, and the implications that economic issues have on political and social stability in Mexico. The 111 th Congress is likely to maintain an active interest in Mexico on issues related to trade, economic conditions, migration, border issues, and counter-narcotics. This report provides an overview of Mexico's economy post-financial crisis, effects of the global economic downturn, structural and other challenges in the Mexican economy, and implications for the United States. This report will be updated as events warrant. Based on a nominal GDP of $1.7 trillion in 2009 (at purchasing power parity or PPP ) Mexico's economy is the 11 th -largest economy in the world and the second-largest in Latin America, after Brazil's. Mexico has an open market economy with a strong export sector, though for many years it had strong protectionist trade policies to encourage industrial growth in the domestic economy. The global financial crisis, and the subsequent downturn in the U.S. economy, resulted in the sharpest economic contraction in the Mexican economy in 20 years. It is estimated to have contracted by 6.6% in 2009, as shown in Table 1 , while the Mexican peso depreciated against the dollar by 25%. Mexican merchandise exports to the United States decreased sharply. Mexico also experienced liquidity problems and a loss in investor confidence as a result of large losses on corporate foreign exchange positions in 2008, in addition to the uncertainty over the outbreak of the H1N1 virus in mid-2009. Mexico's policy measures in response to the crisis and its prior economic performance have helped the economy begin to recover and the exchange rate to improve. Estimates for 2010 project that the economy will grow by about 3% to 4% and that domestic demand will also improve, though not significantly. The recovery is also due to an increase in external demand, which has driven up manufacturing exports, rather than from internal demand. Manufacturing exports increased 34% year-on-year during the first five months of 2010, with much of the growth occurring in automotive exports (78% increase), which go mostly to the United States. Total exports have risen 38%. Sectors of the economy that depend significantly on domestic demand, such as utilities, construction, and retail, are struggling, though an improvement is expected later this year. The Economist Intelligence Unit (EIU) projects GDP growth at 2.7% for 2011. Mexico's strong economic ties to the United States after implementation of the North American Free Trade Agreement (NAFTA) have deepened the dependency of the Mexican economy on U.S. economic conditions. Mexico's reliance on the United States as an export market and the relative importance of exports to its overall economic performance make it highly susceptible to fluctuations in the U.S. economy. Exports equaled 26% of Mexico's GDP in 2009, a significant percentage, and 80% of Mexico's exports are destined for the United States. The United States is, by far, Mexico's most important partner in trade and investment, while Mexico is the United States' third-largest trade partner after China and Canada. After oil and gas, most of Mexico's exports are manufactured goods. Because a large percentage of Mexico's exports are destined for the United States, any change in U.S. demand can have significant economic consequences in Mexican industrial sectors. The recent downturn in the world economy caused a sharp decline in U.S.-Mexico trade and affected GDP growth in Mexico. As shown in Figure 1 , economic growth in Mexico has followed the same economic patterns as the United States for many years, but with higher fluctuations in GDP growth rates. After a real decline in GDP of 6.22% in 1995, the Mexican economy managed to grow the following six years at about 4%-5% annual growth. The slowdown in the U.S. economy in 2001, which worsened after the September 11 terrorist attacks, hit Mexico's economy hard. Real GDP growth dropped from 6.6% in 2000 to a contraction of 0.2% in 2001. Improved economic conditions in the United States in the following years helped Mexico's economy improve as well. Real GDP growth in 2004 was 4.0%, up from 0.8% in 2002 and 2003. Following the decline in the U.S. GDP growth rate of 2.7% in 2006 to -2.4% in 2009, Mexico's GDP growth rate fell from 5.1% in 2006 to -6.6% in 2009 (see Figure 1 ). Until the early 1980s, Mexico had strong protectionist economic policies with high trade barriers in several key industries, including the computer and automotive industries. After the Mexican 1982 debt crisis, Mexico's trade policy began to change. The Mexican government took a series of steps toward unilateral trade liberalization to attract foreign investment and make the country more competitive in non-oil exports. In the late 1980s, Mexico proposed negotiations for a free trade agreement with the United States. The Mexican economy suffered a financial crisis in 1995 that resulted from a number of complex financial, economic, and political factors. In response, the government abandoned its previous fixed exchange rate policy and adopted a floating exchange rate regime. Mexico's currency plunged by around 50% within six months as a result, sending the country into a deep recession. The peso steadily depreciated through the end of the 1990s, which led to greater exports and helped the country's exporting industries but sharply raised import prices and lowered its terms of trade. The change in the Mexican economy to an export-based economy may have helped to soften the impact of the currency devaluation. However, the peso devaluation resulted in a decline in real income, hurting the poorest segments of the population and also the newly emerging middle class. After the 1994 devaluation, the government took several steps to restructure the economy and lessen the impact of the currency crisis among the more disadvantaged sectors of the economy. The goal was to create conditions for economic activity so that the economy could adjust in the shortest time possible. The United States and the International Monetary Fund assisted the Mexican government by putting together an emergency financial support package consisting of loans of up to $50 billion, with most of the money coming from the U.S. Treasury. Mexico put forth efforts to demonstrate its commitment to fulfill all of its financial obligations without a default on its debt by adopting tight monetary and fiscal policies to reduce inflation and absorb some of the costs of the banking sector crisis. The austerity plan included an increase in the value-added tax, budget cuts, increases in electricity and gasoline prices to decrease demand and government subsidies, and tighter monetary policy. The global financial crisis that began in 2008 resulted in a deepening of the recession in the U.S. economy that began in 2007. The U.S. economic contraction resulted in lower consumer demand in the United States and, consequently, lower demand for goods from Mexico. This has adversely affected Mexico's GDP growth, employment, production in the manufacturing industry, and investor confidence. Though real GDP growth has resumed in the United States, there is concern that the U.S. economy will not return to its pre-recession growth path or will even remain permanently below it. This will likely continue to have effects on economic conditions in Mexico. Mexico has experienced the deepest recession in the Latin America region following the recent global financial crisis, largely due to its high dependence on manufacturing exports to the United States, although other factors have also contributed. Other Latin American countries have experienced negative economic consequences from the financial crisis but to a lesser extent than Mexico. In Central America, El Salvador had the deepest economic contraction (-3.6%), while in South America, Paraguay was the country with the deepest contraction (-3.8%). Economic growth in most Latin American countries was affected by the crisis, but because most of these countries were experiencing high levels of growth prior to the crisis and are not as dependent on the U.S. economy, they did not experience as deep a recession as Mexico (see Table 2 ). The forecast for 2010 shows most of the economies in the Western Hemisphere rebounding to positive economic growth, with the exception of Venezuela, which is expected to experience a drop in real GDP growth of 5.5%, as shown in Table 2 below. In 2009, Mexico's total trade with the world declined sharply, with lower demand in the United States for Mexican products and lower consumer demand in Mexico contributing to the decline. Mexico's exports to all countries decreased 21.5% to $229.6 billion in 2009 (see Table 3 ). Imports also decreased in 2009, by 24.4% to $234.4 billion. Exports to the United States decreased 17.6% in 2009. Prior to the recession, Mexico had been experiencing steady annual growth in exports.