IMF Country Report No. 12/316
2012 ARTICLE IV CONSULTATION
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2012 Article IV consultation with Mexico, the following documents have been released and are included in this package:
Staff Report for the 2012 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on September 28, 2012, with the officials of Mexico on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on November 1, 2012. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF. Debt Sustainability Analysis prepared by the IMF. Informational Annex prepared by the IMF.
Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its November 19, 2012 discussion of the staff report that concluded the Article IV consultation. The document listed below has been or will be separately released.
Selected Issues Paper
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information. Copies of this report are available to the public from International Monetary Fund Publication Services 700 19th Street, N.W. Washington, D.C. 20431 Telephone: (202) 623-7430 Telefax: (202) 623-7201 E-mail: Internet: http://www.imf.org
International Monetary Fund Washington, D.C.
© 2012 International Monetary Fund
STAFF REPORT FOR THE 2012 ARTICLE IV CONSULTATION
November 1, 2012
Background. Mexico’s growth has remained resilient, supported by both external and domestic demand, nearly closing the output gap opened during the global crisis. Mexico’s strong economic performance, despite the sluggish U.S. recovery and persistent global uncertainty associated with Europe, attests to its strong fundamentals and sound policy management. Economic activity is expected to moderate towards potential growth. Inflationary pressures have been contained and inflation expectations remain anchored, despite the recent uptick in headline inflation due to higher food prices. The exchange rate has fluctuated significantly, related to bouts of global risk aversion, but with no major balance sheet or pass-through effects. The authorities’ policies have aimed to balance supporting the recovery and gradually rebuilding policy space, given heightened global risks. Risks. Short-term risks are mainly associated with unsettled external conditions, with longer-term risks linked principally to domestic structural challenges. A significant U.S. slowdown or renewed global financial turmoil from Europe would affect Mexico, given its close integration with the U.S. economy and international capital markets. Longerterm issues include the need to advance reforms to boost growth and to address fiscal challenges associated with diminishing oil revenues and spending pressures from health and pensions. Policy Challenges. With Mexico operating close to potential but external risks looming large, discussions focused on the importance of: (i) maintaining an appropriate policy stance (from a cyclical perspective) and policy mix (to continue rebuilding fiscal policy buffers); and (ii) weighing contingent policy responses to global downside risks. The ongoing fiscal consolidation is welcome, but stepping up consolidation efforts would be important to restore Mexico’s fiscal buffers to pre-crisis levels. The end of oil windfalls would pose challenges for fiscal policy, making this more difficult. The monetary authorities’ vigilance over recent supply shocks and cyclical conditions is warranted at the current juncture.
Overall, current and incoming authorities emphasized policy continuity, stressing that...
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