Initial optimism has been replaced by increasingly dire predictions for Mexico's near-term economic outlook in response to the global economic slump. World trade flows have dried up, which is particularly damaging for nations like Mexico whose economic activity depends critically on exports. At the same time, international financial uncertainty led investors to withdraw capital from emerging markets. Mexico was also confronted with a number of idiosyncratic shocks: a crackdown on drug cartels and local corruption, a flu epidemic and trade disputes with its most important partner. However, recent data suggest the financial system is exhibiting stability even as a severe recession plagues the country. This resilience demonstrates the strides Mexico has made toward reducing its financial vulnerability.
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Article provided by Federal Reserve Bank of Dallas in its journal The Southwest Economy.