Country Overview: Mexico

The country is one of the most important emerging economies and is renewing its efforts to become a leader in the region – it just became a member of the Pacific Alliance. Mexico has agreed on an ambitious and comprehensive National Development Plan, which also guides the structural reform agenda to enhance productivity.

The Mexican economy recovered from the severe contraction generated by the 2008-2009 global financial crisis as the economy experienced an average annual growth of 4.3 % between 2010 and 2012. More recently, weak external demand has led to stagnation in growth and prompted the Ministry of Finance to lower its growth projection for 2013 to 1.8 %.

Mexico experienced a surge in capital flows and despite significant volatility in financial variables seems to be in a sound position to deal with moderation of flows upon withdrawal of monetary support in the U.S.  A flexible exchange rate, a modest current account deficit, international reserves at US$170 billion and an IMF FCL of US$73 billion should provide significant protection against external shocks.

The adoption of structural reforms in the areas of labor legislation, education, telecommunication and competition policy, financial sector, energy and tax policy is expected to enhance potential output growth, currently estimated around 3 percent, by about a full percentage point through additional investments and eventually through higher levels of productivity that these reforms are expected to unleash.

source: Worldbank.org, image source: http://timothyrealestategroup.com

Country Overview: Armenia

Growth Performance

Growth was strong at 7.2 percent in 2012, but fell to 3.6 percent during the first half of 2013. The annual target of 5 percent economic growth in 2013 was undermined by the poor economic performance in the second quarter.

Inflation Developments

Inflation went up due to the increased price for gas and the adjustment of food prices. The increased price for gas and consequent adjustment of the retail tariff for energy (effective July 1, 2013) pushed up the price index for services by 5 percent in July (month-on-month). During the same period, food prices went up by 10.3 percent. As the share of food items in the consumer price index (CPI) basket is 48.5 percent, the food price increase contributed 5 percentage points to overall inflation. Overall, driven by food and utility price increases, 12-month CPI inflation in July soared to 8.5 percent, far above the upper bound target of 4±1.5 percentage points. 

External Sector Performance

The strong export performance led to a narrowing the current account deficit (CAD). The World Bank calculations suggest that an improvement of the CAD in the first half of 2013 is likely to continue throughout the year. The improvement was supported by the strong performance of exports and remittances, which grew by 10 and 11 percent, respectively, while imports declined in nominal terms over the same period. Exports of metallic mining and processed agro-products were the main drivers of the improved trade balance. As a result, the CAD declined by about 1.5 percent of GDP to US$700 million compared to the US$773 million registered in the first half of 2012. 

Foreign Direct Investment (FDI) inflows remain volatile and even lower than during the recent crisis. In the first quarter of 2013, FDIs to Armenia accounted for only US$58 million, exhibiting the lowest levels since 2009. 

The Armenian banking sector is small, fragmented, and dominated by foreign banks. 

In 2011, 35 percent of the population was below the poverty line, an incidence of poverty that has remained virtually unchanged since 2009.

The poverty headcount increased from 27.6 percent in 2008 to 35.8 percent in 2010.

source: Worldbank