Whoever wins the closely contested presidential race on july 2nd, the Economist Intelligence Unit expects the next government to be intent on safeguarding macroeconomic stability. However the future of policies to promote more dynamic growth is uncertain. With the government that takes office in December set to face an opposition - dominated Congress, important structural reforms, most notably energy, tax and labour market reform, will advance haltingly at best. Economic performance will remain closely tied to the economic cycle in the US. Our central forecast is for GDP growth to accelerate in 2006 before slowing in 2007 in line with US import demand. Declining inflationary expectations will help to keep inflation within the long - term target range of 3% plus or minus 1 percentage point. The trade deficit will narrow in 2006 before widening in 2007 as export growth decelerates. However, positive trends on the non - trade on the current account in 2007 will keep the current - account deficit at uunder 1% of GDP in the forecast period. The final weeks of the presidential campaign have not produced a clear front - runner. Andres Manuel Lopez Obrador has a slight lead over Felipe Calderon in opinion polls, but there is still a large number of undecided voters that could alter the course of the election. Opinion polls suggest that the new Congress will be evenly balanced between the three main parties, giving the Partido Revolucionario Institucional (PRI) - which won't win the presidency - an influential role in the legislative agenda of whichever party gains the presidency. In the context of fairly dirty campaign, the prospect of a close result has prompted some concern, but the electoral authority appears well prepared to deal with any disputed result. The nine - month monetary easing cycle ended in May. The public finances were in strong surplus in the first quarter despite strong expenditure growth. GDP growth accelerated in the first quarter on the back of strong US import demand, which fed into fixed investment and domestic consumption. Seasonal pressures helped keep inflation pressures down, with 12 month inflation at 3% in May. The peso and stockmarket were both hit by global financial market turbulence in May. There was a trade surplus for first time in many years in the first quarter of 200, helping drive a current - account surplus in the same period.

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