MEXICO CITY: A mounting drugs war death toll and concerns that Mexico's fragile economic recovery will fall victim to the European debt crisis are clouding the outlook for Mexico ahead of a presidential election next July.
Anger is growing about the roughly 45,000 lives that have been lost since President Felipe Calderon launched a war on drug cartels in late 2006, and violence has spun out of control in large areas along the US-Mexico border.
There are now signs it is moving further to the south. On Nov. 24, suspected drug gang hitmen killed at least 26 people and dumped their bodies near a major landmark in Mexico's second city, Guadalajara.
It was the fourth mass public dumping of bodies in regional centres in just over two months, a rash of killings officials blame on brutal turf wars between rival drug cartels.
Local media said a message with the bodies in Guadalajara purported to be from the brutal Zetas gang and was directed at Sinaloa cartel boss Joaquin "Shorty" Guzman.
Officials blamed a group with ties to Guzman for two mass dumpings of more than 60 bodies, seen as a signal to the Zetas, in the eastern port city of Veracruz in September and October.
The violence continues to weigh on support for Calderon's conservative National Action Party, or PAN, and it trails in early polls ahead of the presidential election on July 1, 2012.
The main opposition Institutional Revolutionary Party, or PRI, won an election in the central state of Michoacan on Nov. 13, beating out Calderon's sister who ran for the PAN,
As the clock ticks down to the start of the official election campaign, the PRI and the leftist Party of the Democratic Revolution, or PRD, have already decided on unity candidates.
Left-wing firebrand Andres Manuel Lopez Obrador will run again for the PRD, six years after his wafer-thin loss in the last election sparked massive street protests.
And the PRI's Enrique Pena Nieto, who holds a huge lead in opinion polls, is uncontested as the party's candidate. The PAN still has three hopefuls vying for the party's nomination, including former finance minister Ernesto Cordero.
Analysts say it is too early to call the presidential vote. Calderon cannot run again but could help the PAN candidate if he remains popular.
Money markets have mostly shrugged off the violence, but business leaders are concerned the security situation is hurting Mexico's attractiveness for foreign companies.
What to watch:Political assassinations or attacks against civilians ahead of the presidential election.Companies freezing investment plans.
More signs that the violence is hurting the PAN.
Mexico's recovery from a deep recession in 2008-2009 is faltering after a strong rebound last year. Economists have revised down their outlook for growth in 2011 after a slowdown in the United States, Mexico's top trading partner.
Still, quarter over quarter growth data in July to September was better than expected while consumer confidence improved in October and jobless rolls have shrunk to their smallest in two years.
But the fate of the domestic economy is far from certain with signs that the manufacturing sector has begun to slow.
That slice of the economy, which includes factory output, expanded 0.54 percent in the third quarter - less than half the pace seen in the second quarter.
The government sees growth this year at about 4 percent, slowing to 3.5 percent next year.
The more pessimistic growth outlook has helped weaken the peso, which fell to its lowest level in more than two and a half years last month amid global market turbulence.
Foreign investment in Mexican bonds is at a record high, leaving the country vulnerable to a sudden crash if investors spooked by the high level of uncertainty in the global economy pull their investments back to safe Reuters
Still, Mexico has international reserves worth more than $140 billion and access to a $72 billion credit line with the International Monetary Fund, safety nets that it did not have in the 2008 financial crisis.
Policy makers said on Nov. 29 they will intervene to support the peso if it falls more than 2 percent in a single session, a move which should put a floor under the currency.
The central bank has said it is open to lowering interest rates from the current 4.5 percent to boost the economy but markets are not convinced, with rates seen on hold through 2012.
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