Mexico, the second largest economy of Latin America, turned out to be one of the strongest economies in 2012. This was largely attributable to strength in domestic consumption, a good level of foreign direct investment, improvement in trade with the U.S. and a strong banking system.

On the back of its strong fundamentals, the Mexican economy is making a case for the best market to be in for all of Latin America. And, thanks to competitive manufacturing cost, an open economy, and a low debt level at both private and public sectors, the country could be well poised for future growth (Forget Brazil; Mexico ETF is Hot).

The economic strength in Mexico is reinforced by growth in the employment level as the jobless rate reached its lowest point in four years. The level of unemployment slumped to just 4.5% in January.

These positive trends are expected to continue through 2013. FDI is further expected to show momentum, along with the domestic economy and international trade gaining strength. Moreover, a strong manufacturing sector and favorable demographics should fuel economic growth going forward (Forget China, Buy These Emerging Market ETFs Instead).

It should also be noted that the economic prospects in the U.S. are closely tied to Mexico’s economic development. The economy exports as much as 80% of its goods to the U.S. while imports from the U.S. account for almost 50% of the total.

Now, with the U.S. economy showing signs of recovery and gaining momentum, the trade relationship between the countries should further gain strength in 2013.

On the inflation front, the economy has experienced a break in its four-month easing streak. In February, however, inflation increased 0.49% while on an annual basis it came in at 3.55% compared with 3.25% in January.

Conversely, what came as a surprise is the central bank’s initiative to cut interest rates thereby bringing it to a new low level. The central bank of Mexico had cut its rates by 0.5% to 4%.

This is the central bank’s first attempt to cut interest rates in four years. The move is seen as a play to further strengthen the Mexican economy and does not indicate initiation of any monetary easing policy as indicated by the bank (Best Latin America ETFs for 2013 (Part I): Mexico).

Additionally, the central bank said inflation is expected to tick up further in the coming months to 4% before falling back to around 3% by the second half of the year. It is then seen to be holding around that level next year.

Overall, events are shaping up quite nicely for the Mexican economy, suggesting a look to their equities may not be a bad idea. And since the country is so dependent on America, it can be thought of as a high beta bet on the domestic market as well.