Economics: Amid shifting tariff threats, and cautious investors and consumers, indicators confirm a weakening cycle

MEXICO - Report 31 Mar 2025 by Mauricio González and Francisco González

Indicators released in March confirmed that Mexico’s economy continues to stall. GDP decelerated to half a percentage point in the fourth quarter of 2024 under the weight of a sharp drop in investment and a further slowing of private consumption, as consumers grow more cautious and pessimistic about the economy and job growth slows. The one bright spot in the latest aggregate demand numbers was a strong export performance to the US, but that is a front on which the economy faces considerable risks this year.

The numbers so far in 2025 also reveal weakness. As we detail in this week’s economic indicators section, January industrial production contracted by almost 3pp, and the monthly GDP proxy was flat from a year prior, in an early sign of growing uncertainty.

All further evidence indicates that the Mexican economy is in a weakening cycle as the threat of a moderate recession looms. The country has to cope with a weakening economy at a time when two familiar problems weigh at home: the extent to which the government’s focus on rescuing Pemex continues to undermine public finances and Banco de México’s implicit decision to prioritize economic reactivation over its inflation mandate by cutting its benchmark lending rate by half a point despite a lack of evidence that inflation will decline further in the coming months.

Following the announcement of the 25% tax on all US imports from Mexico on March 4, 2025, the Trump administration scaled it back on March 6 to apply only to non-USMCA goods, temporarily exempting products under the agreement until April 2. In this context, the decision by Washington to limit the tariff to non USMCA products could be aimed at ensuring greater compliance with the USMCA and reducing triangulation as well as being a pressure mechanism that would be reinforced with the announcement of the reciprocal tariff scheme on April 2. It could also significantly impact on Mexico if a permanent tariff, estimated at around 23%, were to be imposed.

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