Economics: Mexican economy expected to stall further this year but could begin to see some minimal growth heading into 2026
What are the factors behind Mexico's ongoing economic slowdown? Can a strong peso endure? Will there be a satisfactory ending to free trade and foreign investment in Mexico? Those are a few of the questions we attempt to answer in this week’s Economic Outlook as we summarize our macroeconomic framework for this year and next.
For reasons we have long explained in our reports, the Mexican economy has been locked into an economic slowdown spiral since 2024, triggered mainly by the drop in productive investment and a stagnation in manufacturing. This has led to a deterioration of job growth, which in turn has weakened the household economy and private consumption. Although the fiscal deficit has decreased, plans to reverse the rise in the fiscal deficit seem illusory, and even as inflation continues to climb, Banxico continues to lower its reference interest rate as it remains focused on economic growth. And on the exchange rate front, although the heavily traded peso has been benefiting from the weakening of the dollar against the currencies of other advanced economies, it appears poised to soften as some of the risks to the Mexican economy, such as the weakening of public finances, the lack of economic growth, or the weakening of the rule of law caused by the constitutional reforms, become evident.
On a positive note, such relative weakening of the peso could help offset the impact of higher trade tariffs and, assuming Mexico is ultimately saddled with less onerous import taxes by Washington, the country could emerge with important relative advantages for its exports to the U.S. That could help export growth to rise and attract the additional foreign investment in fixed assets needed to expand the production capacity of companies already located in Mexico.
Nevertheless, we continue to look for negative economic growth this year, especially in areas linked to the domestic market. At the same time, we see an increase in export activity, especially next year, that could contribute to a slight recovery of consumption and private investment.
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