Our economic outlook for Mexico
July 23, 2025
Mexico plays a waiting game amid trade uncertainty
“Mexico’s economy remains in a holding pattern, as trade negotiations have stalled and investment hesitates.”
Adam Schickling,
Vanguard Senior Economist
Mexico’s economic momentum remains subdued in mid-2025, with growth prospects clouded by trade tensions with the U.S. While automobile exports showed surprising resilience in June, thanks to United States-Mexico-Canada Agreement exemptions and strong U.S. consumer demand, broader uncertainty around trade policy has weighed on business sentiment. Public-sector spending cuts and a second-consecutive decline in remittances, which account for nearly 4% of GDP, are also acting as headwinds. Peso appreciation has further reduced the purchasing power of remittances, adding to near-term pressures.
We continue to see long-term upside for Mexico from a U.S.-China trade realignment, given the high degree of export similarity between the two developing economies and the structural integration of U.S.-Mexico supply chains.
On the monetary policy front, the Bank of Mexico (Banxico) reaffirmed its 3% inflation target in June while cutting its policy rate by half a percentage point (to 8%), citing downside risks from trade uncertainty. With the peso strengthening and trade negotiations progressing slowly, we expect further easing, with the policy rate likely to end the year near 7.5%.
Mexico economic forecasts
Notes: GDP growth is defined as the annual change in real (inflation-adjusted) GDP in the forecast year compared with the previous year. Unemployment rate is as of December 2025. Core inflation is the year-over-year change in the Consumer Price Index, excluding volatile food and energy prices, as of December 2025. Monetary policy is the Bank of Mexico’s year-end target for the overnight interbank rate.
Source: Vanguard.
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