Our economic outlook for Mexico

We have lowered our 2025 GDP growth forecast from a range of 1.25%–1.75% to below 1% owing to headwinds from trade developments. The economy succumbed to the effects of restrictive monetary policy in the fourth quarter of 2024, contracting by 0.6% compared with the third quarter. 

Our core inflation forecast is little-changed as we await clarity around the potential for Mexico to impose tariffs on U.S. goods. No tariffs or modest tariff imposition would limit inflation, which would face downward pressure from slowing growth and rising unemployment. Headline inflation rose marginally in Mexico in March, registering 3.80% year over year, up from 3.77% year over year in February. The pace of core inflation, which excludes volatile food and energy prices, was 3.64% year over year and has been relatively flat the last five months. Vanguard expects core inflation around 3.5% in 2025, above the midpoint of the 2%–4% target range set by the Bank of Mexico (Banxico).

Banxico’s governing board, noting increased global risks amid escalating trade tensions, cut the overnight interbank rate target by a further 50 basis points, to 9%, on March 28. We expect an easing cycle that began in March 2024, when the policy rate was 11.25%, to continue through 2025 amid reduced economic activity.

We expect an increase in the unemployment rate from the current 2.5% amid slowing econoimc growth.