Our economic outlook for Mexico

Mexico enters 2026 balancing cyclical challenges with longer-term economic tailwinds. After a sluggish year marked by tariff uncertainty and fiscal consolidation, GDP is expected to rebound in 2026, supported by strong demand from the U.S. Roughly 80% of exports to the U.S. remain duty-free under United States-Mexico-Canada Agreement (USMCA) provisions, placing Mexico’s effective tariff rate among the lowest globally.

Slowing real wage growth and softer remittance inflows from the U.S. will partially offset consumption tailwinds from a resilient labor market, tourism related to soccer’s World Cup, and a sizeable minimum wage increase affecting millions of workers. Longer-term prospects remain constructive. Nearshoring trends continue to strengthen Mexico’s role as a North American manufacturing hub, supported by competitive labor costs, geographic proximity, and deep integration with U.S. industry under the USMCA.

On the policy front, gradual easing by the Bank of Mexico (Banxico) should bring the policy rate toward 6.5% by year-end, supporting credit-sensitive sectors and household consumption. However, lingering cost pressures and sticky core inflation will limit the scope for aggressive cuts. Banxico cut its policy overnight interbank rate to 7% in December.

With the U.S.-Mexico policy rate gap expected to remain relatively stable and the peso’s growing role in global carry-trade dynamics, we anticipate the peso ending 2026 with an exchange rate between 18.0 and 18.5 against the U.S. dollar, which would be around its range for the past two months.