Our economic outlook for Mexico

Mexico’s economic momentum has shifted into a lower gear in 2025. We’ve trimmed our GDP growth forecast to below 1%, down from about 1.5% at the start of the year, as trade-related headwinds intensify. U.S. tariffs on Mexican imports arrived earlier than expected, with a damaging concentration on the automobile sector. While Mexico narrowly avoided a technical recession in the first quarter by growing just 0.2%, thanks to strength in the agricultural sector, signs are already surfacing of manufacturing weakness stemming from U.S. tariffs.

We expect U.S. tariffs on Mexican imports—particularly in the auto sector—to ease over time, with resilient U.S. consumer demand continuing to support Mexican exports. Over the longer term, Mexico could also benefit from the announced U.S. tariffs on Chinese goods, as Mexico has already gained U.S. market share since 2017 and shares a high degree of U.S. export similarity with China. Yet, this nearshoring optimism remains tempered by uncertainty around renegotiations of the United States-Mexico-Canada Agreement, domestic governance concerns, and global macroeconomic volatility.

On the monetary front, the Bank of Mexico (Banxico) cut its policy rate by 50 basis points to 8.5% in May, shifting focus from inflation to economic stability. (A basis point is one-hundredth of a percentage point.) While inflation remains above the central bank’s 3% target, Banxico’s messaging that “the inflationary episode has been left behind” suggests further easing is likely. We expect the policy rate to end the year near 8%.