Our economic outlook for Mexico

June 25, 2024

Our outlook for year-end 2024


Economic growth,
year over year

The Mexican economy carried some of the momentum from its resilient 2023 into the first quarter of 2024. We expect growth to moderate through the rest of the year, pulled down by still-high interest rates, reduced worker remittances owing to recent peso strength, and falling external demand, especially from the U.S. Factors likely to be supportive include fixed investment from nearshoring (U.S. businesses relocating their supply chains from longer distances to Mexico) and consumer spending fueled by a strong labor market.


Core inflation, year over year

Core inflation has fallen steadily since the beginning of 2023. We expect that it will finish 2024 near the upper end of the 2%–4% target range set by the Bank of Mexico (Banxico), but we don’t foresee it falling to the 3% midpoint until late 2025. The last mile in the inflation fight is proving challenging, as strong wage growth from a tight labor market has buoyed spending, keeping services prices elevated. 


Monetary policy rate

Banxico has cut the target for its overnight interbank rate once this year. We anticipate an additional 75–125 basis points of cuts in 2024, albeit to levels that would still be restrictive.1 Stalled progress toward Banxico’s inflation target would warrant the elevated policy rate, a decision made easier by the likelihood that the Federal Reserve won’t cut rates this year.


Unemployment rate

The labor market remains robust, with year-over-year employment growth reaching its prepandemic average of 3.7%. The market’s strength continues to support strong wage growth. An unemployment rate near historical lows stands below what Banxico considers the nonaccelerating inflation rate of unemployment, or NAIRU, suggesting continuing upward pressure on wages and inflation.

What I’m watching

Consumption, investment, and moderating growth

After a solid 2023, we expect growth to moderate closer to trend. Consumer spending and investment have well recovered since their pandemic slump, supporting growth. We expect that consumption due to a strong labor market and investment due to nearshoring will be key positive factors in the short term. However, we expect high interest rates and net trade to offset some of the gains with a likely slowdown in external demand, especially from the U.S.

Vytas Maciulis

Vytas Maciulis,
Vanguard Economist

A stacked bar chart showing the components of Mexico’s GDP from the last quarter of 2017 through the last quarter of 2023. An overlaid line chart shows overall GDP year-over-year changes for the period through the first quarter of 2024, then Vanguard forecasts thereafter through year-end 2024. The charts show GDP within 3 percentage points of zero until it plunges to -20% in mid-2020 before gradually recovering, then spiking to more than 22% in mid-2021 before moderating to around 2% by year-end 2024.

Notes: GDP is the percentage change year over year. GDP components reflect contribution to year-over-year changes. 

Sources: Vanguard calculations using data from Refinitiv. GDP component data are through year-end 2023 and GDP data are through March 2024, with Vanguard forecasts thereafter.

1 A basis point is one-hundredth of a percentage point.

Notes: All investing is subject to risk, including the possible loss of the money you invest. 

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