Our economic outlook for Mexico

Mexico’s economy has demonstrated resilience in 2025 despite persistent trade uncertainty with the United States. After an unimpressive first quarter, real GDP growth accelerated 0.6% quarter-over-quarter in the second quarter, supported by gains in manufacturing and services. External trade remains resilient, but heightened economic uncertainty and sluggish private investment continue to weigh on domestic demand recovery.

Automotive exports have fallen modestly, due to tariffs and softer U.S. consumer demand, but overall exports still grew by 4.3% in the first half of 2025. Mexico retains a competitive edge under the United States-Mexico-Canada Agreement (USMCA), with the vast majority of exports to the U.S. being duty-free. That keeps Mexico’s effective tariff rate near 8%, among the lowest globally. However, uncertainty surrounding the 2026 USMCA review and potential tariff escalation continues to weigh on business sentiment and fixed investment.

Longer-term prospects remain constructive. Nearshoring trends reinforce Mexico’s role as a key North American manufacturing hub. Competitive labor costs, geographic proximity, and deep structural integration with U.S. industry position Mexico favorably for the future. Infrastructure improvements, such as the new Puerto del Norte port, further support this optimism.

On the monetary front, the Bank of Mexico cut its policy rate by a quarter percentage point to 7.5% in September, emphasizing significant downside risks from a slowing global economy and confidence that headline inflation would gradually converge to target in 2026. We expect one more quarter-point cut this year before a pause amid sticky core inflation and global economic downside risks abating.