Our economic outlook for Mexico

We continue to expect the Mexican economic outlook to improve in 2027 on the back of a strong U.S. economy led by AI-related investment and productivity. Negotiations around a peace deal in the Middle East have contributed to a marked decline in oil prices, reducing one important source of near-term uncertainty. Moreover, Mexico’s exposure to the conflict is mainly indirect, operating through higher global energy costs—particularly refined petroleum products and natural gas—rather than through direct supply links to the region.

Demand from the U.S. should help offset Mexico’s recent lackluster domestic performance in the longer term. Recent data point to weak investment, mixed activity indicators, and continued caution among firms as United States-Mexico-Canada Agreement (USMCA) negotiations move beyond their original July 1 renewal deadline. The continuation of current USMCA rules and tariff exemptions should prevent a more disruptive outcome, but a drawn-out negotiation process would likely weigh on confidence. A renewed agreement would be supportive in the longer term.

Headline inflation has improved a bit since last month, while core inflation has eased more slowly. We still expect disinflation to proceed gradually, as services and core inflation remain sticky and risks from trade disruptions, energy prices, and weather shocks remain tilted to the upside. Contained real wage growth, stable long-run expectations, and earlier peso strength should help the pace of inflation decline over time.

The Bank of Mexico (Banxico) has moved from easing to holding. After cutting the policy rate by 25 basis points to 6.5% in May and signaling the end of the easing cycle, the central bank kept rates unchanged in June in a unanimous decision. The pause reflects a somewhat better headline inflation backdrop, but also persistent core inflation, upside risks to the inflation outlook, and a still-uncertain external environment. We expect the policy rate to remain at 6.5% through 2027 as Banxico waits for clearer evidence that disinflation is durable.