Our economic outlook for Mexico

Mexico’s economic momentum has recently shown signs of improvement, but growth prospects remain clouded by unresolved trade negotiations with the United States. After a modest 0.2% expansion in the first quarter, real GDP exceeded expectations by growing 0.7% in the second quarter, led by gains in manufacturing and services. Export revenues surged more than 10% in June, driven partly by resilient automobile shipments—reflecting continued strength in U.S. consumer demand and the protective buffer provided by exemptions from the United States-Mexico-Canada Agreement.

Despite the positive growth surprise, broader uncertainty around future trade policy continues to weigh on business sentiment. Public sector spending cuts, along with remittances roughly 5% lower than last year’s, are also acting as headwinds. The peso’s appreciation has further eroded the purchasing power of remittances, compounding near-term pressures on consumption.

Still, Mexico’s longer-term outlook remains constructive. The country continues to benefit from the U.S.-China trade realignment, with nearshoring trends reinforcing Mexico’s role as a key supply-chain hub. Export similarity with China and deep structural integration with the U.S. economy position Mexico well to capture a larger share of North American manufacturing over time.

On the monetary front, the Bank of Mexico cut its policy rate by 25 basis points to 7.75% on August 7, following a 50-basis-point cut in June. (A basis point is one-hundredth of a percentage point). Even as it marginally increased its 2025 core inflation forecasts, Banxico said its move was consistent with the inflationary outlook. With the peso strengthening and U.S.-Mexico trade policy still unclear, we expect one more 25-basis-point cut before year-end.