Our economic outlook for Mexico

Mexico enters 2026 recovering from cyclical challenges and facing longer-term economic opportunities. After a sluggish year marked by tariff uncertainty and fiscal consolidation, we expect GDP to rebound in 2026, supported by strong demand from the U.S., a resilient labor market, and a sizeable minimum wage increase affecting millions of workers. Tourism related to soccer’s World Cup will also lift economic activity. Nearshoring trends continue to strengthen Mexico’s role as a North American manufacturing hub, supported by competitive labor costs, geographic proximity, and deep integration with U.S. industry. We expect that the midyear review of the United States-Mexico-Canada Agreement will boost business and consumer sentiment, although it is also likely to generate bouts of uncertainty.

While inflationary pressures remain uneven, we expect a gradual decline in inflation. Lingering cost pressures—including new taxes and tariffs in select categories—and sticky core inflation are near-term challenges. In contrast, contained real wage growth, stable long-run inflation expectations, and the past appreciation of the peso should help push inflation lower. Overall, we expect core inflation to ease to 3.7% by year-end.

On the monetary policy front, the Bank of Mexico (Banxico) is in an easing cycle that should bring the policy rate to 6.5% by year‑end, supporting credit‑sensitive sectors and household consumption. With disinflation proceeding only gradually, the approach to cuts remains cautious rather than aggressive. Banxico maintained the policy overnight interbank rate at 7% in early February, signaling a data‑dependent approach to normalization.

With the U.S.-Mexico policy rate gap expected to remain relatively stable and the peso’s growing role in global carry-trade dynamics, we anticipate the peso ending 2026 with an exchange rate between 17.5 and 18.5 against the U.S. dollar, which would be weaker than current levels but stronger than its levels for much of 2025.