Our economic outlook for Mexico

December 05, 2024

Our outlook for year-end 2025

1.25%–1.75%

Economic growth,
year over year

Mexico’s growth has begun to slow from above its potential as restrictive monetary policy weighs on activity. Potential changes in U.S. trade policy represent a downside risk to Mexico’s growth, as the U.S. is an important trade partner.

3.25%–3.5%

Core inflation, year over year

We expect core inflation to fall gradually toward the midpoint of the 2%–4% target set by the Bank of Mexico (Banxico). We expect progress to be challenged by resilient consumption and a tight labor market. Services inflation remains elevated, hovering close to the upper end of Banxico’s target range.

8%–8.25%

Monetary policy rate

Satisfied with progress in the fight against inflation, Banxico has shifted its focus to sustaining economic growth. We expect an easing cycle that began in March 2024 with the overnight interbank rate at 11.25% to continue through 2025, with 200 to 225 basis points in cuts.1

3.2%–3.6%

Unemployment rate

The labor market has begun to slow, with employment growing by 1.6% year over year in the last three months, down from a 2.5% year-over-year average in the first half of 2024. We expect a moderation in coming months that would increase the unemployment rate, which has remained largely stable recently.

What I’m watching

Nearshoring brings increased foreign direct investment and trade

Close geographic and political ties with the United States, a formal trade agreement with the U.S. and Canada, and U.S. trade tensions with China have created a nearshoring opportunity for Mexico. Over the past three years, Mexico’s share of foreign direct investment (FDI) in emerging markets has more than doubled, to 10%-plus, and its share of U.S. imports has risen from about 13% to about 16%. Upward trends in FDI and exports to the U.S. should boost both economic growth and the Mexican peso. Potential changes in U.S. trade policy represent a downside risk.

Vytas Maciulis

Vytas Maciulis, CFA
Vanguard Economist

Market values of Mexico’s share of U.S. imports and emerging markets foreign direct investment 
 

A line graph shows four variables—the share of U.S. imports from Mexico, the pre-pandemic average level of U.S. imports from Mexico, foreign direct investment in Mexico as a share of selected emerging markets FDI, and the pre-pandemic average level of Mexico’s share of that FDI. The data cover the years 2004 to 2024. The share of U.S. imports from Mexico begins around 11% and ends around 16%. In between, that share generally rises, though its level is volatile, especially between 2020 and 2022. The pre-pandemic average level of U.S. imports from Mexico is more than 13%. Foreign direct investment in Mexico as a share of selected emerging markets FDI also is volatile, beginning around 18% and ending around 10%. FDI in Mexico falls sharply—and mostly steadily—from 2004 until 2012 or 2013, when it bottoms around 3%. Over the next five years or so, FDI in Mexico rebounds twice to peaks around 9% before dropping to its latest trough of about 4% in 2021. In the last three years, it climbs to more than 10%. The pre-pandemic average level of foreign direct investment in Mexico as a share of selected emerging markets FDI is about 7%.

Notes: Quarterly data are from Q1 2004 through Q2 2024. Foreign direct investment in Mexico is presented as a share of FDI across these 18 emerging markets: Brazil, Mexico, Chile, Colombia, Czech Republic, China, Hungary, South Africa, Turkey, Philippines, Thailand, Taiwan, Malaysia, South Korea, Indonesia, Poland, India, and Romania. The pre-pandemic averages reflect data from Q1 2004 through Q4 2019.

Sources: Vanguard calculations, based on data from LSEG as of June 30, 2024.

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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