The Bank of Mexico (Banxico) has slashed its 2025 and 2026 growth forecasts for the Mexican economy, citing expectations of “sluggish” domestic activity and “significant challenges” related to U.S. protectionism.
The central bank said in its first quarter report that is now forecasting growth of just 0.1% this year, down from a 0.6% prediction in its previous report.
For 2026, Bank of Mexico cut its economic growth forecast to 0.9% from 1.8%.
“Domestic economic activity is expected to be sluggish over the forecast horizon,” said the quarterly report, which was published on Wednesday.
“In addition to the weakness that has already been observed, the global economy faces significant challenges stemming from the changes in U.S. trade policy. Since the previous report, the United States has imposed tariffs of varying magnitude on most of its imports, and the possibility of additional measures remains,” Banxico said.
“There is uncertainty regarding the effects that these actions could have on Mexico’s external demand. For the time being, only a limited effect is incorporated into our outlook, considering the resilience shown by Mexican exports based on the most recent information available, the preferential treatment these exports continue to receive under the USMCA framework, and pending further information on the adjustment mechanisms of domestic exporting firms,” the bank said.
Principales #PrevisionesEconómicas dadas a conocer en el #InformeTrimestral enero-marzo 2025. #BancodeMéxico https://t.co/Tr6EI8Cn1f pic.twitter.com/v29rscZPii
— Banco de México (@Banxico) May 28, 2025
The report was prepared and published before a United States federal court on Wednesday blocked United States President Donald Trump from imposing tariffs on imports under a U.S. emergency powers law, ruling that he exceeded his authority.
The Associated Press reported that the ruling threw “into doubt Trump’s signature set of economic policies that have rattled global financial markets, frustrated trade partners and raised broader fears about inflation intensifying and the economy slumping.”
However, the U.S. president could use laws other than the International Emergency Economic Powers Act to impose tariffs.
President Claudia Sheinbaum said on Thursday that the Economy Ministry would conduct an analysis of the “reach” of the ruling as it will affect tariffs on Mexican goods. She noted that the U.S. government was challenging the ruling.
“We’re going to wait,” Sheinbaum said.
More than 80% of Mexico’s exports go to the United States, making it particularly vulnerable to U.S. protectionism. Duties currently apply to Mexican steel, aluminum, cars and goods not covered by the USMCA.
The tariffs on goods not covered by the North American free trade pact were imposed by the United States due to what the White House said was a failure by Mexico to take adequate action against “the influx of lethal drugs” to the U.S. Those tariffs were blocked by Wednesday’s court ruling.
The publication of Banxico’s latest growth forecasts came after the Mexican economy avoided a technical recession by expanding 0.2% in the first quarter of 2025 compared to the final quarter of last year. The economy contracted 0.6% on a sequential basis in the final quarter of 2024.
In April, the International Monetary Fund and the World Bank also slashed their economic growth forecasts for Mexico. The former is now forecasting a 0.3% contraction while the latter is predicting 0% growth.
The most recent 2025 forecast from Mexico’s Finance Ministry was growth in the range of 1.5% to 2.3%.
‘A stagnant economy’
Gabriel Cuadra, a deputy governor of the Bank of Mexico, said Wednesday that “after the Mexican economy showed resilience in 2023 and 2024, now in 2025 we’re forecasting an [economic growth] variation close to zero, a stagnant economy with a balance of risks biased to the downside.”
In its report, Banxico mentioned a range of “downside risks throughout the forecast horizon.”
They included:
- That uncertainty “driven by the policies that could be implemented in the United States” increases and “negatively affects external demand as well as consumption and investment spending in Mexico.”
- That economic growth in the U.S. is lower than expected.
- That the reduction in public spending in Mexico “has a stronger impact on economic activity.”
- That “severe weather phenomena, such as extreme temperatures, cyclones, or droughts, adversely impact the Mexican economy.”
Banxico also cited various “risks to the upside throughout the forecast horizon.”
They included:
- That “incoming data regarding U.S. trade policy mitigates uncertainty and signals a favorable resolution that will benefit economic activity in the region.”
- That growth in the U.S. is “greater than expected, favoring Mexico’s external demand.”
- That “under the USMCA, the global reconfiguration of production processes provides a greater-than-expected boost to investment.” (Mexico received record high foreign direct investment in the first quarter of the year.)
- That “public spending provides a greater-than-expected boost to economic activity.”
Although Banxico is forecasting 0.1% growth, Cuadra conceded that it is possible that the Mexican economy will contract in 2025.
The Bank of Mexico’s forecast range is -0.5% to 0.7%, indicating that it is not completely ruling out the possibility of GDP declining this year.
However, Banxico Governor Victoria Rodríguez Ceja told a press conference on Wednesday that “we are foreseeing a period of weakness for economic activity, but not a recession.”
Rodríguez asserted that strengthening of the rule of law in Mexico and promoting competition in the market are essential to support economic growth.
“It is [also] essential to promote greater investment and productivity improvements in the economy,” she added.
Despite an increase in inflation this year, the Bank of Mexico has cut its key interest rate by 50 basis points after all three monetary policy meetings this year, in part due to the prevailing weakness in the Mexican economy.
With reports from El Financiero
