The Bank of Mexico (Banxico) now expects Mexico’s economy to grow 1.5% this year, raising its previous forecast by 0.4 percentage points.
The more optimistic forecast is included in the central bank’s second-quarter report, which was published last Wednesday.
“For 2026, GDP growth of 1.5% is anticipated, a higher rate than the point estimate of 1.1% published in the previous [quarterly] report,” Banxico said.
“The interval for the expected variation of GDP … is between 1.0 and 2.0%,” the bank added.
Banxico said that the upward revision to its 2026 growth forecast was due to “stronger-than-expected economic growth during the second quarter,” a period in which Mexico’s economy grew 1.4% compared to the first three months of the year and 1.9% annually.
“This effect is partially offset by a greater-than-expected slowdown during the third quarter. For the remainder of the forecast period, a moderate and gradual acceleration in the quarterly growth rates is still expected,” Banxico said.
The central bank is forecasting that the pace of economic growth will quicken to 2% in 2027. That forecast was revised down from a 2.1% prediction in Banxico’s first quarter report.
The only third-quarter economic growth data currently available is the national statistics agency INEGI’s preliminary report for July. On Aug. 20, INEGI published preliminary data showing month-over-month growth of just 0.1% in July. The projected annual expansion was much higher at 2.7%.
Downside and upside risks to economic growth
In its latest report, the central bank said that the “activation of the USMCA’s annual review mechanism by the United States” — which declined to renew the free trade pact in its current form — “extended the uncertainty surrounding regional trade relations.”
“Although the treaty’s current conditions are still in force, guaranteeing preferential treatment for Mexican exports, the lack of a definitive resolution regarding its future remains an adverse factor for investment decisions,” Banxico said.
“The resurgence of tensions between the United States and Iran in July reignited uncertainty for the global economy,” it added.
“Although the timing and magnitude of the effects of these events on Mexico’s economic activity are hard to anticipate, as they depend on the progress of trade negotiations and the intensity of geopolitical events, both factors contribute to maintaining the balance of risks for Mexico’s economic growth biased to the downside.”
Downside risks
Banxico highlighted five downside risks for Mexico’s economy “throughout the forecast horizon.” They are that:
- The climate of uncertainty related to policies in the U.S. and annual USMCA reviews may intensify and negatively affect external demand as well as consumption and investment spending in Mexico.
- An escalation of different geopolitical conflicts in various regions of the world negatively affects the global economy overall, or international trade flows in particular.
- Episodes of volatility materialize in domestic or international financial markets.
- U.S. economic growth turns out to be lower than expected, negatively affecting external demand for Mexican goods.
- Climate-related events, such as extreme temperatures, cyclones or droughts, adversely impact the Mexican economy.
Upside risks
Banxico said that three upside risks for the Mexican economy stood out. They are:
- Greater-than-expected progress in the annual review and the ratification of the USMCA, as well as lesser uncertainty surrounding U.S. trade policy, contribute to a more favorable environment for investment in Mexico and boost trade in the region.
- Growth of the U.S. economy is greater than expected, favoring external demand for Mexican goods.
- Progress in infrastructure projects financed through mixed public-private investment leads to greater-than-expected economic growth.
The broader Mexican economy
Banxico’s updated growth forecasts were published at a time when inflation in Mexico is largely under control and the Mexican peso is strong. Mexico’s annual headline rate in the first half of August was 3.26%, up slightly from 3.12%, while the peso traded below 17 to the dollar during most of last week before rising above 17 on Friday. Inflation is currently just above the central bank’s 3% target.
Two days before Banxico published its revised growth forecasts, the federal Economy Ministry reported that Mexico received just under US $35 billion in foreign direct investment (FDI) in the first six months of 2026. While the amount is a record high, it represented annual growth of just 2.1%, much lower than the 10.4% year-over-year increase recorded in the first quarter. Less than 8% of the FDI was “new investment,” with “reinvestment of profits” accounting for almost 90% of the total.
According to the latest MND Economy Index™, Mexico’s economy has meaningful strengths, but there is ample room for improvement. The index score in June was 66.9 out of 100, a decrease of 1.7 points compared to May.
Mexico News Daily
