Mexico’s economy posted the biggest quarterly contraction since 2021, with domestic demand and private investment faltering just as tensions with its top trade partner mount.
Gross domestic product fell 0.6% in the three months through December, matching the 0.6% decline reported in preliminary data released by the country’s national statistics institute Jan. 30. From a year ago, GDP expanded 0.5%, less than the flash reading of 0.6%, according to the final data published Friday.
Latin America’s second-largest economy is suffering with loss of dynamism in manufacturing exports, including of items outside its titanic auto sector, the central bank indicated in a report this week. The Finance Ministry has also attributed part of the downturn to drought that spurred the agriculture sector’s worst performance in a quarter-century.
From the previous quarter, the agriculture sector shrank 8.5%, the industrial sector shrank 1.5% and the services sector grew a mere 0.2%.
Mexico’s economy is widely expected to slow for a fourth consecutive year in 2025 amid tight fiscal conditions coupled with concern over policy uncertainty in both Mexico and the US. Mexico is currently waiting to find out whether President Donald Trump will follow through on his threat to impose a 25% across-the-board tariff on its exports, after he delayed the decision.
What Bloomberg Economics Says
“Lower public spending, government policies and US trade uncertainty are key headwinds. Interest rates have fallen, but monetary conditions are still tight. Households have a leg up due to decelerating inflation and higher wages.”
— Felipe Hernandez, Latin America economist
The central bank slashed its projection for 2025 GDP growth to 0.6% from 1.2% and maintained its 2026 forecast of 1.8%, according to a quarterly report published this week. Meanwhile, annual inflation slowed to 3.59% in January while core inflation stood at 3.66%.
“The economy is clearly in a weak spot, and will continue in 2025,” said Carlos Capistran, chief economist for Canada and Mexico at Bank of America. “Banxico will use this to cut another 50 basis points in March, in the absence of 25% blanket tariffs.”
--With assistance from Rafael Gayol.
©2025 Bloomberg L.P.
