Leer en Español What’s The Current Economic Situation In Mexico? Mexico’s economy grew by a revised 0.6% in Q2 from the previous quarter, slightly below the earlier estimate of 0.7%. The figure came in stronger than markets had expected and highlighted the economy’s ability to hold up despite U.S. tariffs. Growth was broad-based, with construction, finance, manufacturing and retail all contributing. Retail, in particular, likely got a boost from healthy tourism, rising real wages and low unemployment. That said, the pace of GDP growth looks set to cool in Q3: Lean government spending, weak remittances, U.S. tariffs on certain exports and uncertainty around U.S. trade policy are expected to weigh on activity. On the brighter side, the Central Bank’s continued monetary easing should give domestic demand some breathing room. How Is Mexico’s Inflation Trending? Inflation in Mexico has averaged close to the top of the Central Bank’s 2.0–4.0% target range so far this year, due largely to cost pressures in food and housing. Price rises for clothing and transport have been comparatively mild—the latter due to the recent fall in global energy prices. Our Consensus is for Mexico’s inflation to remain close to the top of the target range in the coming quarters, propped up by lower interest rates, solid wage growth and peso weakening. How Will The Peso Perform Ahead? The peso has strengthened so far this year against the dollar, thanks to solid export growth plus investor concerns over U.S. economic policy and institutional independence weighing on the greenback. However, our panelists expect the peso to progressively lose ground in the coming quarters as Banxico cuts interest rates by more than the Fed. The currency is likely to remain volatile, though, with sources of uncertainty including U.S. migration policy, the outcome of the USMCA renegotiation in 2026 and further domestic reforms that are perceived by the market to weaken democratic safeguards. Failure to renew the trade deal with the U.S. and Canada—or a new agreement that has much less favorable terms for Mexico—could dampen the peso, as could domestic democratic backsliding or rising U.S. deportations hitting remittances inflows to Mexico. How Are U.S. Tariffs Impacting Mexico? Current U.S. tariffs on Mexico include those on goods not compliant with the USMCA trade deal plus sector-specific tariffs on aluminium, cars, copper and steel. Despite this, non-oil exports from Mexico to the U.S. have risen about 6% in annual terms so far this year. This partly reflects Mexican firms’ success in making many goods USMCA-compliant so as to avoid tariffs, plus some frontloading by firms. For more information check our dedicated article on U.S. tariffs against Mexico. Perhaps the biggest impact of the tariffs to date is one that is less visible: A loss of new business investment. For instance, major electric car producers BYD and Tesla have both recently cancelled plans to build factories in Mexico due to trade uncertainty. On trade negotiations with the U.S., Itaú Unibanco analysts said: “We believe that Mexican authorities will continue to engage constructively with their US counterparts [on trade]. Negotiations are ongoing and are expected to continue until at least the end of next year, with a USMCA renegotiation likely to occur afterward. As the US is currently managing several trade deals, a USMCA renegotiation is likely to take place only at the end of 2026 or the beginning of 2027. Stricter local content laws should be the focus of all negotiations.” How Is U.S. Immigration Policy Affecting Remittances? The Trump administration is currently ramping up deportations, while the number of people crossing the Mexican border illegally has fallen to close to zero. The upshot is that remittances to Mexico from the U.S. fell year on year for the fourth month in a row in July. Going forward, remittances are likely to continue to be weighed on by deportations, reduced border crossings and a softer labor market. A remittances tax due to take effect in the coming months will be a further drag if implemented. What Is Our Panelists’ View on Fiscal Policy? After an election-related spending surge in 2024, the government has run a tight fiscal ship so far this year. In the first seven months of 2025, current spending was roughly flat year on year while capital spending plummeted by over a third following the completion of the former president’s key infrastructure projects. Our panelists expect Mexico’s fiscal deficit to narrow this year vs 2024 but to remain sizable at 3.8% of GDP—much larger than the past decade’s average. The fiscal deficit is forecast to remain above 3.0% of GDP in the coming years due to elevated social spending commitments, which coupled with weak GDP growth potential, will see public debt rise as a share of the economy in future years. On the fiscal outlook, EIU analysts said: “In its 2025 budget plan, the government projected a decline in spending as well as a modest improvement in revenue. We expect the overall effect to be a narrowing of the fiscal deficit from 4.9% of GDP in 2024 to 3% by 2029. However, this process will be gradual, and we expect some slippage past the consolidation targets that the administration has outlined for the immediate term. Ms Sheinbaum has a raft of spending priorities, including popular social programmes, and she has not proposed tax increases. The budget maintains a heavy emphasis on social spending, which Ms Sheinbaum will refrain from rationalising, despite the high cost. Plan México, the ambitious economic development strategy, will add further pressure, as will the need for unbudgeted spending towards policy concessions to the US, including in border security and migration management.” Goldman Sachs’ Alberto Ramos said: “Overall, fiscal consolidation is expected to continue, albeit at a gradual and unambitious pace and backloaded to 2027/28. We anticipate growing pressures on the spending side of the budget, particularly on rising pension payments, and a growing need for a tax reform/package, likely after the 2027 mid-term elections.” How is Central Bank Policy Set To Evolve? After four consecutive 50 basis point reductions,
