Mexico's Economy Shrinks Again in January, Raising Slowdown Fears

Mexico’s economic activity contracted for the second consecutive month in January, raising concerns about a slowdown, according to data released Monday by the National Institute of Statistics and Geography (INEGI). The Global Indicator of Economic Activity (IGAE) declined 0.2% month-over-month, following a 0.4% drop in December.

A Banamex report attributed the latest contraction to a 0.4% decline in industrial production, while primary sector activities grew 3.1%, and services remained flat. The data confirms that economic weakness persisted into early 2025, with Banamex forecasting a 0.5% GDP contraction for the first quarter. This follows a 0.6% decline in the fourth quarter of 2024. The bank maintained its full-year GDP growth projection at 0.0% for 2025.

“For this year, we expect economic stagnation due to contracting public spending in line with fiscal consolidation plans, easing labor market conditions, restrictive real interest rates, and uncertainty surrounding domestic and US policies that weigh on investment and consumption decisions,” Banamex stated.

Ve por Más (Bx+) also underscored the fragile growth outlook, predicting continued economic weakness through the first half of the year. The bank projected a GDP growth of 0.9% for 2025. “Weak momentum will likely persist amid high uncertainty from both local and external factors,” Bx+ noted.

While private consumption may benefit from low unemployment, wage growth, social assistance programs, and peso-denominated remittances, discretionary spending could weaken further, the bank warned. Public investment is expected to remain limited due to fiscal consolidation, while private investment faces high financing costs and uncertainty.

Banco Base emphasized that the January contraction increases the likelihood of a negative GDP result for the first quarter of 2025.

“Assuming economic activity grew 0.2% in February, as suggested by the Leading Economic Activity Indicator, and remained flat in March, Mexico’s GDP would reflect a 0.7% quarterly decline,” the bank reported.

If confirmed, this would mark the first annual GDP contraction since the first quarter of 2021.