Mixed Signals for Economy: Optimism Clashes With Stagnation

Mexico’s economic outlook presents a mixed picture, as international and domestic indicators reveal optimism tempered by persistent structural challenges. While the OECD has revised its growth forecast upward, citing improved trade conditions and resilient household consumption, domestic data from IMEF and Banxico points at continued stagnation, weak investment, and heightened uncertainty surrounding trade policy and inflation.

The OECD raised its growth forecast for the Mexican economy for this year and next, anticipating that a swift renegotiation of the trade agreement with the United States could reduce commercial uncertainty.

In its Economic Outlook, the OECD projected that Mexico’s GDP will grow by 0.4% in 2025. This revised forecast marks an improvement from the organization’s March estimate, which anticipated a 1.3% contraction. However, the OECD warned that “given Mexico’s high exposure to the US market, growth and inflation expectations remain uncertain.” For inflation, the OECD expects a rate of 3.4% by the end of 2025 and 3.2% in 2026, still above Banxico’s 3% target, even amid economic stagnation.

The organization highlighted that the main driver behind avoiding a recession is continued household consumption, supported by low unemployment and easing inflation. The organization also sees a potential rebound in private investment, encouraged by gradually declining interest rates. Public investment, however, is expected to remain moderate, as the government prioritizes fiscal deficit reduction. The OECD now estimates a fiscal deficit of 3.5% of GDP, more optimistic than the government’s own projection.

Contrasting Views

While the OECD raised its forecast, the Mexican Institute of Finance Executives (IMEF) reported that the Mexican economy remains weak. “The IMEF Manufacturing and Non-Manufacturing Indicators for May continue to reflect a stagnant economy,” the institute stated in its monthly report.

The IMEF Manufacturing Index rose 1.9 points compared to April, reaching 47.4 points. Although this marked a slower pace of contraction, the index remained in contraction territory for the 14th consecutive month. Both the trend-cycle series (46.6) and the size-adjusted indicator (47.6), stayed below the 50-point expansion threshold.

Despite continued weakness in the manufacturing sector, the slower pace of decline suggests a possible stabilization in the recent deterioration of industrial activity. Meanwhile, the Non-Manufacturing Index edged up by just 0.3 points in May to 49.4. The trend-cycle series improved marginally to 49.2, while the size-adjusted figure fell 0.4 points to 48.1. All three measurements remain below the expansion threshold, indicating that the services and commerce sectors continue in contraction territory.

Confirmed GDP data for 1Q25 showed modest quarterly growth of 0.2% (0.6% year-over-year), highlighting a fragile economic environment with sectoral imbalances. Growth was driven primarily by a 7.8% quarterly rebound in the agricultural sector. In contrast, both secondary and tertiary activities contracted by 0.1%, pointing to a broader weakening in domestic activity. Monthly GDP figures (IGAE) through March confirmed the slowdown, with weaker-than-expected results reinforcing the quarter’s weak performance.

Banxico, meanwhile, further reduced its 2025 GDP growth forecast to 0.18%, down from 0.2% the previous month. This marks the sixth consecutive monthly downgrade and the lowest estimate in the past 13 months. Earlier this year, analysts projected a 2.01% expansion. In contrast, the federal government maintains a forecast of 1.9% for 2025.

According to the survey, 20% of respondents now consider trade policy, particularly regarding the USMCA and CPTPP, the main risk to the economy. This concern has overtaken even public security issues and domestic economic policy uncertainty.

Looking ahead to 2026, analysts expect GDP growth to reach 1.36%, lower than the 1.45% projected a month earlier. This marks the fourth straight downward revision and the lowest forecast since January 2024.

Inflation expectations for year-end rose to 3.97%, reflecting the second upward revision in a row. Analysts attribute this to a still-restrictive monetary policy. The benchmark interest rate is expected to close the year at 7.51%, implying a cumulative 100-basis-point cut spread across the five remaining monetary policy meetings in 2025.

Regarding current business sentiment, 98% of analysts believe the economy is worse off than it was a year ago, and 37% expect the business climate to deteriorate further. Additionally, 65% believe it is a bad time to invest, while only 5% see current conditions as favorable for investment.