OECD Cuts Mexico Growth Forecast, Urges Reforms

The OECD has lowered Mexico’s 2026 GDP growth forecast to 0.8%, citing weaker domestic demand, U.S. tariffs, and ongoing fiscal consolidation efforts. The revised outlook falls well below projections from the Ministry of Finance (SHCP) and Banco de México, adding pressure on businesses, investors, and exporters in an economy where more than 80% of shipments are destined for the United States. As Mexico navigates a slowing growth environment, the upcoming USMCA review will be critical for manufacturing, automotive, and public-sector stakeholders seeking to preserve competitiveness and support long-term investment.

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The Organisation for Economic Co-operation and Development (OECD) has downgraded its 2026 economic growth forecast for Mexico to 0.8%, down from the 1.3% projection published in March. According to the multilateral organization, the revision reflects weaker domestic demand, ongoing trade uncertainty, the impact of US tariffs, and escalating tensions in the Middle East, which it identified as the principal source of risk to the global economic outlook.

The OECD’s revised forecast is more pessimistic than those of Mexican authorities. The Ministry of Finance and Public Credit (SHCP) continues to project economic growth of 2.3% in 2026, while Mexico's Central Bank (Banxico) recently lowered its estimate from 1.6% to 1.1%.

By contrast, the OECD slightly raised its 2027 GDP growth forecast for Mexico from 1.7% to 1.8%, citing the cumulative effects of lower interest rates and continued labor market resilience. For comparison, SHCP projects growth of 2.4% in 2027, while Banxico expects the economy to expand by 2.1%.

Economic activity weakened considerably at the start of 2026 across most productive sectors, including manufacturing, agriculture, and services. While household consumption has moderated amid slower formal job creation, domestic demand remains the economy’s principal source of support. The OECD noted that “lower interest rates will gradually boost private investment in Mexico, but its recovery will be gradual amid persistent political uncertainty, both domestically and globally.”

Public spending and investment are also expected to remain constrained as the federal government advances its fiscal consolidation strategy. SHCP is seeking to reduce the fiscal deficit to below 4% of GDP. To support long-term fiscal stability, the OECD recommended that “strengthening revenues and improving the quality of public expenditure would contribute to safeguarding fiscal sustainability and generating space for public spending that boosts productivity.”

On the external front, Mexico remains exposed to trade-related risks, with more than 80% of exports destined for the United States. While computer equipment manufacturing continues to perform strongly, automotive exports have shown signs of softening. Tariffs and a broader slowdown in the US economy could weigh on export growth, although a timely and successful renegotiation of the USMCA could provide an additional boost to trade and private investment.

Regarding monetary policy, the OECD said Banxico should remain data-dependent, maintaining a restrictive stance until inflation moves decisively toward its 3% target. The organization expects headline inflation to moderate gradually to 3.2% by 2027. It also recommended replacing broad-based energy subsidies with more targeted support for vulnerable households and small and medium-sized enterprises (SMEs), improving the efficiency of public spending.

To strengthen Mexico’s long-term growth potential, the OECD urged the country to implement deeper structural reforms, including the adoption of a medium-term fiscal framework, expansion of property tax collection, increased infrastructure investment, and further simplification of business regulations.

Private Analysts Lower Outlook as Investor Confidence Hits Zero

The OECD’s revised projections come as private-sector analysts surveyed by Banxico have also become more cautious about Mexico’s economic prospects amid growing domestic and external challenges.

In its May survey of between 43 and 48 economic consulting firms and financial institutions, Banxico reported that analysts lowered their 2026 GDP growth forecast to 1.10% from 1.38%. The adjustment marked the third consecutive monthly downward revision and reflected weaker-than-expected economic performance during the first quarter. Analysts also reduced their 2027 growth forecasts to a range of 1.78% to 1.80%.

The survey identified governance-related issues as the main obstacle to economic growth, accounting for 42% of responses. On a scale of 1 to 7, governance concerns received an average score of 5.8. Within that category, public insecurity ranked as the most significant issue, with a score of 6.2, followed by the lack of rule of law, corruption, and impunity, each scoring 5.8. Internal political uncertainty received a score of 5.3. Internal economic conditions represented 26% of respondents’ concerns, while external trade policy accounted for 22%.

Monetary indicators showed that analysts expect headline inflation to end 2026 between 4.35% and 4.36%, while core inflation is projected to reach 4.22%. The Mexican peso is expected to close 2026 between MX$17.90 and MX$17.95 per US dollar before weakening to around MX$18.50 by the end of 2027. Meanwhile, the benchmark interest rate is forecast to remain near 6.49% to 6.50% throughout the period.

Investor sentiment has deteriorated sharply. None of the economists surveyed said that current conditions represent a good time to invest in Mexico. The result marks the third time in six months that positive investment sentiment has fallen to zero and reflects a steady decline in confidence since the June 2024 election of President Claudia Sheinbaum.

Half of respondents described the current environment as unfavorable for corporate investment, while 49% remained uncertain. Additionally, 79% said Mexico’s economic conditions had worsened compared with a year earlier.