Banxico Lowers 2025 GDP Forecast to 0.3% Amid 3Q25 Contraction

Banxico has cut its growth forecast for the Mexican economy in 2025 to 0.3%, down from the 0.6% projected three months ago, Governor Victoria Rodríguez reported. She explained that the revision reflects a deeper-than-expected contraction in economic activity during 3Q25.

Presenting the Quarterly Report for June to September, Rodríguez said that Banxico now expects GDP growth in 2025 to range between 0.1% and 0.5%, compared with the previous 0.1% to 1.1% estimate. Looking further ahead, the central bank projects that the economy will expand by 1.1% in 2026, within a range of 0.4% to 1.8%. For the first time, Banxico also shared a 2027 GDP forecast, anticipating growth of 2% with a potential range of 1.2% to 2.8%.

Rodríguez highlighted that private consumption is likely to show an upward trend, while investment is expected to remain subdued at least until the second half of 2026, amid ongoing uncertainties over trade relations with the United States and the upcoming USMCA review. She added that exports are expected to maintain a positive, though moderate, pace, reflecting trends in US industrial production.

Monex noted that despite the recent slowdown in growth and the cautious tone of Banxico’s forecasts, underlying inflation pressures remain. “Persistent pressures in the services sector stand out, as despite the economic slowdown, inflation has remained above 4.2% annually since the second half of December 2021,” the firm stated.

Banamex also pointed out that Banxico’s 2025 growth projection of 0.3% falls below analysts’ 0.5% estimate, while the 2026 forecast of 1.1% is below the market’s 1.4% expectation.

Inflation Outlook

On the inflation front, Banxico reported that annual headline inflation declined from 4.22% to 3.61% between the 2Q25 and 3Q25, remaining at 3.61% in the first half of November. The moderation in inflation has been largely driven by lower non-core inflation observed in July and generally subdued levels in the following months.

Meanwhile, core inflation rose slightly between quarters, showing stability in 3Q25 and a modest increase in November. Specifically, it moved from 4.08% to 4.25% between quarters and reached 4.32% in early November.

Rodríguez noted that the forecast for headline inflation in 4Q25 has been slightly revised downward compared with the previous report. She added that expected inflation 3Q26 onward remains aligned with prior projections, maintaining a forecast of 3% for that period. She also said that new taxes on soft drinks and other changes to the IEPS Law are expected to have only limited and temporary effects, without affecting prices of untaxed goods or triggering secondary impacts.

Monetary Policy and Interest Rates

Regarding monetary policy, Rodríguez stated that, considering the overall inflation outlook, Banxico’s Governing Board deemed it appropriate to continue reducing the reference rate. In August, September, and November, the central bank lowered the rate by 25 basis points in each meeting, bringing it to 7.25%.

“Going forward, the Board will assess potential further reductions in the reference rate, taking into account all factors affecting inflation,” she said. On the exchange rate, Rodríguez highlighted that the Mexican peso continued to show an appreciation trend.

The governor also observed signs of cooling in the labor market. Excluding gig economy workers, formal employment is expected to increase by between 60,000 and 160,000 jobs this year.