Mexico's Economy Contracts 0.9% in January

Mexico's economic activity contracted 0.9% in January 2026, the steepest monthly decline since December 2024, driven by industrial sector weakness that affected construction, manufacturing, mining, and energy supply. Bank of Mexico Governor Victoria Rodríguez warned that Middle East geopolitical risks, trade policy uncertainty with the United States, and USMCA review concerns are creating external pressures on growth, inflation, and investment despite stable financial system fundamentals. The contraction follows 0.8% GDP growth in 2025, marking four consecutive years of slowing economic expansion as secondary activities representing 63.3% of GDP declined while services and agriculture provided limited offset.

Mexico's economic activity fell 0.9% in January 2026 compared to the previous month, marking the steepest monthly decline since December 2024, when the indicator dropped 1.1%, according to data from the INEGI. Bank of Mexico Governor Victoria Rodríguez Ceja warned that global risks have increased due to the Middle East crisis, adding "relevant external pressures" to the Mexican economy. The conflict has caused pressure on energy prices, disruptions in supply chains and increased financial volatility.

The Global Indicator of Economic Activity (IGAE) contracted due to weak performance in industrial activities, which fell 1.1% from December 2025. The decline affected multiple sectors within secondary activities: construction, manufacturing, and mining each dropped 1.1%, while electricity generation, transmission and distribution, along with water and natural gas supply, contracted 1.9%.

Primary activities in agriculture fell 3.7% month-over-month, while tertiary activities covering services and commerce declined 0.6%. Within the service sector, wholesale trade contracted 0.9% and retail trade fell 0.4%. Despite the monthly contraction, the IGAE grew 0.5% compared to January 2025, driven by 2.4% growth in agricultural activities and 0.9% expansion in services and commerce. Industrial activities fell 0.1% year-over-year.

Current Outlook

Speaking at the 89th Banking Convention, Rodríguez said the international environment remains marked by uncertainty and economic policy adjustments from Mexico's main trading partner, which have influenced recent national economic performance. During 2025, economic activity registered moderate growth with an uptick toward year-end, while the start of 2026 remains conditioned by this uncertain environment.

The governor noted that risks associated with the geopolitical environment have intensified, particularly due to the Middle East conflict. However, she also identified factors that could drive economic activity, including higher growth in the United States or eventual reduction in trade uncertainty.

The central bank expects general and core inflation to converge toward the 3% target by 2Q27. Inflation has remained within the variability range around the 3% objective from July 2025 through the first half of February 2026, reflecting relatively stable evolution in both core and non-core components.

Within core inflation, services have shown a downward trajectory, though more gradual than anticipated, while goods registered upward pressures during 2025 and a spike in January 2026 associated with tax adjustments, with limited and transitory effects.

Regarding the financial system, Rodríguez noted that domestic financing to the private sector has continued recovering after the pandemic impact, driven mainly by commercial bank credit, particularly to businesses and consumers. This expansion has occurred in an orderly manner with low delinquency levels, which has sustained household consumption and productive activity.

On payment systems, she highlighted that use of electronic transfers maintains an upward trend. During 2025, more than 7.3 billion operations were conducted through SPEI, totaling nearly MX$600 billion (US$33.72 billion), equivalent to 16.8 times the gross domestic product.

Rodríguez acknowledged that gaps persist in the adoption of digital payments among some population sectors, prompting the central bank to promote regulatory changes to simplify and make electronic transfers from mobile devices more accessible.

Mexico’s Economy in 2025

The January 2026 decline follows a year in which Mexico's economy grew just 0.8% in 2025 compared to 2024, marking the fourth consecutive year of slowing growth and exposing structural constraints that continue to limit investment and business confidence.

The 2025 result, which replaced a preliminary estimate of 0.7%, widened the output gap relative to Mexico's estimated growth capacity of 2% and the historical average growth rate of 1.8% recorded between 2000 and 2018. Investment strategists warned the performance reflects chronic growth limitations in the Mexican economy.

Services and agriculture drove 2025's expansion. Tertiary activities covering services and commerce grew 1.5% during the year, contributing 31.8% to total GDP. Primary activities including agriculture, livestock and forestry expanded 4%, accounting for 4.5% of total output.

However, these gains failed to offset contractions in secondary activities. Industry, manufacturing and construction declined 1.1% between January and December 2025. Secondary activities represent 63.3% of total GDP, meaning nearly two-thirds of economic activity contracted during the year.

Economic activity strengthened in the 4Q25, with GDP increasing 0.9% compared to the third quarter. Economists at Goldman Sachs and Pantheon Macroeconomics described the result as a positive signal, though they cautioned the outlook remains fragile amid uncertainty in 2026.

Andrés Abadía, Chief Economist for Latin America, Pantheon Macroeconomics, said the year-end data "was driven by the lagged effect of lower rates, the rebound of the Mexican peso and the moderation of inflation that compensate for adverse internal and external factors."