Mexico’s Fragile Growth Rebound

Mexico’s economic growth forecasts have been revised downward after gross domestic product data for the first quarter of the year came in below already weak expectations. The latest institution to do so was Mexico’s central bank, Banxico, which a few weeks ago lowered its 2026 real GDP growth forecast from 1.6% to 1.1%. The central bank noted that the negative trend in fixed investment and private consumption would not be sufficiently offset by a better outlook for exports.

What is more, early data for the second quarter offer mixed to negative signals. On the bright side, in April, industrial production rebounded 2.1% month on month, its largest gain since 2021, and exports rose 5.1%. Additionally, formal employment expanded at a modest year-over-year rate of 1.5% (non-seasonally adjusted figures) during the first two months of the quarter. On the other hand, business and consumer sentiment indicators averaged 48.2 and 43.9 points, respectively, between April and May, both below their first-quarter readings. Remittances — a relevant source of income for many Mexican families — contracted 6.9% year over year (non-seasonally adjusted) in April once adjusted for the exchange rate. Reflecting modest job creation, weak consumer confidence, and high inflation, ANTAD retail sales stagnated in real terms in April.

Despite the lack of material improvement in the data so far, analysts’ surveys point to greater stability — and even a rebound — in GDP figures from the second quarter onward. That expected improvement is likely anchored in anticipated spillovers from the sporting events taking place this summer, as well as in the assumption that the United States-Mexico-Canada Agreement (USMCA) will be ratified in the coming months, enabling nearshoring-related investment.

These key assumptions behind an economic rebound appear fragile. First, the economic spillovers from the football tournament will be temporary and may come in below initial expectations. Considering the number of matches hosted in Mexico and the country’s tourism infrastructure, our best estimate is that the country will receive around 750,000 World Cup-related visitors, generating nearly USD 1.6 billion, or roughly 0.1% to 0.2% of annual GDP. These figures are well below the estimates put forward a year ago by government officials of 5 million visitors and a total economic spillover ranging from US$1.8 billion to US$3.3 billion. Second, President Donald Trump has again threatened to withdraw from the USMCA, just weeks before the July 1 deadline for the three members to formally confirm their willingness to extend the trade agreement for another 16 years. It is likely that Mexico — and Canada — will retain preferential access to the US market relative to other countries even if the USMCA is not ratified, supporting export growth. However, trade uncertainty, together with a weakened rule of law in the country, will continue to weigh on investment.

Another vulnerability is the limited scope for fiscal and monetary stimulus. The Mexican federal government is struggling to reduce fiscal deficits, as rating agencies have pointed out. Last month, Moody’s downgraded Mexico’s rating from ‘Baa2’ to ‘Baa3,’ the lowest level within the investment-grade universe, citing rigidities in public finances stemming from social spending, financial costs, and low economic growth. On the monetary front, Banxico’s policy rate is currently estimated to be in neutral territory, while inflation is hovering around 4%, above the 3% target, raising questions about its commitment to its constitutional mandate of price stability. At this point, any fiscal or monetary easing aimed at supporting short-term growth could come at a high cost.

Beyond the final effects of the football tournament, the future of the USMCA, and the limited scope for economic policy stimulus, there are other steps that could help put the Mexican economy back on track. Reinforcing credibility in fiscal and monetary policy goals would be a first step. Moreover, redirecting government spending toward infrastructure investment could lay the groundwork for future growth. Additionally, the government could reverse part of the negative impact of certain constitutional reforms and public security challenges on the rule of law, another key factor constraining private fixed investment.