LATAM Benefits From Lower US Tariffs; Mexico Is the Exception

While lower-than-expected US tariffs have given much of Latin America a competitive edge, Mexico’s heavy dependence on the United States has left it vulnerable. Projections for 2025 show near-zero economic growth, declining remittance inflows, and one of the steepest drops in employment in the region, with the labor force participation rate falling to 59.3%.

“Latin America has, in general, benefited from tariffs that were implemented at levels lower than those initially announced, giving the region a competitive edge compared to other parts of the world,” said Gerson Martínez, Regional Labor Economics Expert, ILO’s Latin America office.

Presenting the 2025 Labor Outlook, Martínez noted that South American nations have been largely protected by the diversity of their trade partners. With European and Asian markets representing a similar share to the United States, the direct impact of US measures has been mitigated. In contrast, Central America has yet to feel the full consequences.

“Mexico is the clear exception. With the United States as its primary export destination, main source of foreign investment, and critical provider of remittance inflows, Mexico is already experiencing the effects,” Martínez explained.

Projections from international organizations such as ECLAC and the IMF suggest that Mexican economic growth will be close to zero in 2025. “Moreover, a decline in remittance inflows during the first half of the year poses a challenge, as it affects both foreign currency earnings and domestic consumption, a key driver of the economy,” he added.

Mexico’s Employment Declines

Alongside Ana Virginia Moreira, Regional Director, ILO for Latin America and the Caribbean, Martínez highlighted that Mexico is seeing one of the sharpest contractions in employment in recent years. The number of employed individuals fell by 1.3% in the 1H25 compared to the same period in 2024.

“This is the largest drop among the countries studied and comes with a decline in labor force participation, from 60.1% to 59.3%. Fewer people seeking work and reduced job availability have created an imbalance, resulting in an estimated unemployment rate of 6% for the first half of 2025, up from last year,” he said.

He stressed that these figures indicate a setback in Mexico’s labor market, reflecting the country’s economic slowdown and global challenges. Fiscal limitations, particularly in public spending, have constrained Mexico’s ability to generate sufficient employment.

“While Mexico’s labor formalization rate is close to the regional average, the progress achieved in recent years remains insufficient to improve working conditions for a larger portion of the population. The challenge of expanding formal employment persists,” Martínez concluded.

Mexico’s 2025 Forecast

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%.

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.