Mexico’s Manufacturing Sector Contracts 2.4% in February

In February 2025, Mexico’s manufacturing sector showed signs of persistent weakness, with the Monthly Timely Indicator of Manufacturing Activity (IMOAM) registering at 101.7 points, reflecting an estimated annual decline of 2.4%, according to INEGI.

In January 2025, manufacturing production declined by 0.4% compared to the previous month and 1.9% year over year (YoY), according to seasonally adjusted figures from INEGI. These figures contrast with the growth seen in previous years. In 2023, Mexico’s manufacturing industry GDP was worth about MX$5.2 trillion, the highest recorded to date, reports the Ministry of Economy of Chiapas. This figure represented a 20.1% share of the total GDP that year, which surpassed MX$25 trillion pesos for the first time. 

The BBVA Research Multidimensional Manufacturing Indicator (IMM BBVA) fell by 4.8% YoY in January, marking the tenth consecutive decline since April. The six-month average interannual variation now stands at -3.7%. The latest industrial activity data from the United States suggests that the recovery in manufacturing will materialize at a slower pace. The BBVA report says that production in some US manufacturing segments continues to show contractions. Specifically, vehicle and auto parts production recorded a 5.9% YoY drop in January, the third consecutive decline since November. 

Although US manufacturing production is showing signs of improvement, some segments, such as the automotive industry, continue to lag. This industry accounts for 28.7% of the total value of Mexico’s manufacturing production. The gradual recovery in US car sales is expected to eventually boost production in Mexico. However, the potential imposition of tariffs on US imports remains a risk factor for this sector. 

Stagnation in the Mexican Economy

February’s IMEF Manufacturing and Non-Manufacturing Indicators reflect the persistence of economic stagnation in recent months. Both indicators show levels indicating a lack of economic expansion compared to January and remain in contraction territory. The IMEF Manufacturing Indicator increased by 1.0 points from January but remained below the expansion threshold for the eleventh consecutive month. The trend-cycle and firm-size-adjusted series also stayed below expansion levels, at 46.7 and 48.9, respectively. These figures confirm that the contraction in the manufacturing sector continues and has extended into the first months of 2025.

The IMEF Non-Manufacturing Indicator increased marginally by 0.3 points to 49.5 units. The trend-cycle series declined by 0.1 points to 49.3, while the firm-size-adjusted series contracted by 0.7 points to 48.5. All three measurements remained slightly below the 50.0-unit threshold, signaling a lack of expansion and weak momentum in the services and trade sectors. This suggests that, despite being the driving force behind economic recovery after the pandemic, these sectors are now showing signs of weakness.

Manufacturing Decline in North America

According to information from S&P Global, in January 2025, Mexico’s manufacturing industry experienced a 0.4% monthly decline in physical production volume and a 1.9% annual contraction.

Manufacturers in both Canada and Mexico reported that concerns over potential US tariffs contributed to reduced production volumes in February. The decline was particularly sharp in Canada, where output fell for the first time in five months and at the steepest rate since July 2024. On the other hand, Mexico’s manufacturing production contracted for the eighth consecutive month, with the most pronounced decline since last September. In contrast, US manufacturing output saw its fastest expansion since May 2022 in February, reports S&P Global Market Intelligence.

The decline in Canadian manufacturing exports was the steepest since last September, reversing the growth observed at the start of 2025. Meanwhile, Mexico saw its twelfth consecutive export decline, marking the most severe contraction in nearly four years.

In the United States, new export orders in the manufacturing sector declined for the ninth consecutive month in February, with the second-fastest drop since mid-2023. S&P Global Market Intelligence’s survey participants cited concerns over tariffs as a major contributing factor to this trend.

Inflationary Pressures and Business Sentiment

The S&P report also says that the strength of the US dollar has driven up costs, prompting manufacturers to increase selling prices. In Mexico, the strong US dollar also contributed to rising input costs, outweighing the direct impact of tariffs. However, Mexican manufacturers saw input price inflation ease to its lowest level in nearly 18 months due to reduced demand for raw materials, while output price increases were marginal.

Although US business confidence was strong at the start of the year, it has since faded, with March sentiment dropping to its second-lowest level since October 2022. The decline in confidence has been most evident in the services sector, where government spending cuts and tariff-related uncertainties have dampened optimism.

In March, US factories reported the steepest rise in input costs in 31 months, leading to inflation rates significantly exceeding those in other G4 economies. Manufacturers attributed these higher costs to tariffs, which were subsequently passed on to consumers, resulting in the highest factory price inflation in the United States, reports S&P Global Market Intelligence. This inflationary pressure could dampen demand for US goods, impacting global trade dynamics.