Mexico - March 2026

The Mexican economy grew by just 0.6% in 2025, representing the country’s fourth consecutive year of weaker growth and its longest slowdown since the 1980s, despite ending the year on a high note with a burst of fourth-quarter activity. The disappointingly low annual performance was due to a combination of factors, including low investment, trade volatility, and a gaping budget deficit.

GDP figures for the final quarter of 2025 released by Mexico’s national statistics institute (Inegi) on 24 February show growth of 0.9% from the previous quarter, and 1.8% from the fourth quarter of 2024, mostly thanks to growth in the manufacturing and services sectors. Fourth quarter growth in 2025 was significantly higher than the first three quarters of the year, with anaemic quarterly growth of just 0.1% in the third quarter, 0.5% in the second quarter, and 0.3% in the first. However, overall 0.6% growth from January to December of 2025 represented a significant slowdown from the already relatively weak growth of 1.4% in 2024 – and well down from the highs of around 6% in 2021, when the economy rebounded from a sharp contraction in 2020 due to the coronavirus (Covid-19) pandemic.

A wait-and-see approach adopted by private investors following the 2024 general elections meant that Mexico’s GDP growth struggled for much of the year. As the new administration of President Claudia Sheinbaum has gradually consolidated power, legislative uncertainty stemming from controversial judicial and energy sector reforms have led to a cooling of new foreign direct investment (FDI), with reinvestment driving FDI figures, in spite of efforts to boost investment through the new government’s flagship programme, Plan México, which has so far failed to deliver on its promises.

Although the final quarter of 2025 provided a much-needed lifeline, with the late rally suggesting that the economy is beginning to regain momentum, growth is still being dragged down by structural bottlenecks, leading economists to expect activity to pick up only slightly in 2026. Private sector analysts have raised their forecast for economic growth in 2026 to 1.46%, according to the latest survey by the central bank, Banco de México (Banxico). Capital Economics, a London-based consultancy, is expecting growth of just 1% in 2026. “While exports are holding up (helped by a boom in AI-related products), fiscal tightening, a softening of the labour market and weakness in remittances will hold back domestic demand,” analysts at the consultancy wrote in a note to clients.

Most immediately, Mexico’s growth prospects will depend on the ability of trade officials to negotiate a swift and positive outcome to the July review of the US-Mexico-Canada Agreement (USMCA) governing trade. While Mexico faces a slightly lower average tariff rate compared to most other countries, there is significant uncertainty around the current tariff regime. Mexico must tread carefully to hold onto its status as the US’ top trading partner, but US President Donald Trump has cast doubt on extending the trade pact he negotiated in his first term, and many are worried that the renegotiation could drag on for longer than expected, hitting investment and exports.

In addition, public insecurity continues to pose another major obstacle to stronger economic performance, with violence and uncertainty in several regions affecting investment decisions, and increasing costs. The recent killing of one Mexico’s most powerful cartel bosses, Nemesio Rubén Oseguera Cervantes, known as ‘El Mencho’, has added an extra layer of risk, amid concerns of a drawn-out turf war that could hit economic activity, from tourism to manufacturing, especially of electronics and semiconductors, which is concentrated in the heavily affected state of Jalisco.

More broadly, Mexico is grappling with a budget deficit that hit a decades high of around 5% in 2024, only edging down slightly to 4.3% last year. While the government has committed to fiscal consolidation, credit rating companies insist the government must do more to close the gap to avert a potentially costly downgrade, in turn increasing the cost of sovereign debt and limiting public spending and investment.

Finally, a lack of structural reforms in areas such as infrastructure, productivity, and the labour market is limiting Mexico’s longer term capacity for growth. For example, energy shortages and water scarcity in industrial hubs are preventing nearshoring from reaching its full potential while cramping the expansion of industrial capacity that could lay foundations for future economic growth.