Rodriguez: Services boosted Mexico economic growth in 40
TL;DR
Mexico's services sector drove 1.8% GDP growth in early 2025, offsetting manufacturing and energy weaknesses, but high interest rates and trade uncertainties pose ongoing challenges.
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Rodriguez: Services boosted Mexico economic growth in 40
Services Sector Drives Mexico’s Economic Growth Amid Trade Uncertainty
Mexico’s services sector emerged as the primary driver of economic growth in the first half of 2025, contributing significantly to a 1.8% annual GDP expansion, according to recent data. This outperformed expectations of a potential recession, though the outlook for the remainder of the year remains cautious, with a projected 0.7% real GDP growth for 2025.
The services sector’s resilience was fueled by robust performance in retail, professional and technical services, real estate, and business management. These subsectors offset weaknesses in manufacturing and energy, which faced headwinds from trade policy uncertainty and declining oil production. Mexico’s external sector, particularly exports, also played a critical role, with net exports contributing 3.6 percentage points to GDP growth. This surge was partly attributed to firms front-loading shipments to avoid anticipated U.S. tariffs, as the U.S. extended a 90-day reprieve on duties for USMCA-compliant goods.
Despite the services-led rebound, structural challenges persist. High interest rates (7.50% policy rate), inflation (core CPI at 4.2%), and weak wage growth have dampened consumption and investment. Public investment has also declined, with the completion of major projects like the Tren Maya railroad reducing fiscal stimulus. Meanwhile, Mexico’s energy sector continues to drag on growth, with Pemex’s financial struggles and declining crude output exacerbating economic pressures.
Trade dynamics remain pivotal. Mexico’s $635.7 billion in first-half trade (up 3.0% year-over-year) reflects deep integration with the U.S., though intra-industry trade ties and potential tariff hikes under USMCA renegotiations introduce uncertainty. Analysts note that Mexico’s geographic proximity and labor advantages position it as a key player in North American supply chains, but fiscal discipline and structural reforms—such as improving electricity access and reducing corruption—will be critical to sustaining growth.
For investors, Mexico’s services-driven recovery highlights opportunities in resilient sectors, though risks from trade policy shifts and domestic structural bottlenecks warrant close monitoring. The central bank’s recent rate cuts and efforts to stabilize public finances suggest a focus on long-term stability, even as near-term growth remains fragile.
