Rodriguez: Mexico economic forecasts lean to the downside

Rodriguez: Mexico economic forecasts lean to the downside

Mexico’s Economic Outlook: Resilience Amid Rising Domestic Risks

Central Bank of Mexico (Banxico) Governor Victoria Rodriguez emphasized that Mexico’s economy remains “solid and resilient” despite mounting domestic risks, including deteriorating public finances, inflationary pressures, and weak growth expectations, according to the institution's December 2025 financial stability report. However, recent data and forecasts suggest a complex outlook, with conflicting signals between short-term resilience and long-term vulnerabilities.

Mexico’s banking system maintains liquidity and capitalization above regulatory requirements, with stress tests confirming its ability to withstand adverse scenarios. Nevertheless, internal financial risks have intensified, driven by declining economic expectations, persistent inflation (3.6% year-on-year in August 2025), and fiscal consolidation efforts. Banxico revised its 2025 growth forecast to near zero in late 2025, reflecting global trade uncertainties and domestic headwinds.

Economic activity contracted 0.3% quarter-on-quarter in the third quarter of 2025, with weak private consumption, stagnant formal employment, and declining investment cited as key factors. BBVA Research forecasts 0.7% GDP growth for 2025, down from earlier projections, while a modest rebound to 1.2% is anticipated in 2026. Meanwhile, the Dallas Fed noted that first-half 2025 growth of 1.8%—driven by export surges linked to U.S. tariff front-running— contrasts with a fragile domestic sector, where slowing wage growth, falling remittances, and high interest rates (7.50% policy rate) dampen consumption and investment.

Structural challenges, including energy sector struggles, including Pemex's financial distress, regulatory uncertainty, and USMCA renegotiation risks, further complicate the outlook. Public debt remains stable at 51.4% of GDP, but fiscal consolidation and reduced infrastructure spending have weakened public-sector stimulus.

Banxico's accommodative monetary policy, including a 25-basis-point rate cut in September 2025, aims to support growth, though inflation is not expected to reach the 3.0% target until late 2026. While the peso has strengthened against the dollar, reflecting carry-trade demand, uncertainties around trade policy and domestic governance reforms persist.

In summary, Mexico's economy balances short-term resilience with structural vulnerabilities, as policymakers navigate a fragile global environment and domestic fiscal constraints.