Introduction to Mexico’s Economic Forecast
The Bank of Mexico (Banxico) has revised its growth forecast for the Mexican economy in 2025, citing a third-quarter contraction as the main reason for the adjustment. The central bank’s new forecast, included in its quarterly report for the July-September period, predicts a growth rate of 0.3% for the year, down from the previous forecast of 0.6%. This revision is based on a contraction of 0.3% in the third quarter compared to the previous quarter and a 0.2% decline compared to the same period last year.
Economic Performance in 2025
The Mexican economy’s performance in 2025 has been weaker than expected, with a growth rate of 0.4% in the first nine months of the year. This represents the worst economic performance for the period since 2020, when the COVID-19 pandemic caused a sharp contraction. The contraction in the third quarter was driven by a decline in the secondary sector, which contracted 1.5% in the first nine months of the year. In contrast, the primary sector grew 2.9% and the tertiary sector expanded 1.2%.
Factors Affecting Economic Growth
The Mexican economy’s growth has been affected by a range of factors, including international uncertainty due to trade tensions and a deterioration of the secondary sector. The country’s export revenue, mainly derived from the shipment of manufactured goods, has continued to grow despite tariffs imposed by the United States on a range of Mexican products. The US-Mexico-Canada Agreement (USMCA), which superseded the North American Free Trade Agreement (NAFTA), is expected to undergo a formal review process in 2026, which could generate more economic certainty in North America.
Outlook for 2026 and Beyond
Despite the revised forecast for 2025, Banxico predicts that the pace of growth of the Mexican economy will quicken in 2026, with a forecast growth rate of 1.1%. The central bank expects the economy to grow 2% in 2027. The conclusion of the USMCA review is expected to generate more economic certainty, which could lead to an increase in foreign direct investment (FDI) in Mexico. In the first nine months of 2025, FDI in Mexico reached a record high of $40.9 billion.
Inflation and Job Creation
Banxico predicts that Mexico’s annual headline inflation rate will be 3.5% at the end of 2025, down slightly from 3.61% in the first two weeks of November. The central bank expects inflation to moderate in 2026, reaching 3% in the third quarter of 2026 and remaining at that level into 2027. With regard to formal sector job growth, Banxico forecasts that between 210,000 and 310,000 additional positions will be added in 2025, and between 260,000 and 460,000 in 2026.
Conclusion
In conclusion, the Bank of Mexico’s revised forecast for the Mexican economy in 2025 reflects a weaker-than-expected performance in the third quarter. However, the central bank expects the economy to recover in 2026, driven by a range of factors including the conclusion of the USMCA review and an increase in foreign direct investment. The prediction of moderate inflation and job growth in the formal sector also suggests a positive outlook for the Mexican economy in the coming years. Overall, while the revised forecast for 2025 is lower than expected, the outlook for 2026 and beyond is more positive, with the potential for increased economic growth and investment in Mexico.
