Mexico's Economy Contracts in Q4, Hampered by Weak Domestic Demand and Trade Tensions
Mexico's economy experienced its largest quarterly contraction since 2021, with gross domestic product (GDP) declining by 0.6% in the three months ending December. This decline matches the preliminary estimate released last month.
The country's GDP grew by a modest 0.5% compared to the same period in 2024, slightly lower than the earlier estimate of 0.6%. The contraction is attributed to a slowdown in domestic demand and private investment, as well as ongoing tensions with the United States, Mexico's largest trading partner.
The manufacturing sector, particularly in non-automotive exports, has been affected by a loss of momentum. The agriculture sector also suffered, shrinking by 8.5% due to drought conditions. Notably, the industrial and services sectors also experienced declines of 1.5% and 0.2%, respectively.
Experts anticipate further economic slowdown in Mexico for a fourth consecutive year in 2025. This is due to tight fiscal conditions and concerns about policy uncertainty in both Mexico and the US. The central bank has lowered its GDP growth forecast for 2025 to 0.6% from the earlier estimate of 1.2%.
Meanwhile, annual inflation moderated to 3.59% in January, and core inflation remained at 3.66%. Carlos Capistran, chief economist for Canada and Mexico at Bank of America, highlighted the economy's vulnerability and predicted further interest rate cuts by the central bank in March.
These developments underscore the challenges facing Mexico's economy amidst the current global economic climate.