Mexico's Economy Contracts in Q4 2024, Raising Recession Fears

Mexico's GDP declined by 0.6% in the fourth quarter of 2024, marking the first quarterly contraction since 2021 and exceeding analysts' expectations. The contraction was driven by weaker domestic demand and uncertainty over potential tariffs from the U.S., Mexico's largest trading partner.

For the full year 2024, GDP expanded by a mere 1.5%, falling short of projections. The government's fiscal retrenchment, tight fiscal conditions, and policy uncertainties in both Mexico and the U.S. are expected to contribute to a slowdown in 2025 for the fourth consecutive year.

Key Sector Performance

The agriculture sector experienced an 8.9% quarterly decline, while manufacturing fell 1.2%. Services, on the other hand, grew by 0.2%.

Inflation and Central Bank Policy

Inflation eased to 3.69% in the first two weeks of January 2025, within the central bank's target range. Despite this, concerns over potential U.S. tariffs could lead to upside risks to inflation and complicate the central bank's easing cycle.

U.S. Tariff Threat Looms

U.S. President Donald Trump has threatened to impose a 25% tariff on Mexico unless it takes more action to curb the flow of drugs and undocumented migrants. Economists warn that tariffs would exacerbate the economic contraction.

Projections and Market Sentiment

Economists are cautiously optimistic about Mexico's economic outlook for 2025, with growth projections ranging from 0.8% to 1.2%. However, the threat of U.S. tariffs and other uncertainties continue to cast a shadow over market sentiment.