Mexican economy sees stagnation in May, as the services sector fails to thrive
Mexico's economy is currently experiencing muted growth, as various factors contribute to its sluggish expansion. According to recent forecasts, Mexico's economic growth is expected to be below 1% in 2025, with several financial institutions revising their growth projections downwards.
Vanguard, the World Bank, and the International Monetary Fund (IMF) have all downgraded their growth forecasts for Mexico. Vanguard has revised its forecast to a mere 0.41% growth for May 2025, down from initial predictions of about 1.5%. The World Bank has revised its growth forecast to 0% for 2025, citing high levels of trade uncertainty. The IMF, on the other hand, forecasts a contraction of 0.3% in Mexico's GDP for 2025.
One of the major factors affecting Mexico's economy is the impact of U.S. tariffs. U.S. tariffs have affected Mexico's car production, with a 2% year-on-year decline in May 2025. However, auto exports showed resilience in June due to U.S.-Mexico-Canada Agreement (USMCA) exemptions. Trade tensions and uncertainty have hindered business investment and sentiment, further impacting the economy.
Despite these challenges, there are signs of resilience in Mexico's economy. Mexico's economic activity slightly rebounded after a contraction in April, with an expected annual increase of 0.41% in the Global Indicator of Economic Activity (IGAE) for May. The services sector drove this growth, while industrial activity remained negative.
The Bank of Mexico (Banxico) has responded to these economic challenges by cutting its policy rate to 8% and may further ease monetary policy, with expectations for the rate to end the year around 7.5% or slightly lower.
However, the construction industry and the electricity/water/gas industry have both seen declines in May. The construction industry declined by 1% annually, while the electricity/water/gas industry declined by 3.8% annually.
President Sheinbaum has rejected forecasts from international financial organizations, asserting that they don't take into account federal government efforts to stimulate the economy, including through its Plan México initiative. Despite these efforts, Mexico's economy did not grow in May compared to the previous month, and it expanded by 0.4% in annual terms.
Overall, Mexico's economy faces significant challenges due to trade uncertainties, U.S. tariffs, and internal economic pressures, leading to subdued growth forecasts. However, there are potential long-term benefits from trade realignments and structural integration with the U.S. supply chains.
- The economic news for Mexico is not promising, with several financial institutions, such as Vanguard, the World Bank, and the International Monetary Fund (IMF), downgrading their growth forecasts for 2025.
- Politics and business are closely intertwined in Mexico's economic woes, as U.S. tariffs, particularly on car production, have contributed to the sluggish expansion of the economy.
- Despite the economic challenges, there is a glimmer of hope, as the Bank of Mexico (Banxico) has responded by cutting its policy rate and preparing to further ease monetary policy. However, key industries like construction and electricity/water/gas are showing signs of decline.
