Introduction
On the previous Thursday, Mexico’s National Institute of Statistics and Geography (Inegi) released the Gross Domestic Product (GDP) results for the third quarter of 2025. The Mexican economy recorded a 0.3% trimesterly contraction, signaling a clear deceleration that adds to a concerning trend initiated since 2024.
The Economic Slowdown
President Claudia Sheinbaum attributed the economic decline partly to uncertainty caused by the United States’ tariff policies, particularly targeting the automotive industry. These policies impose up to 25% tariffs on non-US content and up to 50% on steel and aluminum.
Erratic Growth Since Early 2024
Despite some resilience post-pandemic, Mexico’s economic engines have lost strength. Fixed capital investment fell 6% year-on-year, reflecting political and economic uncertainty along with public spending cuts. Private consumption also showed weakness, declining 0.13%, the first drop since 2020, indicating a deterioration in household purchasing power.
Sectoral Impact
The secondary sector, which includes manufacturing, suffered a 1.5% decline due to low internal and external demand and lack of manufacturing stimuli. Public investment also significantly decreased, affecting infrastructure projects and strategic initiatives.
The primary sector, however, advanced 3.2%, driven by exports and favorable weather conditions. The tertiary sector, which includes services like tourism and retail, showed a marginal 0.1% growth.
Future Prospects
Looking ahead to the end of 2025 and 2026, growth expectations are modest. The Organisation for Economic Co-operation and Development (OECD) projects a real GDP growth of just 0.4% for 2025, with little optimism for 2026.
This forecast is based on persistent inflation limiting consumption, lack of structural reforms boosting productivity, political uncertainty ahead of the next election cycle, and unrealized opportunities from nearshoring, which could be a growth catalyst if accompanied by suitable investment and legal security conditions.
Cross-Tariffs: A Political Tool
This year, the U.S. President reactivated a protectionist policy with threats of tariffs on Mexican products, particularly in the automotive, agricultural, and construction materials sectors. Although not yet implemented, these warnings have already impacted the Mexican economy, sowing uncertainty in key sectors.
In response, Mexico has imposed tariffs on imports from countries like China, India, and Brazil, focusing on industries such as steel, textiles, and agricultural products. While these measures aim to protect domestic industries, they also increase the cost of strategic inputs and could trigger retaliatory trade measures.
The economic impact translates to reduced exports to the U.S., increased domestic prices due to higher production costs, eventually passed on to consumers amidst a climate of uncertainty that hinders investment decisions, especially in advanced manufacturing and electromobility sectors.
In this context, nearshoring – seen as a post-pandemic growth catalyst – risks stagnation. Companies considering relocating operations to Mexico now face a more volatile and expensive environment, potentially discouraging their arrival.
Tariff policy has shifted from an economic tool to a political instrument. While the U.S. seeks to safeguard its industry, Mexico faces the challenge of defending its trade sovereignty without falling into a protective spiral that could further stifle its already weakened growth.
Key Questions and Answers
- What is the current state of Mexico’s economy? The Mexican economy has experienced a 0.3% trimesterly contraction, indicating a clear deceleration that adds to a concerning trend since 2024.
- What factors have contributed to this slowdown? Factors include U.S. tariff policies, political and economic uncertainty, reduced public spending, and weak private consumption.
- Which sectors have been most affected? The secondary sector, including manufacturing, has seen a 1.5% decline due to low demand and lack of stimuli. Public investment has also significantly decreased, affecting infrastructure projects.
- What are the future growth prospects for Mexico? The OECD projects a modest real GDP growth of 0.4% for 2025, with little optimism for 2026 due to persistent inflation, lack of structural reforms, political uncertainty, and unrealized nearshoring opportunities.
- How have U.S.-Mexico trade tensions impacted the Mexican economy? U.S. tariff threats have caused uncertainty in key Mexican sectors, while Mexico’s response with its own tariffs has increased production costs and risked nearshoring opportunities.
