Introduction to the Mexican Economy and IMEF
The Instituto Mexicano Ejecutivo de Finanzas (IMEF) has warned that Mexico’s economy is likely to contract in the second quarter of 2025. This forecast stems from ongoing expectations that economic activity will decline this year due to factors such as judicial elections and tariffs imposed by Donald Trump.
Challenges Facing Mexico’s Economy
Several recent events have further deteriorated growth expectations for Mexico, according to the IMEF:
- Closure of US borders to Mexican live cattle exports: The United States has closed its borders to Mexican live cattle exports due to the spread of the cattle-killing screwworm, causing a daily loss of $3 million for Mexican exporters.
- Proposed 5% tax on remittances: The US Congress is considering a 5% tax on remittances, which would significantly impact the remittance market developed in the United States. This market is crucial for several communities relying on these incomes to survive.
Impact of Remittances on Mexico and Other Countries
Gabriela Gutiérrez, president of the IMEF, explained that remittances represent:
- More than 3% of India and Mexico’s GDP
- 10-14% of the GDP in the states of Oaxaca, Zacatecas, Michoacán, Guerrero, and Chiapas
Should the proposed tax on remittances be approved, it would likely lead to:
- Shifting remittance transfers to alternative, non-traditional methods like encomiendas or cryptocurrencies, increasing costs and risks
- A reduction in the volume of remittances sent from the US, affecting local economies in various Mexican states where remittances are a primary income source
Economists’ Pessimistic Outlook
IMEF’s May survey reflects persistent pessimism among economists consulted, who have reduced their growth expectation for Mexico from 0.2% to 0.1% in 2025.
Out of 16 economists surveyed (37% of the sample), 16 now expect negative growth compared to nine in April.
Key Questions and Answers
- What is the IMEF? The Instituto Mexicano Ejecutivo de Finanzas (IMEF) is a prominent Mexican think tank that provides analysis and forecasts on the country’s economic situation.
- Why are remittances important for Mexico? Remittances represent a significant portion of the GDP in several Mexican states and are crucial for numerous communities relying on these incomes to survive.
- What factors are causing the expected contraction in Mexico’s economy? Factors include judicial elections, tariffs imposed by Donald Trump, closure of US borders to Mexican live cattle exports due to the screwworm, and the proposed 5% tax on remittances.
- How would a 5% tax on remittances impact Mexico? It could lead to increased costs and risks in transferring remittances, a reduction in the volume of remittances sent from the US, and negative consequences for local economies in various Mexican states.
