IIF Forecasts Sub-1% Growth for Mexico Until 2026
According to the Instituto de Finanzas Internacionales (IIF), Mexico’s economy is expected to grow by 0.9% in 2026, continuing a trend of growth below 1% for two consecutive years. This is far from the pre-pandemic average of 1.8%, and significantly lower than the Mexican government’s expectation of 2.3%. The IIF, a global association of financial institutions, attributes this slow growth to ongoing uncertainties such as tariffs, the renegotiation of the T-MEC trade agreement with the U.S. and Canada, and internal institutional fragility.
Key Factors Affecting Mexico’s Economic Growth
- Trade Integration with the U.S.: Mexico will continue to benefit from its close trade integration with the U.S., but internal restrictions and external shocks will continue to affect growth prospects.
- Foreign Direct Investment (FDI): FDI is projected to average between 2.5% and 3% of GDP, which is sufficient to cover modest current account deficits but remains low compared to Mexico’s peer economies like Brazil.
- Infrastructure Bottlenecks: The IIF highlights persistent bottlenecks in Mexico’s critical infrastructure as a limiting factor for economic growth dynamism. Deficient infrastructure, such as energy, water, transportation, communications, healthcare, and finance systems, discourages new productive investments.
Challenges and Capital Flows
The IIF’s annual capital flows analysis, titled “Global Stability Through Internal Rotation,” suggests that reductions in interest rate differentials could put pressure on currencies and inflation in Latin America. However, strong demand for local debt and cross-border loans is expected to persist due to global risk appetite stability.
- Capital Flow Performance: The IIF projects that capital flows may yield less than in 2025 due to less favorable commodity outlooks and ongoing political instability.
- Carry Trade: The weakening dollar coincided with a shift in variable income factors, making carry trade attractive. Carry trade involves investors borrowing at low interest rates and investing in higher-yielding currencies.
Expert Opinions and Divergent Sector Performance
BNP Paribas economist for Mexico, Pamela Díaz, anticipates a 0.9% GDP growth in 2026, echoing the IIF’s projection. She notes that the productivity gap remains negative. Díaz also points out divergent sectoral performance, with significant deceleration in the industrial and service sectors.
Key Questions and Answers
- What is the IIF’s growth projection for Mexico in 2026? The IIF projects a 0.9% growth rate for Mexico’s economy in 2026, which is lower than the pre-pandemic average of 1.8% and the Mexican government’s expectation of 2.3%.
- What factors are affecting Mexico’s economic growth? Key factors include uncertainties related to tariffs, the T-MEC renegotiation with the U.S. and Canada, and internal institutional fragility. Additionally, Mexico faces infrastructure bottlenecks that discourage new productive investments.
- What are the IIF’s expectations for capital flows in 2026? The IIF anticipates that capital flows may yield less than in 2025 due to less favorable commodity outlooks and ongoing political instability.
The IIF, headquartered in Washington D.C., is the largest international association of global operating financial institutions, with members including Wells Fargo, Santander, Standard & Poor’s, Moody’s, Metlife, Banorte, BBVA, and Dubai International Finance Center, among others.
