Banxico’s New GDP Growth Projections for 2025 and Their Implications
Introduction:
The Bank of Mexico (Banxico) has revised its GDP growth forecast for 2025 to 0.1%, down from the previous estimate of 0.6%. This new projection, included in its Trimesterly Report, suggests that the economy may experience growth ranging from -0.5% to 0.7%. This range includes the possibility of a deeper contraction than previously anticipated, with a maximum projection of 1.4%.
Understanding the New Forecasts
- No Recession Definition: Banxico officials, including Governor Victoria Rodríguez Ceja, Jonathan Heath, and Gabriel Cuadra, clarified that these new GDP forecasts do not meet the criteria for a recession.
- Economic Slowdown: The economy has been weakening for several quarters, with persistent weakness in a complex environment where trade policy uncertainties may have affected economic agents’ behavior and investment/consumption decisions.
- Not Close to Recession: Heath emphasized that the economy is currently stagnant and may remain so for a while, hoping it will eventually revive but not being in a recession at the moment.
- 2024 Desceleration and 2025 Stagnation: Cuadra explained that there was a deceleration in the economy after resilience in 2023. Now, in 2025, they estimate near-zero growth with a stagnant economy and downside risk where the outcome could be a greater contraction.
Key Factors Influencing the Forecasts
- US Economy Debilitation: The new GDP forecasts consider a weakened US economy due to tariffs and the fiscal consolidation occurring in Mexico.
- Tariff Impact: Banxico anticipates that tariffs could weaken the US economy, which in turn would reduce demand for Mexican exports.
- Fiscal Consolidation: The report states that fiscal consolidation is expected to limit public spending’s contribution to economic activity in 2025, although it would foster greater growth in the medium term.
- Product Gap Negative Expansion: The central bank anticipates that the product gap may remain negative throughout 2025, potentially presenting itself next year.
Downside Risks to the Growth Forecast
Six identified risks to the economic growth forecast:
- Increased Uncertainty: Intensification of the current uncertainty environment.
- Lower-than-expected US Economic Growth: Slower growth in the US economy than anticipated.
- Financial Market Volatility: Episodes of volatility in financial markets.
- Geopolitical Conflicts Escalation: Escalation of geopolitical conflicts.
- Greater Fiscal Consolidation Impact: A more significant impact from fiscal consolidation on economic activity.
- Adverse Weather Phenomena: Weather phenomena negatively impacting domestic economic activity.
Reduced Forecasts for 2026
Banxico also lowered its GDP growth forecast for 2026, anticipating a 0.9% advance, which is less than half of the previous estimate of up to 1.8%. The growth could fluctuate between 0.1% and 1.7%, inferior to the previous range of 1% to 2.6%.
- Business Confidence Factors: The business confidence factors for the construction, retail, and private non-financial services sectors have decreased and are below the 50-point threshold.
- Import Reduction: The value of non-oil imports decreased in the first quarter of this year and early second due to reduced purchases of consumer, intermediate, and capital goods abroad.
Lower Job Creation Expectations
Given the less optimistic growth outlook and persistent job creation weakness, Banxico reduced its expectations for job creation in 2025 and 2026. They now predict an annual variation of between 110,000 and 290,000 jobs this year, contrasting with the 220,000 to 420,000 jobs they expected in February. For the following year, they anticipate between 270,000 and 470,000 IMSS-affiliated jobs, also lower than their previous estimate of 360,000 to 560,000 jobs.
