Overview and Relevance
Bank of America (BofA) predicts that Mexico’s Gross Domestic Product (GDP) will grow by 0.6% this year and reach up to 1% for 2026, surpassing the market consensus of 0.5% and 1.4%, according to a Citi survey.
Carlos Capistrán, BofA’s Chief Economist for Mexico, Canada, and Latin America, states that if the T-MEC trade agreement with the United States and Canada remains intact—the base scenario for BofA—Mexico’s economy could grow slightly more, around 1.4% to 1.6%, in the coming year.
Historical Context and Current Situation
Capistrán highlights that Mexico’s average growth rate, before 2019, was between 2.2% and 2.5%. He notes that since the cancellation of the Mexico City airport project, the growth rate has consistently stayed below 1%.
Despite internal and external uncertainties this year, Mexico has avoided recession due to the nearshoring opportunity. The growth in manufacturing exports, excluding automotive, has contributed to the more optimistic GDP projections.
Nearshoring and its Impact
Capistrán explains that Mexico has expanded its production capacity beyond automotive manufacturing, particularly in computing machinery, which is experiencing significant growth this year.
Challenges and Uncertainties
The economist acknowledges the prevailing internal and external uncertainties, including T-MEC revisions and constitutional changes. He also points out the restrictive fiscal policy and monetary policy that are not easing, making sustained growth challenging.
Cyclical Factors
Capistrán identifies bottlenecks, insufficient energy supply, and inadequate transportation infrastructure as cyclical factors affecting Mexico’s growth. He mentions the high uncertainty surrounding these issues, along with recent constitutional reforms.
T-MEC Trilateral Agreement
BofA’s Capistrán anticipates that the T-MEC review will be resolved in the second half of next year, with the trilateral agreement remaining mostly intact with Canada, albeit with some modifications. He expects this to occur within a year, not by the end of 2026.
Key Questions and Answers
- What is the current GDP growth prediction for Mexico? Bank of America predicts a 0.6% GDP growth for Mexico this year, with potential improvement to 1% by 2026 if the T-MEC agreement remains in place.
- Why is Mexico’s growth rate currently low? Capistrán attributes the slow growth to internal factors, with the country’s average growth rate before 2019 being between 2.2% and 2.5%. Since then, growth has consistently stayed below 1%.
- What role does nearshoring play in Mexico’s economy? Nearshoring has allowed Mexico to expand its production capacity, particularly in computing machinery, contributing to more optimistic GDP projections.
- What uncertainties are affecting Mexico’s growth? Internal and external uncertainties, including T-MEC revisions, constitutional changes, restrictive fiscal policy, and monetary policy not easing, are hindering sustained growth.
- What is the expected outcome of the T-MEC review? BofA’s Capistrán anticipates that the T-MEC review will be resolved in the second half of next year, with the trilateral agreement remaining mostly intact with Canada by the end of 2026.
