HSBC Mexico’s Outlook for the Local Economy
HSBC Mexico anticipates that the local economy will regain momentum in 2026, following a challenging 2025, and expects a growth of 1.5% for this year, surpassing the market consensus.
“After a difficult 2025 due to low growth, tariff risks, and policy uncertainty, the Mexican economy is poised for a gradual recovery in 2026,” stated the institution.
Key Factors for Economic Recovery
José Carlos Sánchez, Chief Economist at HSBC Mexico, detailed that despite the challenges, Mexican assets have performed well, and the outlook for 2026 remains positive.
- Resilient Services Sector: The services sector, particularly tourism, has shown resilience and could further improve with events like the soccer World Cup.
- Industrial Activities Recovery: Manufacturing and other industrial activities show signs of recovery after the 2024 downturn and early 2025 slump.
- Export Growth and Stable Private Consumption: Export growth continues, helping offset weak investment, while stable private consumption supports domestic demand.
“All of these factors contribute to a more optimistic outlook than the market consensus,” emphasized Sánchez.
Dependence on T-MEC Renegotiation
According to HSBC Mexico’s Chief Economist, uncertainty surrounding the T-MEC negatively impacted investment in 2025, contributing to the low economic growth.
However, he highlighted that Mexico’s strong commercial integration with the United States remains, and Mexico has solidified its position as the US’s primary trading partner.
“The Mexican government has made efforts to align with US demands, such as new tariffs on Chinese products,” Sánchez explained.
- Positive Outcomes from T-MEC Review: If the T-MEC review goes well, increased investment and confidence are expected in the second half of 2026.
- Negative Impact from Lack of Agreement: If no agreement is reached and the review drags on, uncertainty could affect growth, especially in manufacturing.
“Topics like rules of origin, agricultural trade, automobiles, and energy will be on the negotiation table,” Sánchez pointed out.
He noted that 2026 will mark the first joint review of the T-MEC between Mexico, the United States, and Canada. The formal process begins on July 1.
- T-MEC Extension or Annual Reviews: If all three countries agree, the T-MEC will extend until 2042 with a subsequent review in 2032. If no agreement is reached, annual reviews will occur until 2036 when it could expire without renewal.
- Withdrawal from the T-MEC: Each country can leave the treaty with six months’ notice. Currently, governments have conducted internal consultations to prepare for the negotiation.
Inflation Forecast
HSBC Mexico’s analysis expects inflation to close 2026 at 4.4%, also above the market consensus.
Regarding interest rates, Banxico has lowered the rate to 7%, considered a neutral level.
- Limited Room for Further Rate Cuts: Despite limited room for further rate cuts due to inflation, the Bank of Mexico might consider lowering rates if the peso remains strong or the economy weakens more than anticipated. However, no rate hikes are expected unless inflation rises significantly beyond expectations.
Exchange Rate Outlook: The peso is expected to remain strong and outperform other emerging currencies, though volatility could occur during the T-MEC review.
“If the T-MEC review is successful, we believe the peso could close the year at 17.25 per US dollar,” HSBC Mexico predicted.
Improved Public Finances
HSBC Mexico’s Chief Economist, José Carlos Sánchez, reported that public finances have improved, with a budget projecting a primary surplus and manageable deficit.
- Low Debt-to-GDP Ratio: Mexico maintains one of the lowest debt-to-GDP ratios in the region, though Sánchez noted that a fundamental tax reform remains pending.
- New Taxes and Room for Revenue Improvement: The government has introduced new taxes, such as those on sugary drinks and processed foods. However, there is still room to enhance revenue collection. The fiscal stability depends on controlling spending and ensuring continued economic growth.
