Introduction
Although it has not been officially confirmed, Mexico is experiencing an evident economic stagnation and a surge in inflation. This article delves into the current state of Mexico’s economy, its relevance, and the impact on its citizens.
Economic Stagnation
Mexico narrowly avoided an economic recession in the first quarter of 2025, but it is grappling with a noticeable economic weakness. The official data on both economic growth and inflation paints a concerning picture.
Economic Growth
According to the National Institute of Statistics and Geography (Inegi), Mexico’s Gross Domestic Product (GDP) grew by a mere 0.8% annually and only 0.2% on a quarterly basis, adjusted for seasonality, in the first quarter of 2025.
This growth rate signifies a substantial economic weakness. Mexico narrowly escaped a technical recession, defined as two consecutive quarters of economic contraction, with a -0.6% growth in the last quarter of 2024 and a meager 0.2% growth in the first quarter of 2025.
Sectoral Performance
Primary activities, including agriculture, livestock, apiculture, aquaculture, fishing, mining, forestry, and forest exploitation, were the primary drivers of economic growth. Meanwhile, secondary activities such as industry and services, which account for 96% of economic activity, were in negative territory.
Rising Inflation
Inflation has been a growing concern, with the annualized inflation rate reaching 4.22% in mid-May, surpassing the upper limit of Banco de México’s tolerance range.
Monetary Policy
Banco de México (Banxico) has been implementing aggressive interest rate cuts despite rising inflationary pressures. Last week, Banxico’s governing board decided to lower its reference rate for the third consecutive time, setting it at 8.50%. They also warned of a potential further adjustment in June.
The recent inflation surge has raised questions about Banxico’s commitment to its interest rate reduction policy. Market expectations had previously anticipated another aggressive 50 basis point cut for June, following three consecutive reductions.
Banxico’s mandate is to maintain price stability. While lower interest rates benefit the Mexican government by reducing debt servicing costs and potentially stimulating economic growth, it puts the central bank’s credibility at stake.
Economic Growth Forecasts
Unofficial growth forecasts remain pessimistic, predicting an economic growth rate for 2025 below 1%. The outlook for the second quarter is also gloomy, with some anticipating a decline.
Government Perspective
Mexico’s Secretary of Finance, Edgar Amador, maintains an optimistic stance on the economic situation during his morning press conference at Palacio Nacional. He attributes Mexico’s economic resilience to exports and domestic consumption, while downplaying the inflation concerns as the underlying inflation remains within Banxico’s target range.
Contrasting Perspectives
The official optimism contrasts sharply with the private sector’s pessimistic analysis. It remains to be seen whether Mexico’s economic stagnation deepens while inflation continues to rise.
Foreign Direct Investment
Marcelo Ebrard, Mexico’s Secretary of Economy, announced that the country reached a record high of $21.4 billion in Foreign Direct Investment (FDI) during the first quarter of 2025. However, he did not provide further details on the companies and sectors that benefited from this investment.
