March 12, 2025
Mexico’s economy is expected to contract in the first quarter, entering a technical recession due to U.S. President Donald Trump’s fluctuating tariffs, which have disrupted already weakening growth. Analysts like Marco Oviedo from XP Investments believe the damage is done, with a slight recovery possible in the second quarter.
Mexico experienced its first quarterly GDP slump since the pandemic in late 2024. A first-quarter contraction would confirm a technical recession, defined by two consecutive quarters of negative growth. Trump’s tariff threats have compounded issues from last year’s drought, and investors are concerned about judicial overhauls and the ruling Morena party’s unchecked power.
President Claudia Sheinbaum, despite high approval ratings, faces economic challenges and has had to cut spending due to the largest budget deficit since the 1980s. A technical recession might pressure her to consider fiscal reform, though she insists significant changes aren’t needed.
Trump recently imposed 25% tariffs on all imports from Mexico and Canada, with a temporary reprieve for USMCA-compliant goods. Sheinbaum expects these exports to remain exempt, aiming to increase compliance to 85-90%. However, Trump’s inconsistent tariff policies have left businesses uncertain.
Economists warn of increased recession risks for the U.S., Mexico, and Canada due to the uncertain future of USMCA. Mexico’s GDP contracted by 0.6% in the fourth quarter, with full-year growth at 1.2%. Despite this, Sheinbaum launched a plan to boost investment and local manufacturing.
Deputy governor Jonathan Heath believes it’s premature to declare a recession, though he acknowledges current stagnation. Mexico’s central bank halved its 2025 GDP growth forecast to 0.6%, while the Finance Ministry maintains a 2-3% growth forecast. Fitch Ratings warned that a 25% tariff could push Mexico into recession and affect its “BBB-” rating, suggesting fiscal reform might be necessary to counter economic challenges.
Ernesto Revilla from Citi highlights the new level of uncertainty in North America, which could deter investment regardless of tariff outcomes.
Source: (Reuters)
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