Mexico’s economy is expected to see minimal growth this year due to the impact of U.S. tariffs, following a near technical recession last quarter, according to a Reuters poll. Analysts highlight that uncertainty over U.S. President Donald Trump’s trade policies continues to hurt private spending and investment in Mexico.

Concerns are focused on the potential impact of additional U.S. tariffs on car parts. Mexican President Claudia Sheinbaum is working to mitigate the damage through negotiations and support for local projects.

Mexico’s GDP is projected to increase by just 0.2% this year, a significant downgrade from the 1.2% forecast in January. This new forecast is lower than the government’s optimistic outlook of 1.5%-2.3% growth, but better than the IMF’s prediction of a 0.3% contraction.

Rodolfo Mitchell, Scotiabank’s head economist for Mexico, noted that the slowdown began last year due to negative market reactions to government reforms and a weak fiscal position. Trump’s tariff policy has exacerbated these risks, leading to expectations of economic contraction in 2025.

All respondents in the poll viewed risks to their 2025 GDP forecasts as tilted to the downside. Business sentiment in Mexico has been negatively impacted by U.S. tariffs, with none of the respondents viewing the impact positively.

Mexico likely avoided a technical recession last quarter, showing no growth but not a contraction. However, the final reading may confirm a recession. Mexico, along with Canada, faces special tariffs related to migration and fentanyl traffic, plus global duties on cars and metals.

Goods complying with the USMCA trade deal are excluded from Trump’s duties, making the effective tariff for Mexican products 12.7% currently, much higher than 0.2% in 2024. Some firms may increase regional content to reduce this surcharge, raising industrial costs in Mexico, while others are shifting production to the U.S., impacting Mexican jobs.

Banamex emphasized the need for Mexican companies to adapt to maintain their participation in the U.S. market, and for Mexican authorities to facilitate this transition and negotiate prudently with the U.S. in light of the imminent renegotiation of the USMCA.

Sources: (Reuters)

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