Under the same sun

Mexico’s economy has demonstrated robust resilience, averaging +4% GDP growth since 2021. However, growth slowed to +1.5% in 2024, influenced by subdued US investment and monetary policy lag effects. A further deceleration to around +1.2% is expected in 2025.
Remittances – equivalent to 3.4% of GDP in 2024 – and nearshoring-related investments provided a cushion for domestic activity ahead of the inaugration of the new US administration. Meanwhile, early export deliveries to frontload tariff hike announcements and a rebound in tourism have helped offset trade policy uncertainties stemming from the US in early 2025.

Fundamentals, including consumer confidence, credit availability and wage bill dynamics, provided some stability, but weaker industrial production signaled a deceleration at the end of 2024 due to mounting economic pressure, as cross-border uncertainty spills over into Mexico’s economy, reflecting the deep interconnection with the US.

The central bank Banxico has commenced monetary easing amid decelerating inflation, which is projected to remain above 4% in 2025 and stabilize at similar levels in 2026. The central bank’s dovish stance, paired with synchrony to the Federal Reserve’s rate cuts, suggests Mexico’s policy rate could decline to 8.5% by end-2025 and 7.5% by 2026. Despite a mildly depreciating peso, the wide interest rate differential with the US will provide currency support, balancing import costs of capital goods and commodities.

Mexico’s nearshoring success has been instrumental in mitigating external risks. As the top US trading partner in 2023-2024, Mexico’s manufacturing and services sectors have benefited from foreign investment inflows and labor market competitiveness. However, rigidities in energy and mining, coupled with insufficient vertical integration in industries like electronics and semiconductors, limit growth potential. Policymakers must address these structural gaps to sustain momentum amid global geoeconomic fracturing.

Mexico’s political landscape under President Sheinbaum combines strong congressional backing and a less populist approach than her predecessor. Her pragmatic tilt faces resistance from Morena hardliners, which may dilute reform ambitions. State-led policies and protectionism in sectors like energy, alongside judicial inefficiencies and contract risks, remain barriers to an optimal business environment. The government’s emphasis on renewable energy and expanded natural gas storage reflects a commitment to modernizing infrastructure but underscores regulatory unpredictability for private investors.

Security challenges persist as cartel activity and elevated violence weigh on perceptions of safety. Violence related to the 2024 elections led to an increase in the country's homicide rate, breaking the slowdown cycle that had continued for four consecutive years. Risks remain elevated in specific regions, with the US recently suggesting to send its own troops to fight crime – a proposal firmly rejected by the Mexican government. In reality, the overall situation for business and personal safety for foreigners is improving, thanks to the importance of tourism in the country, ongoing investments to support school attendance among the poorest segments of the population and the direct, off-budgetary involvement, albeit controversial, of the army in major infrastructure initiatives.

Diplomatic ties with the US remain pivotal and the relationship remains on balance. The interplay of trade disputes, tariff threats and broader geopolitical dynamics poses external risks. Yet, Mexico’s integration with global value chains, aided by its location and competitive costs, remains an anchor for economic stability.

International relations could further strain Mexico’s business environment. Diplomatic tensions stemming from differences in energy policies or trade disputes may require strategic negotiation to protect Mexico’s interests. Meanwhile, sporadic social unrest and long-standing structural issues in income distribution challenge broader economic inclusion. However, Mexico’s deep ties with the US, the potential of the "Plan México" and an emerging focus on industrialization remain compelling long-term strengths.