The Mexican economy faces a challenging economic environment as it enters 2025. Global uncertainties and domestic economic problems have put one of Latin America’s largest economies in a difficult position. 2024 was a year characterized by many economic challenges for Mexico. The economic contraction in the fourth quarter, rising inflation rates and continued trade tensions made the economy even more fragile.
One of Mexico’s most important economic problems is inflation. Throughout 2024, a significant increase in inflation rates was observed, especially in the last quarter of the year. In early 2025, annual inflation is expected to rise further. Inflation is expected to be higher in February compared to January. Core inflation remains stable regardless of fluctuations in food and energy prices.
The Bank of Mexico continues to cut interest rates to combat inflation. In February 2024, the interest rate was cut by 50 basis points to 9.50%.[1] However, this reduction did not fully prevent the slowdown in the economy. The Central Bank has announced that it will continue to cut interest rates in 2025 in order to reduce inflation and stimulate economic growth.[2] However, inflation is still high, making further interest rate cuts difficult and putting pressure on growth.
Rising inflation also has a negative impact on domestic consumer spending. The rising cost of living reduces purchasing power, especially for low- and middle-income groups. This weakens Mexico’s domestic demand and limits economic growth.
In the last quarter of 2024, Mexico experienced economic contraction for the first time in three years. In the last quarter of the year, Mexico’s Gross Domestic Product (GDP) contracted by 0.6% compared to the previous quarter.[3] This contraction is an indication that the country’s economy is struggling and growth prospects for 2025 are low.
The contraction in the fourth quarter was mainly due to an 8.5% decline in primary sectors such as agriculture, fishing and mining.[4] The manufacturing sector also contracted by 1.5%, while the services sector grew by only 0.2%.[5] These figures indicate that Mexico’s economy is not based on a single sector, but that various sectors are interdependent.
During 2024, the Mexican economy recorded the lowest growth rate in the last three years. For 2025, the outlook for growth prospects is pessimistic. The Central Bank expects the economy to grow at a limited rate. In addition, it is estimated that there may be an economic contraction in the second half of the year.
Mexico is heavily affected by trade tensions due to its strong trade ties with the United States (US). In late 2024, US President Donald Trump threatened to impose high tariffs on products from Mexico.[6] Such trade threats could negatively impact Mexico’s export sector and overall economic growth.
Mexico conducts most of its foreign trade with the US and these trade relations are one of the main pillars of the country’s economy. If economic barriers, such as trade wars or high tariffs, come into play, Mexico could move further away from its growth targets. By 2025, Mexico’s export revenues could shrink, exacerbating the country’s economic challenges.
Domestic factors also play an important role in the contraction of the Mexican economy. High interest rates further deepen economic stagnation by adversely affecting domestic consumption and investment levels. Declining economic growth prospects may also bring social problems such as rising unemployment rates.
Domestic uncertainties and slowing economic activity may force the Mexican Government to undertake further economic reforms and support the private sector. Mexico’s anti-inflationary strategies put significant pressure on low-income households in particular. Moreover, a weak labor market and low wages could negatively affect people’s living standards.
There are a number of policies and reforms that need to be implemented for Mexico to emerge from its economic difficulties. First, steps can be taken to stimulate domestic consumption. High inflation has reduced the purchasing power of the population, leading to a decline in domestic demand. To reverse this situation, tax cuts for low-income groups can be provided and government subsidies for basic food and energy products can be increased. In addition, private sector investments can be encouraged by offering low-interest loans to small and medium-sized enterprises. This would both stimulate the market by increasing consumer spending and encourage employment growth by supporting the growth of enterprises.
It is also crucial for Mexico to reduce its trade dependence on the United States and diversify its export markets. The country can minimize its foreign trade risks by opening up to other markets in Europe, Asia and Latin America. Export opportunities, especially in sectors such as technology, automotive and agriculture, can be increased and production infrastructure can be strengthened. The government’s prioritization of infrastructure investment will also accelerate economic recovery. New logistics hubs, highways, and energy projects can support the industrial and agricultural sectors and ensure sustained economic growth. If Mexico follows these policies decisively, it can get out of recession and get on a path of stable growth over the long term.
Mexico enters 2025 with a challenging economic environment. Global economic uncertainties, high inflation, slowing growth and foreign trade threats threaten the country’s economic future. Despite the Central Bank’s efforts to cut interest rates, fight inflation and stimulate economic growth, obstacles to Mexico’s economy remain.
In particular, strained trade relations with the US could further complicate Mexico’s growth prospects. In this context, it is important for the government to accelerate economic reforms and diversify its trade strategies. To cope with these challenges, Mexico may have to adopt a more sustainable growth model.
[1] Mexico Headline Inflation Likely Ticked Up in First Half of February: Reuters Poll”, Reuters, https://www.reuters.com/world/americas/mexico-headline-inflation-likely-ticked-up-first-half-february-2025-02-21/, (Accessed Date: 02.23.2025).
[2] Ibid.
[3] Mexico Economy Contracts 0.6% in the Fourth Quarter as Trade Tensions Loom”, Reuters, www.reuters.com/world/americas/mexico-economy-contracts-06-fourth-quarter-trade-tensions-loom-2025-02-21/, (Accessed Date: 02.23.2025).
[4] Ibid.
[5] Ibid.
[6] Horsley, Scott, and Michel Martin, “President Trump Threatens to Impose Steep Tariffs on Canada and Mexico”, NPR, https://www.npr.org/2025/01/31/nx-s1-5280438/president-trump-threatens-to-impose-steep-tariffs-on-canada-and-mexico, (Accessed Date: 02.23.2025).
