Fitch Ratings has issued a stark warning regarding the Mexican economy, cutting its growth forecast for the year 2025 to zero. This decision was influenced largely by the ongoing trade war initiated by the new administration in the United States, a scenario that faces Mexico and Canada with the prospect of a technical recession.
On March 18, 2025, Fitch noted in its World Economic Outlook report that, "We anticipate a recession in Mexico, where we have cut our forecast for 2025 by 1.1 percentage points to 0%." This dire outlook comes as uncertainties loom over the economic interactions between the U.S. and its southern neighbor.
The issues arise primarily from the tariffs levied on Mexican goods entering the United States. Beginning on March 4, 2025, a 25% tariff was imposed on all Mexican products not covered under the Free Trade Agreement. This included all exports of steel and aluminum from Mexico starting March 12, 2025. If fully implemented, experts project a contraction in the Mexican economy by as much as 1.3% in 2025, as suggested by the Organization for Economic Co-operation and Development (OCDE).
The OCDE outlines that Mexico's economic vulnerability stems from its heavy reliance on the U.S. market, where approximately 80% of its exports are directed. This dependence means that changes in American trade policy can cause significant ripples throughout Mexico's economy. Their report indicates that investment, domestic consumption, and production may all experience a notable slowdown as a result of the tariff measures.
Despite these warnings, Mexican Secretary of Economy Marcelo Ebrard has somewhat downplayed the fear of an impending recession. On the same day including Fitch's announcement, Ebrard stated that while he rejected the possibility of immediate recession, he acknowledges a risk scenario for the future, particularly as highlighted by various international bodies. He assured citizens that discussions concerning tariffs and economic stability remain ongoing.
The OCDE also reports that inflation in Mexico is likely to remain above the central bank's target of 3%, estimating a rise to 4.4% in 2025 before decreasing slightly to 3.5% in 2026. Such economic tensions and inflation can further complicate the economic landscape, especially as the central bank, Banxico, may adopt a more restrictive stance on monetary policy to combat rising prices.
As these economic factors unfold, the Mexican government remains optimistic despite the forecasts. President Claudia Sheinbaum's administration has projected growth between 2% and 3% for the upcoming year. However, private sector estimates have taken a more cautious turn, reducing growth forecasts to about 0.8% for 2025 and 1.7% for 2026. The contrasting estimates signal a divide between government aspirations and market realities.
Looking ahead, the decision on April 2, 2025, will serve as a crucial marker. This date is pivotal in determining whether the U.S. will solidify the 25% tariffs on Mexican goods, including vehicles produced by North American automakers set in Mexican territory, or if the Trump administration will delay or reduce these tariffs in response to Mexico's actions against fentanyl trafficking.
As trade discussions evolve, the Mexican government has shown intentions to respond to any decisions made by the U.S. administration. Yet, specifics on potential retaliatory measures have yet to be disclosed, hinting at broader maneuvering on both political and economic fronts. These developments will require vigilant scrutiny as the stakes for Mexico's economy rise.
Ultimately, as analysts dissect the implications of tariffs and shifting economic policies, one thing holds true: the interactions between Mexico and the United States are set to shape the future of economic growth in both nations, with far-reaching consequences potentially ushering in a challenging era for Mexico's economy.
