Mexico’s Economy in 2025: Between Trump’s Tariffs, Domestic Weakness, and a Fragile Peso

Mexico has entered 2025 under a cloud of economic and political uncertainty. According to TAC ECONOMICS, the country is grappling with sluggish growth, heightened financial pressures, and escalating trade tensions with the United States. GDP is projected to stagnate at 0.0% in 2025, before a modest recovery in 2026.

The interplay between external shocks — most notably new U.S. tariffs under President Trump — and domestic challenges such as slowing consumption, weak investment, and constrained fiscal policy, has created one of Mexico’s toughest macro-financial environments in recent decades.

The Trump Factor: Tariffs and Trade Uncertainty

On March 4, 2025, U.S. President Donald Trump imposed a 25% tariff on most goods imported from Mexico, dealing a direct blow to the country’s export engine.

  • Export dependency: Mexico sends around 80% of its exports to the U.S., making it exceptionally vulnerable.
  • Sectoral impact: Key industries — especially automotive manufacturing and electrical equipment — face sharp disruptions.
  • USMCA review: Originally scheduled for 2026, the United States-Mexico-Canada Agreement review is being brought forward to mid-2025. This move, framed as a negotiation tool by Washington, could further alter trade dynamics.

This development was hardly unexpected: Mexico ranks #1 in TAC ECONOMICS’ Trump Vulnerability Index, which assesses countries’ exposure to U.S. foreign policy based on trade dependence, ideological alignment, and immigration ties. With remittances from Mexican workers abroad totaling USD 65 billion in 2024, both households and the broader economy are highly sensitive to shifts in U.S. policy.

Macroeconomic Outlook: A “Lost Year” for Growth

Mexico’s Country Risk Premium currently stands at 384 basis points (June 2025) — higher than the average for the top 10 emerging markets (324bp). This reflects a combination of economic-financial vulnerabilities et political-governance risks.

Key Economic Challenges in 2025

  1. GDP stagnation: Output is forecast at 0.0% growth this year, as trade shocks ripple through the economy.
  2. Industrial contraction: Manufacturing activity remains in decline. The PMI has been below 50 since July 2024, reflecting weak demand and disrupted shipments to the U.S.
  3. Private consumption slowdown: Weaker real wages and sluggish job creation are undermining household spending.
  4. Investment slump: Business confidence is constrained by policy uncertainty, tariffs, and fiscal consolidation under the new administration.

Inflation, Monetary Policy, and Fiscal Constraints

Inflationary pressures have resurfaced in 2025, complicating the Central Bank’s efforts to support growth.

  • Inflation trends: Consumer prices rose to +4.4% y/y in April 2025, reversing the disinflation observed in 2023–24. Rising food prices are a key driver.
  • Banxico policy: Since March 2024, Banxico has cut rates by 275bps, bringing the policy rate down to 8.5% in May 2025. More cuts are expected, likely toward 7.5% by year-end, though the pace will be cautious given inflation risks.
  • Fiscal policy limits: The new government is struggling with fiscal consolidation, leaving little room for countercyclical spending.

This policy mix points to modest monetary easing but limited fiscal support — insufficient to reignite demand in the short term.

Mexican Peso Outlook: Volatility Ahead

Currency markets tell a complex story. Despite weak fundamentals, the Peso (MXN) appreciated in early 2025, reaching USD/MXN 19 in June — largely due to a global U.S. dollar depreciation.

However, this resilience is unlikely to last:

  • Interest rate differentials with the U.S. are narrowing, reducing the peso’s yield appeal.
  • Tariff uncertainty will keep pressure on capital flows.
  • Risk of volatility remains high, with the peso expected to drift closer to USD/MXN 20 in the coming months.

For businesses and investors, this implies a more challenging hedging environment and potential episodes of financial instability.

Medium-Term Outlook: Glimmers of Improvement

While 2025 looks bleak, TAC ECONOMICS sees signs of improvement on the horizon:

  • Economic & Financial risk metrics have shown visible improvement since late 2024, typically a leading indicator of recovery within two years.
  • Political & Governance risk ratings peaked in 2022 and have since moderated, suggesting reduced domestic political volatility.
  • 2026 forecast: GDP growth is projected to return to positive territory at +0.8%, though still below Mexico’s long-term potential.

The road to recovery will depend heavily on the outcome of trade negotiations with Washington, the trajectory of global demand, and Mexico’s ability to restore investor confidence.

Conclusion: Navigating an Uncertain 2025

Mexico’s economy in 2025 sits at a crossroads: squeezed between external shocks from U.S. tariffs, domestic economic fragility, and a volatile peso. With GDP growth stalled and confidence eroding, policymakers face an uphill battle to stabilize conditions before recovery emerges in 2026.

For businesses, investors, and policymakers, the key will be managing risk exposure — whether through currency hedging, diversifying export markets, or preparing for renewed trade negotiations under USMCA.

In short: 2025 may be a lost year, but it could lay the groundwork for recovery if Mexico successfully adapts to the new global and regional trade realities.

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