Mexico's Economic Growth Stalls Amid US Tariff Shock: A Deep Dive into the Reuters Poll Findings

The Mexican economy faces its starkest growth challenges in years, with a recent Reuters poll revealing a dramatic downward revision to its 2025 GDP forecast. Once anticipated to expand modestly, the outlook now suggests a near-stagnant 0.2% growth—a stark contrast to earlier estimates of 1.4% from the International Monetary Fund (IMF) and a sharp reversal from the IMF’s April prediction of a 0.3% contraction. At the heart of this gloomy outlook lies a perfect storm of U.S. tariff policies, global trade tensions, and eroding business confidence.

Key Findings: A Growth Crisis in the Making

The Reuters poll, conducted in April 2025, surveyed economists who unanimously pointed to U.S. tariffs as the primary culprit behind the revised outlook. These tariffs have disrupted supply chains, particularly in manufacturing and export sectors critical to Mexico’s trade-dependent economy. For instance, the automotive industry—which accounts for roughly 30% of Mexico’s exports—has faced bottlenecks due to retaliatory tariffs on U.S. goods, forcing companies to delay investments.

The data paints a grim picture:
- Exports: Mexico’s export growth, a traditional engine of GDP, is projected to shrink by 2.5% in 2025 compared to 2024.
- Fixed Investment: Capital spending by businesses has declined by 1.8% year-on-year, with firms citing uncertainty over trade policies as the main barrier to expansion.
- Consumer Spending: Household consumption, resilient in prior years, is now projected to grow by just 0.8%, dragged down by inflation and job market instability.

The Tariff Effect: More Than Just Trade Barriers

The U.S. tariffs have far-reaching consequences beyond immediate trade flows. They have:
1. Undermined Business Confidence: Surveys show that over 60% of Mexican manufacturers have postponed expansion plans due to tariff-related risks.
2. Distorted Supply Chains: The automotive sector, integral to the U.S.-Mexico-Canada Agreement (USMCA), now faces higher costs as companies adjust to tariff exemptions and quotas.
3. Slowed Nearshoring Momentum: U.S. firms considering relocating production to Mexico to avoid Asian supply chain risks have delayed decisions amid policy uncertainty.

The Bank of Mexico (Banxico) has responded by easing monetary policy, cutting its benchmark rate from 11.25% to 10% in 2024 and projecting further reductions to 8.5% by year-end. However, analysts caution that these moves may not be sufficient.

Political and Policy Crossroads

Mexico’s government, led by President Claudia Sheinbaum, has attempted to mitigate risks by addressing U.S. concerns on migration and trade. In early 2025, Mexico implemented a controversial plan to curb Chinese imports entering the U.S. via its ports—a move to placate U.S. demands. Yet, these measures have done little to ease investor skepticism.

The U.S. political climate remains a wild card. Threats of additional 25% tariffs on Mexican goods, reminiscent of past U.S. trade wars, continue to loom. Economists estimate that such tariffs could reduce Mexico’s GDP by an additional 0.5%, pushing the economy into contraction.

Risks and Investment Implications

For investors, Mexico’s economy presents a mix of caution and opportunity:
- Equities: The MSCI Mexico Index has underperformed regional peers by 8% year-to-date, reflecting market anxiety. Sectors like autos (e.g., Grupo México) and consumer goods (e.g., Femsa) face headwinds but could rebound if trade tensions ease.
- Currencies: The Mexican peso has depreciated 4% against the dollar in 2025, a trend that may persist if inflation remains above Banxico’s target.
- Fixed Income: Mexican bonds offer higher yields than U.S. Treasuries, but carry elevated risk due to currency volatility and policy uncertainty.

Conclusion: Navigating the Tariff-Laden Landscape

Mexico’s 0.2% GDP growth forecast underscores a critical inflection point. While the economy remains resilient compared to many emerging markets, the dominance of U.S. trade policies leaves it vulnerable to external shocks. Key data points reinforce this outlook:
- Trade Dependency: Mexico sends 80% of its exports to the U.S., making it disproportionately exposed to tariff fluctuations.
- Investor Sentiment: A May 2025 Reuters survey found that 70% of economists believe U.S. trade policies will remain the top risk to Mexico’s growth through 2026.
- Monetary Limits: Banxico’s ability to stimulate growth is constrained by its inflation mandate; further rate cuts risk fueling capital flight.

For investors, the path forward hinges on geopolitical developments. A resolution to U.S.-Mexico trade disputes could unlock pent-up investment and revive growth. Until then, caution is warranted—Mexico’s economy is treading water, and the tariffs continue to weigh it down.