Mexico’s GDP contracted by 0.30% QoQ in Q3 2025, matching the previous quarter’s decline and diverging from the modest growth seen earlier this year. This marks the second consecutive quarter of negative growth, raising concerns about the economy’s near-term trajectory amid persistent external and domestic challenges.

Drivers this month

• Manufacturing output declined by 1.20%, reflecting weaker export demand.
• Consumer spending slowed, contributing -0.15 percentage points to GDP.
• Government infrastructure projects provided a modest 0.05 pp boost.

Policy pulse

The current GDP print remains below the Bank of Mexico’s inflation-target-consistent growth range of 0.50% to 1.50% QoQ. This persistent contraction pressures policymakers to balance inflation control with growth support.

Market lens

Immediate reaction: The MXN/USD currency pair weakened by 0.40% in the first hour post-release, while 2-year government bond yields rose 10 basis points, signaling increased risk premiums.

Mexico’s GDP growth rate of -0.30% QoQ contrasts with the 0.60% average growth recorded over the past 12 months, underscoring a recent slowdown. Inflation remains elevated at 5.80% YoY, complicating the macroeconomic environment. Unemployment held steady at 3.90%, but underemployment and informal sector activity remain concerns.

Monetary policy & financial conditions

The Bank of Mexico has maintained its policy rate at 11.25% to combat inflation. Financial conditions have tightened, with credit growth slowing to 3.20% YoY. The peso’s depreciation against the dollar has increased import costs, feeding into inflationary pressures.

Fiscal policy & government budget

Fiscal stimulus remains limited, with the government targeting a primary surplus of 0.50% of GDP in 2025. Public investment in infrastructure has increased by 4.50% YoY, but overall government spending growth is constrained by debt sustainability concerns.

External shocks & geopolitical risks

Trade tensions and supply chain disruptions continue to weigh on Mexico’s export sector. Additionally, geopolitical uncertainties in global markets have dampened investor confidence, limiting capital inflows.

Financial markets & sentiment

Equity markets have shown volatility, with the IPC index down 2.30% over the past month. Credit spreads on Mexican sovereign debt widened by 15 basis points, reflecting increased risk aversion.

Looking ahead, Mexico faces a complex macroeconomic environment. The baseline scenario projects a modest recovery in Q4 2025 with GDP growth returning to around 0.20% QoQ, supported by fiscal stimulus and easing supply constraints. This scenario holds a 55% probability.

Bullish scenario (25% probability)

• Stronger US demand boosts exports by 3% YoY.
• Inflation moderates to 4.50%, allowing monetary easing.
• Private investment rebounds, lifting GDP growth above 1% QoQ.

Bearish scenario (20% probability)

• Global recession risks materialize, reducing export volumes by 5%.
• Inflation remains sticky above 6%, forcing further rate hikes.
• Domestic consumption contracts, pushing GDP growth below -0.50% QoQ.

Structural & long-run trends

Mexico’s long-term growth is challenged by demographic shifts, productivity constraints, and reliance on commodity exports. Structural reforms aimed at improving labor market flexibility and innovation capacity remain critical for sustainable growth.

Mexico’s recent GDP contraction highlights the fragility of its economic recovery amid global headwinds and domestic challenges. Policymakers face a delicate balancing act between controlling inflation and fostering growth. Market sentiment remains cautious, reflecting uncertainty over external demand and policy effectiveness.

Continued monitoring of inflation trends, fiscal policy adjustments, and external developments will be essential. The economy’s resilience will depend on both short-term stimulus measures and long-term structural reforms.

Since 2020, Mexico’s GDP growth rate and the USDMXN exchange rate have shown a strong inverse correlation. Periods of positive GDP growth generally coincide with peso appreciation, while contractions align with peso depreciation. For example, during the 2024 Q4 growth surge of 1.10%, the peso strengthened by 3.50% against the dollar. Conversely, the recent two quarters of -0.30% GDP growth have seen the peso weaken by over 4%. This relationship underscores the peso’s sensitivity to domestic economic performance and external demand conditions.

Takeaway: Mexico’s persistent GDP contraction signals near-term challenges, but targeted policy responses and external demand recovery could restore growth momentum in 2026.