 "Mexican President Claudia Sheinbaum delivers her first State of the Union address at National Palace, in Mexico City, Mexico, on September 1, 2025. Reuters File")
Mexico’s economy contracted for the first time in years, stoking fears of a recession as tensions with the United States escalate and investor confidence wanes.
According to a Bloomberg report, citing preliminary data from the national statistics institute (INEGI), Gross domestic product fell 0.3% from the previous quarter, the first year-on-year contraction since 2021.
The figure was just above the -0.4% median forecast of economists surveyed by Bloomberg, after a 0.6% expansion in the second quarter. Compared with a year earlier, GDP declined 0.2%, barely above the -0.3% estimate, added the report.
“There was a slowdown in aggregate demand because we have seen a loss of momentum in consumption, investment, and also in government spending,” Bloomberg quoted Janneth Quiroz Zamora, director of economic analysis at Monex Casa de Bolsa, as saying.
Friction with US
The downturn comes amid renewed friction with Washington.
US President Donald Trump has repeatedly threatened to impose steep tariffs on Mexican exports unless the country does more to curb drug trafficking and migration flows northward. The uncertainty surrounding US trade policy has further weighed on Mexico’s manufacturing sector and exports.
“Virtually everything is contracting,” Bloomberg quoted an economist as saying . “The uncertainty—both international and domestic—is paralyzing investment and eroding confidence.”
Banxico, as Mexico’s central bank is known, cut its benchmark rate by a quarter point to 7.50% in September, signaling room for further easing as policymakers warned that prolonged trade uncertainty threatens growth.
Impact Shorts
More ShortsIn January, President Claudia Sheinbaum launched “Plan Mexico,” a state-led initiative to spur development through local investment hubs and tax incentives. But the programme has struggled to attract the expected foreign investment, weighed down by uncertainty over US trade policy and President Trump’s repeated tariff threats.
Still, exports offered a rare bright spot — rising nearly 14% in September from a year earlier.
About 80% of Mexico’s exports go to the US.
While US importers continue to face tariffs on steel, autos, and goods outside the USMCA accord, Sheinbaum has so far avoided broader penalties.
Earlier this week, Trump extended a reprieve on additional levies, calling it “a positive step,” noting that many Mexican imports are already taxed at levels he says benefit the US.
With inputs from agencies