Mexico’s economy is declining & faces mounting threats

Mexico’s Economy Minister, Marcelo Ebrard, in April 2025. Image credit: Sipa US / Alamy.

by Macario Schettino.

In my first column for The Mexico Brief, six weeks ago, I wrote that Mexico was in a recession. Now that we are nearing the end of the year’s first half, the evidence is even stronger. Although an unusual event in February has led many to think otherwise, the truth is that we are already seeing a generalized downward trend.

Consumption contracted year-over-year for the fourth consecutive month in March, and the preliminary indicator suggests no meaningful change in April and May. On average, the decline has been -0.5% compared to the previous year, starting from last October when the current administration took office.

In investment, the situation is worse. The decline began in September, and the following seven months have all shown negative numbers, averaging a yearly contraction of -4.4%, also since October.

In overall economic activity, growth since October is flat, with three out of those six months showing contraction. The impact is now noticeable in employment, with monthly declines and virtually zero annual growth. It’s worth remembering that — since the year 2000 — whenever employment grows at a rate below 1% annually, a recession is a certainty.

Except for employment data, which we have up to May, the rest of the indicators end in March and therefore do not yet reflect the full impact of global uncertainty caused by Donald Trump — especially since the “Liberation Day” event on the afternoon of April 2. We don’t know much about what has happened since then, except in the case of remittances, which saw one of the steepest drops on record in April: -12% compared to April 2024.

Mexican household income has three main sources: employment (which, as mentioned, is beginning to suffer), remittances (which we hope don’t continue along the path shown in April), and government transfers—which, surprisingly, have contracted since February. I say "surprisingly" because presidential popularity has depended heavily on these transfers. However, from February to April, the Ministry of Finance reported an annual contraction of -20% compared to the previous year. Given that 2024 was an election year, with transfers brought forward to February, and this year that did not happen, I initially attributed the contraction to calendar effects. But with three consecutive months showing the same trend, it’s time to pay closer attention.

This fiscal adjustment has not yet affected presidential popularity or consumer confidence, so we might be seeing corrective (or anti-corruption) measures that have little impact on the population receiving the support. We’ll need to wait a few more months to confirm this — or to see whether transfer flows recover.

However, since preliminary consumption data does not suggest any rebound, it would be reasonable to assume stagnation in household income sources. We are thus facing a recession that could be addressed with counter-cyclical measures, but the government is in no position to do so due to its fiscal crisis. Even with the transfer reductions we’ve mentioned, the fiscal deficit is still clearly hovering around 5% of GDP, which is not acceptable for credit rating agencies.

Mexico is not facing a severe economic crisis like those of 1995 or 2009 (during the Great Recession). There is indeed a downturn in activity, now visible across all series, and it should therefore be formally recognized as a recession at some point. The issue is that no clear path exists to reverse this gradual deterioration: household income sources, as we've seen, show no sign of recovery; there’s no reason to believe investment will grow if global uncertainty continues — now compounded by local uncertainty due to the dismantling of the judiciary — and the export market is where Trump-induced uncertainty has hit hardest. Especially in this last area, the growing conflicts between the two governments around migration and security threaten to spill over into the renegotiation of the new USMCA.

There are additional potential negative factors that could turn this downturn into a serious crisis, particularly the loss of investment-grade credit ratings. Beyond the country’s own fiscal crisis, I believe the specter of a weaker US fiscal position could also affect Mexico. While Trump poses a threat to everyone, for a vulnerable Mexico he is an even greater one.