By Gabriel Burin
BUENOS AIRES (Reuters) – Mexico’s economy will stay sluggish this year, a Reuters poll of economists found, as the country braces for a possible radical shift in U.S. tariff and migration rules that could dramatically worsen the outlook.
Private spending and investment, already weakened by this high uncertainty and elevated interest rates, is likely to receive some support from steps focused on low-wage earners and on certain industrial sectors.
But Mexicans are waiting for U.S. President-elect Donald Trump’s inauguration on Jan. 20 to see if he carries through on a threat to levy 25% tariffs on goods crossing the border. Mexico currently has a free trade agreement with the U.S. and Canada.
In Mexico, Latin America’s No.2 economy after Brazil, gross domestic product is set to expand 1.2% in 2025 compared to 1.6% last year, according to the median estimate of 32 economists polled Jan. 9-16.
“Growth prospects are weighed down by three main factors: reduced private consumption resilience, weaker export performance, and declining fixed investment influenced by U.S. political uncertainty and Mexico’s legislative agenda,” wrote Pamela Diaz Loubet, Mexico economist at BNP Paribas (OTC:BNPQY).
“Although nearshoring remains a long-term opportunity, political noise and investor hesitation are delaying expected capital inflows, which were previously seen as drivers of recovery.”
The administration of Mexico’s President Claudia Sheinbaum has signalled it expects to avoid the tariffs threatened by Trump with actions on illegal migration and drug trafficking to placate U.S. concerns.
In another apparent nod, Mexico presented a plan to curb imports from China following Trump’s allegations it had become a back door for Chinese goods entering the United States.
But even with a government currently focused on fiscal restraint and global bond yields on the rise, the poll suggests the central bank, Banxico, has limited room to ease policy more aggressively to support activity in a worst-case scenario.
The bank cut its benchmark rate to 10% from a record high of 11.25% in five quarter-percentage point moves last year. It is forecast to reduce them by another 150 basis points to 8.50% by the end of 2025, poll medians showed.
Asked how would the central bank react if Washington announces new tariffs on Mexico this month, seven of 11 respondents said it should maintain the currently expected path for monetary easing.
Three said it would cut rates less than currently expected, while only one expected deeper reductions.
“Even though higher tariffs would add headwinds to growth in Mexico, the immediate response is to at most maintain the pace of cuts – no acceleration to 50 basis points moves,” said Alberto Ramos, head of Latin America economic research at Goldman Sachs.
“It will be difficult for Banxico to pursue a very dovish path. In doing so they would elicit a negative market reaction that could lead to tighter rather than looser financial conditions, and soon force the central bank to return to a conservative stance.”
(Other stories from the Reuters global economic poll)
(Reporting and polling by Gabriel Burin in Buenos Aires; additional reporting and polling by Noe Torres in Mexico City; Editing by Ross Finley and Tomasz Janowski)
