Mexico's economy is anticipated to contract in the first quarter, potentially leading to a technical recession due to the impact of fluctuating tariffs imposed by U.S. President Donald Trump, worsening an already fragile economic situation.
Marco Oviedo from XP Investments noted, "The damage is already done, maybe there's a slight recovery in the second quarter, but this quarter is lost."
Facing challenges from tariff threats, a previous year's drought, and political uncertainties, Mexico saw its first quarterly GDP decline in the last quarter of 2024, potentially setting the stage for a technical recession defined by consecutive negative growth quarters.
President Claudia Sheinbaum faces economic challenges amid high approval ratings, as she tackles significant budget deficits inherited from past administrations. The looming technical recession could prompt calls for fiscal reforms, a stance Sheinbaum is currently cautious about, preferring to maintain welfare programs amidst economic struggles.
Despite uncertainties surrounding tariffs under the USMCA agreement, Economy Minister Marcelo Ebrard aims for a majority of exports to be USMCA-compliant to avoid potential tariff implications.
Trump's tariff policy switches have caused instability in Mexico and Canada, affecting business operations. Economists remain uncertain about the future of the USMCA, impacting economic forecasts for the region.
While some foresee a contraction in Mexico's GDP growth, Deputy Governor Jonathan Heath does not believe it necessarily signals a recession, attributing the economic slowdown to prevailing uncertainties.
The recent decline in GDP growth forecasts for Mexico underscores the need for proactive economic strategies. Fitch Ratings warned that further tariffs could tip Mexico into recession, posing risks to its credit rating. Sheinbaum could consider fiscal reforms to bolster the economy, albeit at the cost of increased deficits.
Chief Economist Ernesto Revilla from Citi emphasized, "There is a new level of uncertainty in the North American region that regardless of whether the tariffs don’t happen, will cause permanent damage because it's going to scare off investment."