Mexico’s Economy Contracts in Q4 2024, Raising Recession Concerns
Table of Contents
- 1. Mexico’s Economy Contracts in Q4 2024, Raising Recession Concerns
- 2. How might changes in US trade policy and relations with Mexico influence the Mexican economy’s growth in 2025, as predicted by Gabriela Siller?
- 3. Mexico’s Economic Slowdown: An Interview with Financial Forecaster Gabriela Siller
- 4. interview
Mexico’s economy experienced its first quarterly contraction since 2021, shrinking by 0.6% in the final three months of 2024. This decline, substantially steeper than the -0.2% median estimate from economists surveyed by Bloomberg, raises concerns about a potential recession in 2025.
While full-year 2024 GDP rose by 1.5%, the fourth-quarter results paint a worrisome picture.The contraction can largely be attributed to weakened domestic demand and uncertainties surrounding potential tariffs from the US, Mexico’s largest trading partner.
“This performance doesn’t imply the Mexican economy is in a recession or that it will enter into one,” stated edgar Amador Zamora, Mexico’s Deputy Finance Minister. He further explained that more than half of the fourth-quarter contraction was driven by a significant downturn in the agricultural sector. This weakness, exacerbated by drought and climate change, marked the sector’s worst performance in a quarter-century.
Adding to the economic gloom, Latin America’s second-largest economy is forecast to continue slowing for the fourth consecutive year in 2025. This slowdown is being attributed to government austerity measures, tight fiscal conditions, and uncertainty about policies in both Mexico and the US. President Claudia Sheinbaum’s assertion of strong local demand is being challenged by the threat of US tariffs on Mexican exports, which are hampering investments and unsettling markets.
Felipe Hernandez, a Latin America economist at Bloomberg, emphasized the gravity of the situation. “A quarterly decline in Mexico GDP at the end of 2024 raises the risk of a recession in 2025 as domestic demand quickly loses momentum,” he stated. “US trade uncertainty, nationalist government policies and growing fiscal constraints are still drags.”
Despite the bleak outlook, Gabriela Siller, Director of Economic Analysis at Grupo Financiero Base, offers a cautious note of optimism. “It’s not reflecting a recession in Mexico,” she maintains. “The decline is not across the board and doesn’t extend to the services sector.” she predicts that with a new government in place, economic growth could reach 0.8% in 2025, potentially even climbing to 1.2% if conditions improve significantly.
Mexico’s economic outlook for the year paints a picture of uncertainty, with analysts and economists grappling with various factors that could shape the nation’s financial trajectory.
Several headwinds have been identified, including persistent high borrowing costs and the anticipated pace of “nearshoring”, the relocation of companies from Asia to closer regions like North America. While nearshoring holds promise, its implementation hasn’t reached the explosive levels some initially projected.
Adding to the complexity is the political landscape, particularly the stance taken by the US president. Donald Trump has raised concerns with Mexico’s handling of drug trafficking and migration, even threatening a 25% tariff if satisfactory action isn’t taken. This uncertainty casts a shadow over economic forecasts.
Andres abadia, chief latin America economist at Pantheon Macroeconomics, succinctly summarizes the potential impact: “If they do implement tariffs, we’re clearly going to have a contraction — and a significant one — because the economy is already very weak,” he stated.
The Mexican central bank, Banxico, acknowledges the challenges. In late August, they revised their 2025 growth forecast downward to 1.2% from 1.5%.Adding further context, economists surveyed by Citi place their 2025 growth outlook at a modest 1%. On a positive note, inflation in the first two weeks of January eased to 3.69%, remaining within the Bank’s target range.
This recent data contributes to forecasts suggesting the central bank might accelerate its easing cycle, potentially cutting interest rates by 50 basis points on February 6th, assuming no tariffs are imposed on Mexico by February 1st, as Carlos Capistran, head of Canada and Mexico economics at Bank of America, anticipates.
How might changes in US trade policy and relations with Mexico influence the Mexican economy’s growth in 2025, as predicted by Gabriela Siller?
Mexico’s Economic Slowdown: An Interview with Financial Forecaster Gabriela Siller
Mexico’s economy contracted for the first time since 2021 in the fourth quarter of 2024, raising concerns about the possibility of a recession in 2025. To get a better understanding of the situation, Archyde spoke with Gabriela Siller, Director of Economic Analysis at Grupo Financiero Base.
interview
Archyde: Gabriela, thank you for joining us.Mexico’s economy showing a contraction in the last quarter of 2024 has generated a lot of discussion. What are your initial thoughts on the situation?
Gabriela Siller: it’s certainly a cause for concern, but I wouldn’t say it definitively signals a recession. We need to look at the broader context. The decline wasn’t across the board and didn’t affect the services sector. Furthermore, full-year 2024 growth was still positive at 1.5%.
Archyde: You mentioned the services sector. Can you elaborate on why it seems to be more resilient compared to other areas?
Siller: The services sector is a key driver of the Mexican economy and tends to be more robust during periods of economic uncertainty. It includes sectors like tourism, education, and healthcare that provide essential services, even during downturns.
Archyde: Although the performance of the overall economy was mixed, the agricultural sector saw a significantly negative impact. What factors contributed to this downturn?
Siller: We saw a severe drought affecting agricultural production, which is deeply concerning, especially given the vulnerability of the sector to climate change.
Archyde: Looking forward, what are your predictions for the Mexican economy in 2025?
Siller: I believe there’s potential for economic growth in 2025, possibly reaching 0.8% I even see it climbing to 1.2% if we see some positive shifts in external factors, notably regarding US trade relations and policy uncertainties.
Archyde: Those external factors you mentioned, particularly the US relationship, are indeed crucial. Do you see any potential for improvement in those areas? Or are the risks posed by US tariffs on Mexican exports too great to ignore?