Mexico’s economy displayed unexpected resilience in April with a 0.5% monthly growth and 1.4% annual expansion, according to recent data from the national statistics agency INEGI. This performance occurred despite ongoing inflation challenges and new U.S. tariffs on Mexican exports.
The economic growth was primarily driven by the services sector, which expanded by 2.2% annually and 0.9% compared to March. The agricultural sector showed mixed results with 3.2% annual growth but a 3.7% monthly decline. Meanwhile, the manufacturing, mining, construction, and energy sector collectively declined 0.7% year-over-year but managed a slight 0.1% increase from March.
This economic performance is particularly notable as it coincided with the implementation of U.S. tariffs on foreign vehicles, including those manufactured in Mexico. The 25% U.S. tariff on Mexican goods that don’t comply with USMCA trade rules, which began in March, represents a significant challenge for Mexico’s export-oriented economy.
Inflation remains a concern, with the annual headline rate at 4.51% in the first half of June, exceeding the Bank of Mexico’s target range of 3% plus or minus one percentage point. Core inflation, which excludes volatile food and energy prices, rose to 4.20%. Meat prices surged 11.86% compared to last year, while processed foods increased 4.82%.
The Bank of Mexico’s Dilemma
The Bank of Mexico (Banxico) faces a difficult decision at its upcoming monetary policy meeting. After cutting interest rates by 50 basis points at each of its three previous meetings this year, bringing the benchmark rate to 8.50%, analysts are divided on whether the bank should continue with aggressive cuts given the persistent inflation.
Future Economic Outlook
The longer-term outlook remains cautious, with the World Bank forecasting just 0.2% growth for Mexico in 2025, while the International Monetary Fund predicts a 0.3% contraction, citing increased trade barriers and global economic uncertainty.
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