Tariff Chaos Could Push Mexico into Technical Recession

  • Mexico's economy appears on track to contract in the first quarter, entering a technical recession, according to analysts, as U.S. President Donald Trump’s on-again, off-again tariffs wreak havoc on growth that was already weakening.
  • During the final months of 2024, Mexico had its first quarterly GDP slump since the pandemic. A first-quarter contraction would mark a technical recession, defined as two straight quarters of negative growth. Trump's tariff threats pile pain on Mexico after a devastating drought last year. Investors were also worried about a controversial judicial overhaul and unchecked congressional power of the ruling Morena party.
  • A technical recession would likely reignite pressure for a fiscal reform. Sheinbaum has said Mexico does not need significant reform, even as she wrestles with how to maintain current levels of welfare while the economy sputters.
  • Last week, Trump imposed 25.0% tariffs on all imports from Mexico and Canada, then offered a month-long reprieve on goods that comply with the USMCA, a regional trade agreement. Sheinbaum has said she expects exports under the USMCA to remain exempt from tariffs. Around half of Mexican exports to the U.S. are USMCA-compliant and the government aims to boost that to between 85.0% and 90.0%, according to Economy Minister Marcelo Ebrard.
  • Mexico’s GDP contracted at a seasonally adjusted 0.6% rate in the fourth quarter and full-year growth was 1.2%, reflecting a worsening economic picture even before Trump's arrival. In February, Mexico's central bank halved its forecast for 2025 GDP growth to 0.6% from a previous 1.2%, although the Finance Ministry has maintained its forecast of 2% to 3% growth.
  • The outlook on tariffs remained unclear. Trump's frequent shifts on tariffs have exasperated negotiating teams in Mexico and Canada, leaving businesses in limbo. Economists that participate in Reuters surveys have warned of an increased risk of recession for the U.S., Mexico and Canada given the uncertain future of USMCA.

(Source: Reuters)