Mexico economy to grow less than previously expected on trade concerns

Mexico's economy will grow more slowly this year and next than previously forecast as concerns over trade rules with the United States continue to erode investment, a Reuters poll of economists found.

Industrial production is set to remain weak despite a solid performance of Mexican exports and the implementation of government measures to make up for dwindling private capital spending, analysts said.

Gross Domestic Product (GDP) is set to expand 1.1% in 2026 and 1.8% in 2027, according to the median estimate of 32 economists polled July 13-17.

This was a downgrade from consensus estimates of 1.5% and 1.9% respectively in an April survey, implying a softer recovery from poor growth of just 0.5% in 2025.

Uncertainty about the trade agreement between the U.S., Mexico and Canada (USMCA) increased earlier this month after Washington declined to extend it for 16 years, opting for a 10-year term of annual reviews.

Alberto Ramos, head of Latam economics at Goldman Sachs, said the overall outlook for Mexico was "not particularly inspiring".

"Nobody seems to be panicking at this stage. We have to wait and see how trade negotiations evolve. Hopefully they will not be contaminated by outside factors like immigration and other issues," he added.

Among 13 economists who answered an extra question on how risks to their forecasts for Mexico's economy over the coming year were skewed, nine said it could grow slower than expected and four said faster.

Trade flows between Mexico and the U.S. are set to remain strong in the medium term despite the decision, said Elijah Oliveros-Rosen, chief economist for emerging markets at S&P Global Ratings.

"However, the annual renewals, which could lead to potential changes to USMCA, will complicate long-term investment decisions in export sectors," he added.

Barclays analysts said the auto sector would likely be one of the most sensitive areas in the negotiations as Mexican officials reject changes in rules of origin proposed by the U.S..

"Firms can often navigate tariffs, rules of origin requirements and regulatory changes but what is harder to manage is uncertainty over the future operating framework," they wrote.

Government measures to support domestic industries may only help marginally, Goldman's Ramos said, as Mexico lacks enough fiscal room and would instead need different strategies like opening the energy sector. 

The poll's median views for average inflation this year and in 2027 were 4.0% and 3.8%, the same as in April - at or very close to the upper limit of the central bank's target range of 3% plus or minus a percentage point.

Of 12 who responded to an extra question on risks to their calls for inflation trends over the coming year, seven said they may run faster than expected and five said slower.

To keep inflation pressures at bay, the central bank was forecast to maintain its benchmark rate at 6.50% at least until the end of next year.

(Other stories from the Reuters global economic poll)