Economics: June data signal persistent economic weakness, policy uncertainty, and rising fiscal risks
Mexico's economy continues to underperform in 2026, with our GDP growth forecast at just 0.9% for the full year. Private investment has contracted for 19 consecutive months and is expected to remain weak throughout the year, held back by uncertainty — including about the USMCA renegotiation and the Judicial Reform — that is discouraging business confidence.
Private consumption of domestic goods is essentially stagnant, weighed down by declining formal employment, high services inflation, lower remittances, and the IEPS tax on processed foods. The apparent headline improvement in Q1 aggregate demand figures was driven largely by imported goods and a public investment rebound that is difficult to reconcile with official fiscal accounts.
On the price front, headline inflation has declined to 3.55% in early June — within Banxico's tolerance band — but core inflation has barely moved and remains above 4%, largely due to persistent services inflation. As a result, Banco de México held its benchmark rate at 6.5% in a unanimous decision on June 25, with forward guidance signaling rates will remain on hold, as core inflation is expected to stay near 4% through year-end.
Public finances are deteriorating. Tax revenues are running below target, the Federal Government's deficit has widened sharply, and the primary balance remains negative. Current spending continues to expand rapidly, leaving little room for adjustment and keeping public debt on an upward trajectory — a dynamic that significantly raises the risk of a sovereign credit rating downgrade in 2027–2028.
On the external front, two rounds of bilateral USMCA negotiations have taken place, focusing on automotive rules of origin, steel, aluminum, agriculture, and labor. A third round is scheduled for July in Mexico City. The automotive sector, despite complying with treaty rules, continues to face a 25% tariff on non-US vehicle content, which has reduced exports.
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