Mexico’s economic growth to slow 1.5% in 2025: Moody’s

Mexico CityMoody’s projects that Mexico’s growth for next year will slow to 1.5 percent, after a 2.4 percent advance in 2024, due to a cut in public spending and the effect of a slower push from the US economy. The risk firm explains that both the country and Brazil have so far benefited from the relocation of supply chains, but a “substantial slowdown is expected in the second half of the year,” due to external conditions.

“The outlook for Mexico and Brazil indicates a substantial slowdown in the second half of this year, as the US economy cools and authorities in China struggle to boost growth. Although Mexico’s exports to the United States and remittance income are still trying to reach records, we expect these two key supports to change as the US labor market gradually slows. It will also slow the reduction in public spending, as the incoming administration foresees a lower fiscal deficit,” Moody’s said.

While the Mexican economy is expected to slow, particularly in terms of public spending, Moody’s notes that the momentum of investment in Mexico will continue, despite any uncertainty that may be generated by the majority of Morena and its allies in Congress and the proposed constitutional changes that are being discussed. “While the proposed reforms have shaken the markets, we believe that the margin for their follow-up is narrow and we do not expect developments here to affect growth prospects this year or next,” it said.

Moody’s noted that while “not enough to prevent a broader slowdown, foreign direct investment in Mexico’s manufacturing sector is at its highest level in ten years, as global manufacturers continue to seek an alternative to China.” Much of this is due to wages, as salaries in the country are currently 40 percent lower than in the Asian economy.

“In 2010, Chinese factory wages were lower than in Mexico, but this cost advantage has eroded amid slower growth in the Chinese workforce. Today, monthly compensation for manufacturing workers in Mexico is about 40 percent lower than in China and compares more favorably with Southeast Asian manufacturing bases,” he said.

Amid a trade war between China and the United States, Moody’s estimates that the latter’s protectionism would have a more widespread impact on Mexico than on any other Latin American economy, due to the reduction in US imports, less migration of compatriots to that country and therefore a drop in remittances that “would put the Mexican economy in trouble.”