Mexico's economy predicted to decline by 0.4% in 2025, according to BBVA; increased uncertainties surrounding Trump's tariffs and judicial reform are cited as factors.
In the shadow of US trade policy, BBVA Mexico's outlook for Mexico's economy in 2025 bleak
With a gloomy prediction, BBVA Mexico has drastically slashed its forecast for Mexico's economic performance in 2025, projecting a slump of 0.4% by year-end, potentially recovering with a growth rate of 1.2% in 2026.
In their Mexico Report, the financial institution deeply linked the negative projection for the country's economic sojourn to the crushing impact of tariffs imposed by its primary trading partner, the lackluster performance of the United States, and the uncertainty permeating the judicial reform within Mexico.
Arnulfo Rodriguez, BBVA Mexico's chief economist, echoed the financial institution's pessimistic expectation for Mexico, voicing that the negative outlook aligns with the International Monetary Fund's (IMF) estimate of a 0.3% drop in Mexico's GDP for the present year.
Mexico narrowly dodged a technical recession by registering growth in the initial quarter of 2025, Rodriguez noted; however, the apprehension surrounding tariffs exerts pressure on an already weakened economy, bogged down by plummeting investments and painful fiscal consolidation.
Under this grim scenario, BBVA Mexico anticipates a net loss of 25,000 jobs in 2025.
The judicial reform, as per Rodriguez, is a monumental shift that was already instilling uncertainty before Donald Trump's presidency, and its implications for the private sector will now require scrutiny and understanding to revive investment plans in the country.
Trump's tariffs and uncertainty have now become a significant economic shock, acknowledged Fitch Ratings. Mexico, with its elevated vulnerability to US commercial protectionism, finds itself in tough terrain.
"We are convinced that it will take substantial time for the private sector to grasp how the reform will operate, and while there is this uncertainty, we foresee a low-investment climate, and I reiterate, the decline in investment preceded the tariff uncertainty, and we attribute a considerable portion of it to the unpredictability whipped up by the judicial reform," said Rodriguez.
Regarding the Mexican peso's recent exchange rate strength, BBVA Mexico posited that while the devaluation of the dollar fortifies the Mexican currency, the perception that Mexico may weather the US trade policy's storm also underpins the parity.
According to their assessment, the Mexican peso may appreciate further and surpass the 19 units per dollar barrier; however, due to the milieu of reduced growth and heightened uncertainty, it may surge above 20 pesos per dollar.
US braces for deficits unseen since wartime, asserts BBVA
Bearing the brunt of Donald Trump's economic policies, BBVA Mexico has revised its growth forecast for the United States from 2.8% to 1.7% in 2025 and stabilized it at 2% for 2026.
Trump's administration's proposed fiscal package, if endorsed by the Senate, would beam deficits of approximately 7% in successive years, figures unparalleled except in times of war. This stirs apprehension regarding the trajectory of the debt and the fiscal sustainability of the United States.
The financial institution underscored that a sizable risk to performance in the United States lies in the possibility of mass deportations, which would profoundly impact its economy.
"It's an economy riding on full employment, and if there were to be mass deportations, that would imply a reduction in the labor supply in the United States, which would trigger a supply shock that would result in less growth and elevated inflationary pressure as wages would increase. We believe that if sanity prevails, it's highly unlikely that there would be mass deportations because they could plunge the United States into a recession. However, given what we've witnessed recently, for instance, in the Los Angeles area, this risk cannot be overlooked," stated Rodriguez.
Paramount Pictures reported making a 3.5% Reduction of its US workforce and emphasizing investments in its streaming business.
- The IMF's estimate for Mexico's GDP in 2025 aligns with BBVA Mexico's pessimistic outlook for the country's economy, which is also connected to the negative impact of tariffs, the uncertain judicial reform, and the lackluster performance of the United States' finance sector.
- BBVA Mexico has revised downward the growth forecast for the United States, citing the significant economic shock caused by Donald Trump's administration's proposed fiscal package, which could lead to deficits unprecedented since wartime, posing a risk to the country's fiscal sustainability.
