Analysts Warn of Mexican Recession as U.S. Tariff Threats Persist: 'This Quarter is Lost'

Mexico's economy is showing signs of entering a technical recession amid escalating U.S. tariff threats, according to analysts consulted by Reuters.

The reports explains that during the final months of 2024 Mexico had its first quarterly GDP slump since the pandemic and, with economic activity already weakened, the imposition of 25% tariffs on all imports from Mexico and Canada by U.S. President Donald Trump further compounds the risks. A further contraction in the first quarter of 2025 would confirm a technical recession.

"The damage is already done. Maybe there's a slight recovery in the second quarter, but this quarter is lost," said Marco Oviedo, senior strategist for Latin America at XP Investments to Reuters.

The economic outlook is a challenge for President Claudia Sheinbaum, who has been forced to rein in spending while maintaining welfare programs. Although she has dismissed the need for major fiscal reforms, pressure may mount if the economic slowdown persists. Mexico's central bank has already halved its 2025 growth forecast from 1.2% to 0.6%, though the Finance Ministry maintains a more optimistic estimate of 2%-3% growth.

President Trump initially imposed the 25% tariffs before granting a one-month reprieve for goods compliant with the U.S.-Mexico-Canada Agreement (USMCA). Mexican Economy Minister Marcelo Ebrard has stated that around 50% of Mexican exports qualify under the agreement, with hopes to increase this figure to 85%-90%. However, Trump's frequent policy shifts have unsettled businesses and investors.

The uncertainty extends beyond Mexico. According to an analysis published on Tuesday by Mexican financial site El Economista, J

Without tariffs, a U.S. downturn could shrink Mexico's GDP by 1.5%-2% and cost up to 1.4 million jobs. With tariffs, El Economista warns the contraction could reach 3.5%, with the peso potentially depreciating to 28 per U.S. dollar.

Mexico now faces a complex economic environment with limited fiscal maneuverability. With interest rates at 9.5% and foreign investment declining, the government has few tools to counteract the slowdown. El Economista notes that Mexico remains highly dependent on the U.S., making a prolonged economic downturn particularly challenging.