The Institute of International Finance (IIF), representing the worlds largest financial institutions, has revised its 2025 growth forecast for Mexico down to 0.8% from 1.5%, citing an imminent risk of recession.Following a visit to Mexico, IIF experts highlighted tariff threats and their impact on trade and investment as key factors exacerbating an economic slowdown that began in late 2024.The IIF warned that Mexicos economy risks falling below its long-term average growth rate of 2.5%.
Without decisive policy changes, the institute estimates growth could hover around 1.7%.In a report led by IIF Chief Economist Marcello Estevo and Latin America Research Director Martn Castellano, the group stated that Mexicos economic deceleration would weaken fiscal revenues, further limiting the governments ability to support economic activity.IIF Cuts Mexicos Growth Forecast to 0.8%, Warns of Recession Risk.
(Photo Internet reproduction)The report noted that neither fiscal nor monetary policies are well-positioned to stimulate growth.
On the fiscal side, authorities aim to balance consolidation with flexibility to address deteriorating economic conditions.IIF Highlights Mexicos Economic ChallengesHowever, the IIF sees limited room for stimulus in 2025 as the government plans to reduce its deficit by 1.8 percentage pointsfrom a record 5.7% of GDP in President Andrs Manuel Lpez Obradors final year to 3.9%.The IIF emphasized that Mexico requires market-friendly policies to boost growth through trade, remittances, and investment flows.
Yet challenges persist, including maintaining social programs introduced by the previous administration and supporting state oil company Pemex.The institute flagged Pemexs struggles, limited public investment cuts, and weakening fiscal revenues as significant obstacles to fiscal consolidation.
Mexicos debt remains below the 51% average for similarly rated countries.However, the IIF stressed that a corporate governance overhaul at Pemex is unlikely in the short term, adding risks to growth and public finances.
On monetary policy, the IIF observed challenges in managing inflation risks despite recent rate cuts by Mexicos central bank.While it expects further reductions totaling 200 basis points this year, it urged caution.
This is due to inflationary pressures in services, elevated inflation expectations, and potential capital outflows.The report underscores the urgency for decisive reforms to address Mexicos economic vulnerabilities and unlock its growth potential.