IIF Cuts Mexico’s Growth Forecast to 0.8%, Warns of Recession Risk

The Institute of International Finance (IIF), representing the world’s 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 Mexico’s 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 Estevâo and Latin America Research Director Martín Castellano, the group stated that Mexico’s economic deceleration would weaken fiscal revenues, further limiting the government’s ability to support economic activity.

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 Mexico’s Economic Challenges

However, the IIF sees limited room for stimulus in 2025 as the government plans to reduce its deficit by 1.8 percentage points—from a record 5.7% of GDP in President Andrés Manuel López Obrador’s 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 Pemex’s struggles, limited public investment cuts, and weakening fiscal revenues as significant obstacles to fiscal consolidation. Mexico’s 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 Mexico’s 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 Mexico’s economic vulnerabilities and unlock its growth potential.

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