Mexico Braces for Economic Contraction as U.S. Tariffs and new Remittance Tax Loom

The Mexican Institute of Finance Executives (IMEF) warned Tuesday that Mexico’s economy will likely contract in the second quarter of 2025. IMEF President Gabriela Gutiérrez cited Washington’s tariff policies and other external factors as key contributors to the downturn.

Mexico narrowly avoided a technical recession in the first quarter with a modest 0.2% growth, following a 0.6% contraction in late 2024. This slight recovery came primarily from an 8.1% surge in the primary sector, while industrial output fell by 0.3% and services remained flat.

Economic forecasts for Mexico have deteriorated dramatically. IMEF members now predict just 0.1% growth for 2025 and 1.5% for 2026. The IMF projects a 0.3% contraction this year, while the OECD forecasts an even steeper decline of 1.3% in 2025 and 0.6% in 2026.

Several factors are driving this pessimistic outlook. The Trump administration’s 25% tariffs on various Mexican exports have disrupted trade relations. The closure of the US border to Mexican livestock due to screwworm spread has further strained agricultural exports.

A particularly concerning development is the proposed 5% tax on remittances advancing through the US Congress. Republicans unanimously supported this measure in committee, with final approval possible by July.

If implemented, this tax would affect over 40 million people and cost Mexico approximately $3.25 billion annually. President Claudia Sheinbaum called the remittance tax proposal “unacceptable” and potentially unconstitutional.

Economists warn it could reduce Mexico‘s GDP by 0.18 percentage points and push migrants toward informal channels for sending money. The cost of sending $350 from the US to Mexico would nearly quadruple from $6.00 to $23.50 under the proposed tax.

This price distortion could encourage the use of informal remittance channels, potentially involving criminal organizations. Mexico’s economic challenges come amid fiscal adjustments.

After a 6.2% deficit in 2024, the government projects a 3.2% deficit for 2025. The Mexican government has lowered its growth forecast to 1.5%-2.3% for 2025, down from an earlier estimate of 2.0%-3.0%.