Mexico Headed for Two-Year Downturn Under U.S. ‘Fair Trade’ Tariff Policy, OECD Reports

The Organization for Economic Cooperation and Development (OECD) now predicts Mexico will fall into recession lasting through 2026, driven primarily by escalating tariff conflicts.

Economic experts at the OECD estimate Mexico’s economy will contract by 1.3% in 2025 and shrink another 0.6% in 2026. These projections mark a dramatic reversal from the OECD’s November forecast, which had anticipated 1.2% growth for the Mexican economy in 2025.

The sharp downgrade stems from expectations that the United States will implement 25% tariffs on Mexican imports, prompting equivalent retaliatory measures from Mexico. Mexico stands alone among OECD nations facing negative growth during this period.

The organization warns that tariff impacts will multiply throughout North America’s integrated supply chains. Products crossing borders multiple times will incur compounding costs at each stage, severely disrupting established trade patterns.

Inflation compounds Mexico’s economic challenges, with the OECD forecasting 4.4% price increases in 2025. This projection exceeds previous estimates by 1.1 percentage points, suggesting persistent inflationary pressure despite economic contraction.

The predicted downturn would represent Mexico’s first recession since 2020, when pandemic disruptions caused an 8.4% economic plunge. Mexico had maintained positive growth since then, though momentum slowed considerably through 2024.

Mexico’s Manufacturing Sector Faces Growing Trade Tensions

Trade tensions create particular concerns for Mexico’s manufacturing sector. The automotive industry, which accounts for approximately 3.5% of Mexico‘s GDP, faces significant exposure to tariff increases. Major manufacturers have already paused expansion plans amid growing uncertainty.

Global markets have responded swiftly to these projections. The Mexican peso weakened against major currencies following the report’s release. Investment funds have begun reallocating capital away from Mexican assets toward more stable markets.

OECD Secretary General Mathias Cormann emphasized that policy restrictions raise costs for both producers and consumers worldwide. He called for maintaining open markets and preserving the international trading system’s integrity.

The organization suggests uncertainty will likely dampen spending by businesses and households, particularly regarding long-term investments. Early indicators already show weakening growth across North America during early 2025.