Mexico Heads Toward Recession as U.S. Tariffs Hammer Economy

Fitch Ratings warned yesterday that Mexico faces a technical recession with zero economic growth throughout 2025 due to tariffs imposed by the United States.

The rating agency slashed its growth forecast by 1.1 percentage points to 0% for 2025 and reduced 2026 projections to 0.8%. Mexico’s economy contracted 0.6% during the final quarter of 2024, marking its first quarterly GDP decline since the pandemic.

Another contraction in the current quarter would confirm a technical recession, defined as two consecutive negative growth periods. “Our new forecasts imply the economy will face a technical recession this year, with output contracting in the second and third quarters,” Fitch explained in its Global Economic Outlook.

The US accounts for over 80% of Mexican exports, primarily manufactured goods. President Donald Trump recently imposed 25% tariffs on all Mexican imports with temporary exemptions for goods compliant with the United States-Mexico-Canada Agreement.

President Claudia Sheinbaum expects USMCA-compliant exports to remain exempt from tariffs. Her government aims to increase compliance from the current 50% to between 85-90% of exports.

Economic analysts remain pessimistic about immediate recovery. “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 at XP Investments.

Mexico Faces Economic Uncertainty

Trump’s inconsistent position on tariffs has created uncertainty for businesses across North America. This unpredictability compounds existing challenges from last year’s drought and investor concerns about judicial reforms.

The economic headwinds forced Sheinbaum to cut government spending after inheriting Mexico’s largest budget deficit since the 1980s. A recession might pressure her administration to consider fiscal reforms despite her insistence they aren’t necessary.

Mexico’s central bank already halved its 2025 growth forecast to 0.6%, though the Finance Ministry maintains a more optimistic 2-3% projection. Fitch warned that a 25% tariff could jeopardize Mexico’s BBB- credit rating if economic conditions worsen.

Some officials remain cautious about declaring a recession prematurely. Central Bank Deputy Governor Jonathan Heath acknowledged the country faces “a bad streak of stagnation” but considers definitive conclusions premature.

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