Mexico avoids recession despite tariff uncertainty

Mexico's President Claudia Sheinbaum speaks during her daily press conference at the National Palace in Mexico City on January 28, 2025. [AFP]

Mexico's economy returned to growth in the first quarter of 2025, avoiding a recession despite deep uncertainty over US President Donald Trump's sweeping tariffs, official data showed Wednesday.

Gross domestic product (GDP) grew 0.2 percent from the fourth quarter of 2024, when Latin America's second-largest economy had contracted for the first time in three years, national statistics agency INEGI reported.

Year-on-year, GDP rose 0.6 percent in the first quarter, it said in a preliminary estimate.

"Given the tariff situation and the uncertainty surrounding the global economy these past few months due to President Trump's new policies, this is good news," Mexican President Claudia Sheinbaum said.

The positive growth means Mexico outpaced the US economy, which data released on Wednesday showed contracted in the first three months of the year.

Mexico's resilient performance, at least for now, eased fears of a recession, generally defined as two consecutive quarters of economic contraction.

Kimberley Sperrfechter, an economist at the Capital Economics consultancy firm, warned that the situation was not all rosy, however.

"Growth was driven by a rebound in agriculture and the rest of the economy -- and the manufacturing sector in particular -- continued to struggle," she wrote in a note.

"The weakness in industry suggests that US tariffs on Mexico (threatened in February and in force in March) took a toll on the economy last quarter," she added.

Gabriela Siller, an economist with the financial group Banco BASE, said that there was a "marked economic slowdown" and the most likely outcome was zero growth in 2025, or a contraction if tariffs remain.

'Competitive advantage'

Trump has announced various tariffs targeting Mexico, as well as several policy U-turns, as part of his global trade war.

While he left Mexico off the list of nations facing his steep "reciprocal tariffs," its carmakers as well as steel and aluminum exporters still face duties.

Sheinbaum welcomed Trump's announcement Tuesday of an easing of auto tariffs as a sign of "progress."

The new rules would give Mexico "an additional competitive advantage" due to its free trade agreement with the United States and Canada, she said.

Vehicle tariffs would be reduced if some of the parts were produced in Mexico or Canada, not just the United States, an important change that "recognizes the value" of the trade deal, she said.

Even so, the uncertain outlook means that Mexico's central bank is likely to announce another half-percentage-point cut to its benchmark interest rate in May, Sperrfechter predicted.

The International Monetary Fund has predicted that Mexico's economy will shrink by 0.3 percent this year.

Sheinbaum has said her outlook is more optimistic, because of her efforts to boost the economy and attract foreign investment.

Her government has touted a series of major investments pledged by international companies in recent weeks, including e-commerce behemoth Amazon, its regional rival Mercado Libre, streaming giant Netflix and Spain's biggest bank Santander.

In theory, Mexico should be protected against US tariffs by the North American free trade agreement, which was renegotiated during Trump's first term in office.

The United States-Mexico-Canada Agreement (USMCA), which replaced the previous NAFTA accord on July 1, 2020, is due to be reviewed by July next year.

Mexico replaced China in 2023 as the largest trading partner with the United States, which buys more than 80 percent of its exports.