Mexican GDP growth disappoints in Q2, recession not ruled out for 2025

After Mexico's preliminary GDP data was released for the second quarter, analysts trimmed their forecasts for growth this year and are not ruling out a recession in 2025.

Statistics bureau Inegi reported that the Mexican economy grew 0.22% in 2Q24 compared with 1Q24 and expanded 1.09% year-on-year, below market forecasts.

“While the economy continues to grow despite the uncertainty faced both internally and externally, the slowdown is notable,” Grupo Financiero Base said in a report on Mexico's economic outlook.

The report highlighted that the year-on-year growth for the second quarter was the lowest since the first quarter of 2021 and was “considerably lower than the 1.93% in the previous quarter and much lower than the 3.21% growth in 2023."

“With today's publication ... Grupo Financiero Base is cutting its growth estimate for 2024 from 1.6% to 1.3% annually, estimating that in 2025 it could decelerate even more, with a growth rate of 0.8%."

“The data don't support growth of more than 1.5% for the whole of 2024, far from the estimate of the fiscal and monetary authorities," Alfredo Coutiño, director of Moody's Analytics, posted on social media platform X.

The finance ministry estimates that Mexico's GDP will grow between 2.5% and 3.5% in 2024 and between 2% and 3% in 2025.

“By incorporating the GDP data in Q2 and considering the depressive effect of the political cycle, growth in Q3 and Q4 will be less favorable. But even if we're generous, growth throughout the year is moving towards 1%,” Coutiño said.

The Moody's director added that “the data for the second quarter was weaker than expected, so the ongoing moderation will deepen throughout the rest of the year due to the end of the six-year term and the political transition, as has happened in the last 30 years.”

In 2025, Coutiño predicts that economic growth will be lower than 1%, as it is the first year of president-elect Claudia Sheinbaum's government and if the history of the last three decades repeats itself. “But if the promised fiscal adjustment is added and realized, then there will be no growth or possibility of recession,” he underscored.

Industrial recovery

In the breakdown of the Inegi figures by economic sector, it can be seen that growth in the second quarter was in the secondary and tertiary sectors, with sequential increases of 0.30% and 0.26%, respectively.

“Of this, the growth in secondary activities stands out, since it is the first positive quarterly rate after two consecutive falls, in the fourth quarter of 2023 (-0.34%) and the first quarter of 2024 (-0.48%). On the other hand, primary activities recorded a contraction of 1.74%, their largest drop since the first quarter of 2023,” Grupo Financiero Base said in its report.

Meanwhile, primary activities contracted 2.23% year-on-year for the quarter, while the rest of the activities, despite the slowdown, continue to grow. 

“The secondary sector recorded year-on-year growth of 0.48% in the second quarter, while the tertiary sector grew 1.74% (both being the lowest growth since the first quarter of 2021),” the report added.