Mexico's central bank slashed the country's growth outlook for 2025 by half, citing potential US tariffs.
The central bank cut its forecast for gross domestic product (GDP) growth to 0.6pc for the year, from a prior 1.2pc estimate. Growth was 1.5pc in 2024.
In making the revision, the central bank said the weaker growth outlook is due to "high uncertainty" over potential US tariffs and other measures taken by the new US administration.
The threat of tariffs alone will impact investment and consumption in Mexico this year, the bank added in its quarterly inflation presentation Wednesday, with the uncertainty potentially extending into upcoming discussions over the USMCA free trade agreement.
The central bank provided a range of between -0.2pc and 1.4pc for 2025 growth, while 2026 growth should fall within a range of 1pc and 2.6pc.
The central bank updated its inflation outlook, with Mexico's year-end annual consumer price index (CPI)estimated at 4.5pc, slower than its previous 4.7pc estimate. However, the bank said more time is needed to bring CPI down to its goal of 3pc, projecting this will occur in the fourth quarter of 2026, a year after its previous estimate.
CPI eased to an annual 3.59pc in January, the lowest in four years, as deceleration in agriculture prices offset faster inflation in energy, consumer goods and services.
In a 6 February decision, the central bank accelerated its current rate easing cycle, cutting its target rate by a half point to 9.5pc. It said the board is considering cuts of similar magnitudes in coming months, with the next meeting set for 27 March.
Board governors addressed the potential inflationary impact that could occur with the enactment of major US tariffs on Mexico, arguing the flexibility of the Mexican peso-US dollar exchange rate should help absorb some tariff impacts.
"Conceptually there would be no reason to rule out a scenario where tariffs materialize and at the same time the central bank could cut the target rate by 50 more [basis] points," said deputy governor Gabriel Cuadra, who joined the board earlier this month.
Cuadra added the Mexican economy has proven resilient to complex challenges, adding the bank is ready to confront any eventuality with the trade dispute, citing solid foreign reserves and multiple tools for confronting inflationary spikes.
By James Young
