Mexico’s 2025 Outlook Looks Bright Against Trump

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(Bloomberg) – Even as Mexican President Claudia Sheinbaum tries to ease concerns over Donald Trump’s threat of 25% tariffs, economists are taking a hard look at the trouble ahead if the US president-elect actually follows through.

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Analysts quickly revised their forecasts for 2025, now expecting a fourth consecutive year of slower growth and less foreign investment. Mexico’s central bank said on Wednesday that any predictions would be premature, but it was clear that the mere mention of levies was enough to stoke fears of an economic crisis. In total, such tariffs could threaten about 11% of Mexico’s gross domestic product, according to an estimate by Bloomberg Economics.

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Moody’s Analytics has more than halved its forecast for economic growth next year to 0.6%, making it Mexico’s worst year since the pandemic-related recession of 2020. the financial sector will be shaken by an aversion to risk and volatility.” S&P Global Ratings was less bullish, cutting its 2025 growth forecast to 1.2% from 1.5% citing “heightened uncertainty” in trade relations with the US.

“Even the threat of tariffs sends an alarming signal to the way investment is made in Mexico. We will have less interest for investors to bet on Mexico and invest especially in manufacturing,” said Diego Marroquin, a North American trade expert at the Wilson Center. “Mexico will have to act passively on issues outside the trade agenda for the US to sit at the table.”

Trump has said he will impose tariffs if Mexico – and Canada – do not stop the flow of fentanyl and irregular border crossings. Sheinbaum sent a letter to Trump about Mexico’s success in the fight against drugs and then jumped on the phone with him on Wednesday, telling him that Mexico is already preventing migrants from reaching the US border.

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He also said that his government was explaining what the retaliatory rates would look like, but he did not specify specifics. Canada is already in the same process, and is trying to decide which items will be targeted, AP reports.

What Bloomberg Economics says

“We see growth slowing to 1.0% in 2025 from 1.3% expected this year, driven by a slowdown in private investment and tight monetary policy. Our forecast assumes higher exports and no US imports from Mexico until 2026. Uncertainty is high, and domestic and foreign risks are biased towards the downside.”

-Felipe Hernandez, Latin American economist

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Even if the two countries end up negotiating a deal, it could hurt the investment Mexico had hoped would come after the companies stood aside before the US election. Mexico has overtaken China as the US’s No. 1 trading partner, and Sheinbaum cited manufacturing as the engine of growth in Mexico. Senior officials in his government have been promoting closer ties with business leaders and the expansion of industrial parks.

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If Trump gets it wrong, things could look better for Mexico. The head of Bank of America in Mexico said he doesn’t think Trump will ever impose tariffs.

“Our basic position is that we do not see that there will be a tax in North America at the end of the whole process,” Emilio Romano told reporters in Mexico City. “That is because they will disrupt the economy of all countries. The tariff in Mexico is a tax on American companies. “

Franklin Templeton’s co-directors of investments in Mexico predicted Wednesday that if Trump can do that, he can raise any tariffs in the short term. That will open up more private investment opportunities for Mexico this year.

“You have to be smart in the tax war. The US could say, ‘25% on everything,’ and Mexico could set tariffs on hard sectors in the US that would have a Trump pressure group,” said Luis Gonzali, chief investment officer at Franklin Templeton Mexico. “It is possible that in the short term he will impose tariffs , but it will not last long.”

Mexico’s central bank is studying the possible scenarios and inflationary impact of Trump’s tariff threats, Governor Victoria Rodriguez Ceja said during a quarterly report on Wednesday. The bank raised its growth forecast for this year to 1.8% from 1.5% previously and kept its 2025 forecast at 1.2%. Rodriguez said the bank still expects the inflationary situation to allow for future rate cuts, from the current 10.25%.

Rodriguez declined to specify how much Trump’s tough tax promises would affect inflation and economic growth in Mexico, but he confirmed that Banxico, as Mexico’s central bank is known, will remain attentive to the measures actually decided by the incoming US government.

“There is uncertainty about the policies that will be implemented,” said Rodriguez. “It would be too early to talk about the possible consequences.”

—Courtesy of Alex Vasquez and Carolina Millan.

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