The Swiss bank UBS reduced its growth forecast for Mexico in 2025 to 0 percent on Thursday, down from a previous estimate of 1 percent. This change is due to the uncertainty generated by the threat of tariffs from the United States and the slowdown in investment. In its most recent report, the Swiss financial services firm indicated that the Mexican economy faces a possible stagnation, which could lead the Bank of Mexico (Banxico) to make more aggressive cuts to interest rates.
UBS's analysis indicated that the tariff threats from former President Donald Trump have affected investor confidence, which, combined with reduced dynamism in the U.S. economy, is slowing economic activity in Mexico and points to an imminent recession. This has led UBS to revise its growth forecast for Mexico's Gross Domestic Product (GDP), from the previous 1 percent to 0 percent.
The UBS report also acknowledged that Claudia Sheinbaum's government has adopted an effective strategy to contain the tariff dispute with the United States. Unlike Canada and the European Union, Mexico has opted for a more cautious approach, avoiding a trade escalation. Sheinbaum seeks not only to avoid widespread retaliation but also to politically pressure Trump in the United States with selective retaliation in specific sectors.
UBS highlighted that approximately 90 percent of Mexican exports could benefit from the United States-Mexico-Canada Agreement (USMCA), which could partially mitigate the impact of the tariffs. However, they warn that a generalized 25 percent tariff from the United States could cause significant economic damage to Mexico.
Regarding markets and monetary policy, UBS expects increased pressure on the Mexican peso as Banxico continues to cut interest rates and the economy slows down. The bank projects that the exchange rate could exceed 21 pesos per dollar by late 2025. Furthermore, UBS has adjusted its estimate of Banxico's terminal interest rate to 7.5 percent, responding to economic weakness and controlled inflation.
In conclusion, the evolution of U.S. trade policy will be crucial in determining the direction of the Mexican economy in the coming months. Meanwhile, the Mexican government has managed to secure an additional pause in the potential imposition of tariffs by the United States.
