Mexico’s economic growth slows in 2024; outlook weakens

Mexico’s GDP grew only 0.9 percent year over year in fourth quarter 2024, after expanding 2.4 percent in 2023 and 4.6 percent in 2022. Economic growth slowed, mainly due to lower investment, slowing consumption and a contracting energy sector. Trade grew slightly, and employment growth was muted. As a result, the consensus forecast for 2025 real GDP growth (fourth quarter, year over year) compiled by Banco de México fell to 1.0 percent in January (Table 1).

Lower investment and consumption behind slow growth

Investment contributed three percentage points less to GDP growth in 2024 compared with 2023 (Chart 1). The major drop was in nonresidential construction investment, while purchases of imported machinery and equipment also slowed noticeably as the Mexican peso continued to weaken against the dollar. In addition, consumption was impacted by sluggish growth in remittances, high interest rates and flat employment. However, net exports boosted growth in 2024 after dragging it down the previous two years.

Only the service sector grew robustly in 2024

Looking at contribution to growth by sector, services expanded the most, followed by dismal growth in manufacturing and the agriculture sector, with the latter heavily impacted by last year’s drought (Chart 2). With the rise of intra-industry trade between the U.S. and Mexico since the early 1990s, the correlation between Mexican and U.S. manufacturing production has increased considerably. As a result, Mexico’s manufacturing industry slowed in 2024 as U.S. manufacturing production only grew 0.1 percent year over year. Mining and oil extraction contributed negatively to growth last year. After consistently rising from mid-2020 to early 2023, oil production has been consistently falling and was 1.6 million barrels per day in January—near historically low levels.

Exports flat at year-end

Mexico’s three-month moving average of total exports held steady in December (Chart 3). The manufacturing sector, which accounts for a large share of exports, edged down 0.3 percent, while oil exports grew 5.9 percent. In 2024, total exports increased 0.4 percent, oil exports fell 17.3 percent, and manufacturing exports increased 1.1 percent.

November retail sales little changed

The three-month moving average of real retail sales ticked down 0.1 percent in November, the latest data available (Chart 4). Moreover, the smoothed retail sales index was down 1.6 percent year over year. Retail sales saw little to no growth in 2024.

Job gains remain below average

Formal sector employment—jobs with government benefits and pensions—grew an annualized 0.5 percent (10,000 jobs) in January (Chart 5). In 2024, employment only grew 1.0 percent December to December. The unemployment rate, which tracks only the formal sector, was 2.6 percent in December.

Mexican peso continues to weaken

The Mexican currency averaged 20.5 pesos per dollar in January, weaker than the previous month’s reading of 20.3 pesos per dollar—a depreciation of 1.4 percent (Chart 6).

Remittances contract despite a weakening peso

The three-month moving average of real remittances to Mexico fell 1.4 percent in December after a 0.1 percent downtick in November despite the weakening peso (Chart 7). In 2024, remittances totaled $65.5 billion, down 0.6 percent from 2023. The exchange rate plays a role in the volume of remittances because it determines the cost to the sender and the amount the recipient receives. For example, if the peso depreciates against the dollar, the recipient will receive more pesos for a given number of dollars.

Inflation continues gradual decline

Mexico’s consumer price index (CPI) increased 3.6 percent in January over the prior 12 months, below December’s 4.2 percent rise (Chart 8). However, core CPI inflation, which excludes food and energy, held steady at 3.7 percent. Services inflation remained elevated but ticked down to 4.7 percent after rising 4.9 percent in December. In February, Mexico’s central bank lowered its benchmark rate by 50 basis points to 9.5 percent, in line with market expectations. In its statement, the central bank noted that weaker growth, particularly in the fourth quarter, combined with continued disinflation were the main reasons behind the cut. The central bank expects inflation will converge to its 3.0 percent target by third quarter 2026.