Mexico’s economy is projected to grow 0.9% in 2026, marking a second consecutive year of sub-1% expansion, according to a report from the Institute of International Finance (IIF). This forecast remains below the pre-pandemic average of 1.8% and contrasts with the 2.3% growth estimate used by the Mexican government for its federal budget.
The IIF, which represents more than 400 global financial institutions, identified several factors restraining the nation’s Gross Domestic Product (GDP). These include uncertainty surrounding tariffs, the upcoming USMCA review, and domestic institutional fragility.
In an analysis by Marcello Estevao and Jonathan Fortun, the IIF noted that while Mexico benefits from trade integration with the United States, internal restrictions and external shocks dampen the growth outlook. The report highlights “persistent supply bottlenecks” and deficient critical infrastructure as primary deterrents to productive investment. Key areas of concern include:
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Energy and Water: Deficiencies in utility networks limit industrial expansion
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Transportation and Communications: Infrastructure gaps impact the movement of goods
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Fiscal Margin: The government faces limited fiscal space to address these structural needs
Foreign Direct Investment (FDI) is expected to average between 2.5% and 3% of GDP. While sufficient to cover current account deficits, the IIF noted this level remains low compared to regional peers like Brazil.
Pamela Díaz, Economist for Mexico, BNP Paribas, also forecasts 0.9% growth for 2026. She noted a negative output gap and a divergence in performance between sectors, with significant deceleration in both industry and services.
The IIF emphasized that while nearshoring presents significant medium-term opportunities, realized growth depends on the consistent execution of internal policies. The annual analysis suggests that capital flows to Latin America may underperform compared to 2025 due to less favorable commodity outlooks and political instability.
The narrowing interest rate differential between Mexico and the United States has reduced the appeal of the carry trade. The spread reached a peak of 575 basis points in October 2023 and has since declined to a range of 325 to 350 basis points. Despite this, the IIF anticipates continued demand for local currency debt and cross-border loans, supported by global risk appetite.