Key insights
- Mexico's economy contracted more than expected in Q1, raising concerns about near-term growth. Analysts anticipate a modest boost from the 2026 FIFA World Cup, co-hosted with the US and Canada. The weak GDP data may prompt Banxico to cut interest rates, potentially influencing capital flows and risk sentiment. Global trade tensions are expected to weigh on growth, indirectly impacting US companies with exposure to the Mexican economy.
By Aida Pelaez-Fernandez
MEXICO CITY, April 30 (Reuters) - Mexico’s economy contracted 0.8% in the first quarter from the previous three-month period, preliminary data showed on Thursday, an unexpected slowdown ahead of the FIFA World Cup in June that analysts expect to lightly boost growth.
The decline in Latin America’s second-largest economy was wider than the 0.5% contraction forecast from economists polled by Reuters. The economy expanded 0.9% in the prior quarter, according to final data.
"Near‑term momentum remains subdued, but we still anticipate a gradual recovery supported by firmer domestic demand and a modest boost from the 2026 FIFA World Cup" soccer tournament, Itau chief economist Mario Mesquita said in a note.
Itau estimates that the World Cup, which Mexico is co-hosting along with the U.S. and Canada, will add 0.1 percentage point to Mexico’s annual gross domestic product growth forecast at 1.1% for 2026, compared with growth in 2025 of 0.8%.
Still, analysts expect global trade tensions to weigh on growth and to impact decisions by the Bank of Mexico, also known as Banxico.
Capital Economics analysts said there is a strong case for a rate cut of 25 basis points at Banxico’s meeting next week.
"In the past, disappointing GDP releases have prompted Banxico to act," they said in a note.
The central bank’s decision in March to cut its benchmark interest rate by 25 basis points to 6.75% was divided, with board members signaling the need for greater caution.
DECLINES ACROSS THE BOARD
All sectors in Mexico’s economy registered declines during the January-to-March period. The primary sector had the sharpest dip, down 1.4%.
Secondary and tertiary activities, respectively covering manufacturing and services, declined 1.1% and 0.6% in a sequential basis.
Compared with the same period a year earlier, growth in the first quarter was a modest 0.1%, below economists’ expectations for 0.8%.