Spring Storm Clouds
El Financiero, March 21st, 2025
This week has brought a lot of preliminary economic data. INEGI released its early estimates for consumption and economic activity, while the OECD published its forecasts for this year and the next. All of these are estimates that will likely be adjusted as more details become available, but the overall picture they paint is not encouraging.
Consumption is estimated to have fallen by nearly 2% in February, according to the early estimate, which would be the largest contraction in a long time (excluding the lockdown period). Since December already showed negative figures, this is not an isolated event, nor is it related to Trump’s tariffs. In fact, over the last six reported months (up to February), consumption has barely grown. And if we only consider the first five months of the current administration, the balance is negative: a -0.2% contraction.
A similar trend is seen in overall economic activity: there was a contraction in February, another in December, and also one in October. Unlike consumption, the drop in economic activity does have a recent precedent. In 2019, thanks to the brilliant decision to cancel the airport, Mexico went through a recession that was never officially declared and later got blurred by the pandemic. In February 2020, before the first reported Covid-19 cases in Mexico, the economy was already contracting by -1.4%, and over the six prior months, by -1%. It was never labeled a recession, but it should have been.
Now, in the last six months, the economy has recorded zero growth, and if we only look at the first five months of this administration, there is a slight contraction of -0.1%. This is not surprising, given that consumption (which accounts for nearly 80% of GDP) is already negative, and investment, after the artificial construction boom of 2023, is collapsing.
There is no leading indicator for investment, but we can analyze construction data and imports of capital goods, which together represent 80% of the gross fixed investment index.
In January, there was a decline in capital goods imports, similar to what happened in September.
In September, imports fell -4.5%, and the indicator for investment in imported machinery and equipment dropped -2.2%.
Now, the drop in imports was -7.5%, and we will soon see its effect on the investment index.
Meanwhile, construction has been in negative territory since August, following the bubble of the previous year.
Over the last six months, construction has contracted by -6%.
Since the start of this administration, the drop is -8%.
All of these investment-related figures predate the global uncertainty triggered by Trump. However, the consumption and activity data, which includes February, may already reflect part of that impact. Given their early-release nature, I believe these figures will be revised downward, as standard indicators struggle to capture such uncertainty-driven effects. We’ll have to wait and see.
For months, I have pointed out—here and in my Substack—that the 2025 growth estimate should be close to zero, even before considering Trump. With his unpredictability, we now have to move into negative territory. This week, the OECD is saying the same.
Without a major tariff impact, they forecast 0.1% growth.
With tariffs, they project a -1.3% contraction.
I believe the latter is still too optimistic, but much depends on which goods will be affected by tariffs and at what rate. Beyond that, the sheer uncertainty created by Trump’s erratic behavior is already impacting not just Mexico, but the U.S. itself.
Even the Federal Reserve has adjusted its outlook, now predicting slower growth and higher inflation for the U.S.
And we’re just getting started.