Barclays rules out recession in Mexico, forecasts nation's GDP to grow by 0.7% in 2025 and by 1.5% in 2026 amid US tariff threats; peso's depreciation could cushion impact if 25% tariffs are imposed on Mexican exports

April 1, 2025 (CE NAFTA 2.0 Newswire (Mexico)) –

In the midst of the threats of tariffs by US President Donald Trump , Barclays rules out that Mexico's economy will enter a recession in the course of 2025, and forecasts that the Gross Domestic Product (GDP) will grow by 0.7% this year.

According to Barclays' chief economist for Latin America , Gabriel Casillas , the uncertainty of the policies implemented by the U.S. president "is hitting" Mexico , despite the fact that such tariffs have not been fully defined.

We cannot be oblivious to what is happening with the uncertainty in the United States , with downward revisions to GDP. We also recently lowered our estimate (for Mexico ) from 1.4% to 0.7%, and for next year we lowered it from 2% to 1.5%, he said.

Will the peso shield Mexico from Trump and a recession?

The Barclays analyst considered that, if Donald Trump makes good on his threat and imposes 25% tariffs on all Mexican exports, the peso could cushion the impact of the tariffs.

A good part of this would be absorbed by the exchange rate and then the short-term effects could be absorbed more by the exchange rate than the real economy. (If the tariffs are imposed) the economy will probably not grow this year and there would also be a long-term impact, Casillas said.

According to the U.S. bank's projections, in a scenario of 25% tariffs on all Mexican exports permanently, the exchange rate would soar to around 24 pesos per dollar.

Sheinbaum will be able to meet the fiscal deficit target.

Likewise, Gabriel Casillas considered that Claudia Sheinbaum's federal government will be able to meet the fiscal deficit goal set for 2025 of 3.9% of GDP, despite financial volatility and the impact of the probable imposition of tariffs.

For the chief economist for Latin America at Barclays, this would be achieved thanks to two key elements: exchange rate movements and the operating surplus of the Bank of Mexico (Banxico).

If we accommodate the Treasury's assumptions of 2.3% GDP growth, put it at 1% or less, and raise the exchange rate from 18.50 to what it is now, the deficit can be met. When we raise the exchange rate, we have more net income than what we have to pay for the additional foreign debt, he commented.

In this sense, Casillas said that in this scenario, around 0.3 points of the GDP would be missing to achieve the 3.9% forecast by the Treasury , which can be achieved with Banxico's operating surplus.