Mexico Economics Weekly: USMCA third round not a charm yet

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Mexico Economics Weekly: USMCA third round not a charm yet

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24 Jul 2026 07:00:00 ET │ 24 pages

Mexico Economics Weekly

USMCA third round not a charm yet

CITI'S TAKE

Julio Cesar Ruiz AC

The USMCA review continues to progress, but absence of a breakthrough in +52-55-8421-6833

the third round supports our view that negotiations are likely to extend julio.ruiz@citi.com

beyond this year. The fourth round is scheduled for the first week of

September. While our base case remains that Mexico, US, and Canada Felipe Juncal AC

ultimately reach an agreement to extend the trade deal, we are less felipe.juncal@citi.com

confident about the timing given the persistence of contentious issues,

including automotive rules of origin. The possibility of an interim agreement

before year-end could help reduce uncertainty, but details remain limited.

Prolonged negotiations are likely to continue weighing on business

sentiment and delaying recovery in private investment, suggesting a

downside bias to our 2% GDP growth forecast for 2027.

Inflation — The 1H July inflation print supports the view that the recent decline in

headline inflation is being driven primarily by a handful of volatile non-core food

items, whose disinflationary contribution is unlikely to persist given their

volatile/mean-reverting nature. As such, we believe the easing in headline inflation

is likely to carry limited weight with Banxico. However, the continued favorable

behavior of core inflation, which showed signs of moderation at the margin, seems

more relevant. While our base case remains that Banxico keeps the policy rate

unchanged at 6.50% in 2026 and 2027, a combination of subpar growth, resilient

peso, and well-behaved core inflation could eventually lead the central bank to