Mexico Economics Weekly: Underlying activity weakness persists

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Mexico Economics Weekly: Underlying activity weakness persists

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31 Jul 2026 07:05:03 ET │ 24 pages

Mexico Economics Weekly

Underlying activity weakness persists

CITI'S TAKE

Julio Cesar Ruiz AC

Activity likely posted strong growth in the 2Q26, but the strong expansion +52-55-8421-6833

is unlikely to be sustained in 2H26, in our view. While we adjusted our 2Q26 julio.ruiz@citi.com

GDP growth forecast reflecting INEGI’s flash estimate of 1.5% (from our

previous call of 0.8%), we think the 2H26 will continue having soft Felipe Juncal AC

sequential expansions around 0.1% given still high uncertain environment felipe.juncal@citi.com

from the USMCA review negotiations and lack of clear evidence of the

implementation of the infrastructure plan. That said, we increased slightly

our GDP growth forecast for 2026 to 1.3%, compared to our previous call of

1.1%

Monetary policy — Banxico preview: Next Thursday the central bank will publish its

monetary policy decision where we expect board members to keep unanimously the

policy rate at 6.50%. We don’t expect a significant deviation from the forward

guidance of stable rates. Our base case remains for Banxico to keep its monetary

policy rate at 6.50% during the rest of the year and 2027. While inflation

determinants suggest some downside bias for the policy rate, the narrow rate

differential limits the space for Banxico to ease further the policy rate.

Fiscal — Mexico’s fiscal accounts outperformed expectations in January-June, with

the budget deficit coming in MXN358bn below program despite weaker revenues.

The surprise was driven largely by expenditure under execution, particularly in direct

public investment and subsidies, which more than offset shortfalls in oil and income

tax revenues.