Mexico’s economy faced a contraction of 0.6% in the fourth quarter of 2024 as indicated by the preliminary data released on Thursday by the National Institute of Statistics and Geography (INEGI).
This decrease was, however, the first quarter-on-quarter decline the country has posted in over three years, thus, underlining the growing challenges to the overall performance of Latin America’s second-largest economy- Mexico.
The 0.6% drop in the country’s gross domestic product (GDP) in the last quarter was far beyond what the market expected.
A Reuters poll’s median projection forecasted a 0.2% fall.
The 0.6% drop was not only lower than these estimates, but it also reversed the country’s positive GDP growth of 1.1% in the preceding quarter.
The occurrence is deemed even more interesting because it adds to the list of events that have occurred in Mexico since the last documented negative output in the third quarter of 2021.
It has been viewed as a major issue, causing concern among many economists and policymakers.
This decrease in Mexico’s GDP adds to the economic pressures that could result in the 25% tariffs that President Donald Trump has promised to impose from February 1st.
Sectoral performance: primary activities take a hit
The drop in the GDP was primarily triggered by the significant decrease in the key sectors.
The primary sector which includes agriculture, livestock, and fishing underwent a massive 8.9% drop in output compared to the previous quarter.
This is just one example of the ongoing damage in the agriculture industry, driven by factors such as harsh weather and problems in specific items’ supply networks.
Additionally, the industrial sector experienced a 1.2% decline.
Despite the quarterly dip, the annual data paint a more optimistic picture.
Mexico’s yearly GDP rose by 0.6% in the fourth quarter.
This suggests that, despite the quarterly contractions, the economy appears to be doing well as reported throughout the year.
Nonetheless, the lowering of the growth rate in comparison to prior years raises concerns about the country’s ability to achieve its full potential as it approaches 2025.
Central Bank signals and future challenges
The reduction in economic activity is consistent with the central bank of Mexico’s estimate that broader interest rate cuts may be required this year.
The Bank of Mexico is poised to rethink its monetary policy in response to inflationary pressures and the negative consequences of tariffs imposed by the US.
Using the threat of tariffs, the US government’s intention to impose tariffs on Mexican imports creates an environment of increased uncertainty and necessitates quick national responses.
The economic downturn affects more than just macroeconomic data; it also has an impact on Mexicans’ daily lives in terms of employment and business.
A contraction in the economy can lead to job losses, lower consumer purchasing power, and a drop in domestic and foreign investment.
Policymakers will have more pressure to put policies in place to encourage the economy, safeguard most sectors, and improve jobs.
As the government works to address these concerns, current calls for infrastructure, education, and technological investments are becoming more common.
What does the contraction in GDP mean for Mexico?
The unanticipated downturn of the Mexican economy in the fourth quarter of 2024 served as a stark reminder of the country’s ongoing challenges.
In the face of adversities driven mostly by domestic difficulties and other foreign activities, the only way forward is for Mexican officials to be clear and thoughtful about their desired economic strategies.
To achieve stability, growth, and prosperity in the Mexican economy, all stakeholders must collaborate in the face of changing circumstances.
The post Mexico’s economy sees first contraction in three years: GDP falls 0.6% in Q4 2024 appeared first on Invezz
