Mexico’s economy contracts in first quarter

Mexico’s GDP fell an annualized 3.2 percent in the first quarter of 2026, according to official preliminary estimates. The decline was sharper than the expected 2.0 percent decrease. As a result, the consensus forecast for 2026 real GDP growth, compiled by Banco de México, fell to 1.4 percent in April (Table 1).

Other data point to a continued slowdown. While exports grew, employment and retail sales were largely flat and industrial production fell. Additionally, inflation accelerated and the peso gained some ground against the dollar.

Output falls in the first quarter

Mexico’s first-quarter GDP fell an annualized 3.2 percent (Chart 1). The decline was widespread among all sectors of the economy. On a nonannualized basis, the goods-producing sectors (manufacturing, construction, utilities and mining) contracted 1.1 percent and activity in the services-providing sectors (wholesale and retail trade, transportation and business services) fell 0.6 percent. Agricultural output contracted 1.4 percent.

Industrial production contracts slightly in February

The three-month moving average of Mexico’s industrial production (IP) index, which includes manufacturing, construction, oil and gas extraction and utilities, dipped 0.2 percent in February (Chart 2). Meanwhile, Mexico’s manufacturing IP also contracted 0.2 percent. In the U.S., the three-month moving average of industrial production rose 0.1 percent in March.

Export growth accelerates in March

The three-month moving average of Mexico’s total exports rose 3.6 percent in March (Chart 3). The manufacturing sector, which accounts for the majority of exports, also increased 3.6 percent and oil exports rose 3.3 percent. In the first quarter, total exports were up 14.2 percent compared to first quarter 2025. Manufacturing exports increased 15.5 percent, while oil exports contracted 28.4 percent over the same period.

Retail sales move sideways in February

The three-month moving average of retail sales was flat in February (Chart 4). On a year-over-year basis, the smoothed retail sales index was up 4.0 percent. Consumption in Mexico continues expanding, mainly driven by increased purchasing power from increases in the minimum wage and direct government transfers, including universal payments to adults 65 and older.

Employment largely flat in March

Formal employment (jobs with government benefits and pensions) ticked up an annualized 0.2 percent (3,900 jobs) in March after rising 3.3 percent in February (Chart 5). Compared to a year ago, formal employment was up 1.2 percent. Total employment, representing 60.1 million workers in March, and including informal sector jobs, grew 0.7 percent year over year. The unemployment rate, which tracks only the formal sector, ticked up to 2.8 percent from 2.7 percent in February.

Mexican peso ticks up in April

The Mexican currency averaged 17.4 pesos per dollar in April, slightly up from March’s 17.8 pesos per dollar (Chart 6). The peso gained ground against the dollar during all of 2025, mainly due to the interest rate differential between the two countries and overall U.S. dollar weakness.

Remittances edge up in March

The three-month moving average of inflation-adjusted remittances to Mexico increased 0.7 percent in March (Chart 7). Remittances that had been growing since mid-2025 leveled off in late 2025. In the first three months of 2026, remittances were down 1.5 percent compared with the same period in 2025. Transfers from the U.S. account for 95 percent of Mexican remittances.

Headline inflation grows rapidly in 2026

Mexico’s headline consumer price index (CPI) grew 4.6 percent year over year in March after increasing 4.0 percent in February (Chart 8). Both core CPI inflation, which excludes food and energy, and services inflation were up 4.4 percent.

In March, Mexico’s central bank reduced its benchmark rate 25 basis points to 6.75 percent, citing weak economic activity despite rising inflation. The central bank anticipates above-target inflation will persist throughout the year, returning to the bank’s 3.0 percent target by second quarter 2027.