Mexico GDP expands 0.9% in Q4, beating estimates

After a year characterised by both domestic fiscal restraint and global instability, Mexico's economy concluded 2025 with a stronger-than-expected recovery, providing policymakers with some respite.

According to data released by the Instituto Nacional de Estadística y Geografía (INEGI) on Monday, the gross domestic product grew by 0.9% in the fourth quarter compared to the previous three months.

This was the fastest growth rate in over a year and was slightly higher than the initial 0.8% estimate and economists' projections.

Although many question whether the recovery is cyclical or lasting, the outcome points to fresh momentum for the second-largest economy in Latin America as it moves into 2026.

A surprise in the fourth quarter

Mexico’s GDP expanded by 0.8% on a seasonally adjusted basis in 2025, marginally above the 0.7% initially projected by INEGI.

Although modest by historical standards, the figure reflects resilience amid tighter financial conditions and uncertainty surrounding Mexico’s largest trading partner, the United States.

According to local media outlet El Financiero, the fourth-quarter recovery was driven mainly by services and a stabilisation in manufacturing exports, which had been uneven earlier in the year.

Despite high borrowing costs, domestic spending remained steady, analysts cited by the outlet said.

December activity indicates widespread development

According to separate INEGI figures, economic activity in December grew by 0.4% compared with November, exceeding forecasts and recovering after a minor 0.1% contraction the previous month.

Significantly, monthly growth was reported across all three main sectors: services, industry, and agriculture.

This breadth implies that the recovery was not limited to a single growth engine.

The services sector, which accounts for the largest share of GDP, benefited from higher retail sales and increased tourist flows during the Christmas season, according to the Mexican newspaper El Economista.

Meanwhile, construction and automobile manufacturing helped sustain industrial output.

After inconsistent data in the middle quarters, the December improvement adds to indications that the economy gained momentum late in the year.

What's driving the recovery?

Mexico seems to have benefited from the convergence of several factors:

• Robust domestic demand: Thanks to remittance inflows and a comparatively tight labour market, consumer spending has kept up despite rising interest rates.

• Export stabilisation: Towards the close of the year, manufacturing exports, especially those of automobiles and electronics, showed a resurgence of activity.

• Public works and construction: Infrastructure projects continued to support construction activity.

Economists see nearshoring, or moving supply chains closer to the United States, as a continuous structural tailwind, according to Business Daily Expansión, even though its full influence on GDP is still gradual rather than immediate.

However, economists warn that a single high print does not ensure ongoing development and that quarterly data can be erratic.

The context of policy

The more robust data comes at a critical juncture for fiscal and monetary policy.

In order to control inflation, Mexico's central bank, Banco de México, has kept monetary policy relatively tight, even if price pressures have decreased from earlier highs.

Determining the timing and pace of interest-rate changes may become more difficult in the event of a stronger growth environment.

In order to prevent rekindling inflationary pressures, officials may exercise caution if activity keeps growing faster than anticipated.

The administration is under pressure to strike a compromise between market expectations for budgetary restraint and social expenditure and infrastructure commitments.

More revenue space could be available with stronger growth, but a lot depends on outside factors.