IMF raises Mexico growth forecast to 1.5% following strong second quarter recovery
The International Monetary Fund has raised its economic growth forecast for Mexico to 1.5% in 2026 and 1.8% in 2027, marking a significant reversal from July when the organization had lowered its projection to 1.2%. The upward revision follows Mexico's strong second-quarter performance and positive momentum entering the third quarter.
The forecast adjustment came after an IMF Article IV consultation mission to Mexico City in September, led by Gustavo Adler, Deputy Division Chief in the Western Hemisphere Department. The revision reflects Mexico's recovery from a 0.6% economic contraction in the first quarter of 2026, with the economy expanding 1.4% quarter-over-quarter in the April-June period — the strongest quarterly growth since the fourth quarter of 2020.
Mexico's economic momentum extended into July, with the economy growing 3.3% in seasonally adjusted annual terms, the strongest monthly performance recorded so far this year. The country posted the second-highest quarter-over-quarter growth among G20 nations in the second quarter.
Inflation progress and monetary policy
The IMF noted that Mexico's disinflation process has continued, with headline inflation approaching the central bank's target range, though some underlying price pressures remain. Headline inflation reached 3.26% in August, up from 3.12% in July and ending four consecutive months of decline. Core inflation, however, continued to ease to 3.88% from 3.95% in July.
The Bank of Mexico targets 3% inflation with a tolerance band of one percentage point on either side, and currently projects that inflation will converge to the 3% target in the fourth quarter of 2027. The central bank has maintained its key interest rate at 6.50% since June, after reducing it from 7.00% in February through two 25-basis-point cuts in March and May.
The IMF recommended that Mexico maintain a moderately tight monetary policy stance until there is clear evidence that inflation is moving durably toward the target.
Fiscal challenges and debt trajectory
Despite the improved growth outlook, the IMF emphasized that Mexico must strengthen fiscal consolidation efforts to reduce its debt burden. The organization projects Mexico's gross public debt will reach 62.1% of GDP in 2026 and 62.9% in 2027 — significantly higher than the Mexican government's own projection of 55% of GDP for 2027 outlined in its draft budget.
Mexico's 2027 draft budget focuses more closely on gradual fiscal consolidation than previously announced, yet anticipates public debt will increase to 55% of GDP from an estimated 54% at the end of 2026, even as fiscal tightening measures are implemented.
The IMF advised that Mexico should focus on growth-enhancing investment by mobilizing revenues, better prioritizing spending and allowing greater private-sector involvement in key sectors.
Private sector outlook aligns with IMF
Private sector analysts polled by the Bank of Mexico in early October raised their 2026 GDP growth forecast to 1.4% from 1.3%, while trimming their year-end headline inflation projection to 3.87% from 3.90%. The convergence between private sector forecasts and the IMF outlook suggests growing confidence in Mexico's economic trajectory.
Structural reforms needed for sustained growth
The IMF warned that achieving the forecasted growth will depend on Mexico addressing external uncertainties and implementing structural reforms. The organization identified several priorities for boosting long-term economic performance, including closing infrastructure gaps, reducing regulatory burdens and strengthening trade integration.
Additional measures recommended by the IMF include improving security, combating corruption and reducing labor market informality, all of which could help spur more robust and sustainable economic expansion in the years ahead.
