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Mexico’s economy shrunk in the first quarter in the latest economic setback for President Claudia Sheinbaum and despite her efforts to boost investment to stimulate growth.

Gross domestic product fell 0.8% in the January-to-March period compared to the prior three months, the largest fall in a quarter since late 2024. The first quarter reading came in under the -0.6% median estimate in a Bloomberg survey, and down from the 0.9% growth the previous quarter, according to preliminary data published by the national statistics institute on Thursday.

From a year ago, GDP was nearly flat, up only 0.1%, landing under the 0.7% estimate and down from the prior revised print of 1.6% growth.

The quarterly data showed that the three-month dip was led by falling economic activity in agriculture and manufacturing. Activity in services was also down.

“It’s concerning to see all three types of activities show a quarterly contraction,” said Gabriela Siller director of economic analysis at Grupo Financiero Base, “It opens the door for the possibility Mexico could be going through a recession.”

Given the weak start to activity, Siller added that Base has downwardly revised its forecast for the year to 1%, from a previous estimate of 1.2%. That takes into account any additional consumption from the FIFA World Cup, which will be held in Mexico, the US and Canada starting in June.

What Bloomberg Economics Says

“The weakness in first-quarter GDP growth indicates Mexico’s economy is operating below potential, with a negative output gap wider than policymakers expected. It also highlights the drag from US tariffs and trade uncertainty, and suggests household consumption — an important driver of growth last year — is losing momentum. We expect a modest rebound in 2Q. Activity and domestic demand are likely to remain weak, but enough to avoid a technical recession.”

— Felipe Hernandez, Latin American economist

— Click here for full report

A technical recession is defined by many economists as two consecutive quarters of negative growth.

Mexico’s central bank does not see that happening, and forecasts that gross domestic product will expand 1.4% this year, inching up from just 0.5% growth last year. Since Sheinbaum took office in late 2024, aggregate investment growth has slid from about 2% year-on-year to -6% at the end of last year.

In addition to the tariffs that US President Donald Trump imposed on Mexican exports to its northern neighbor, the war in the Middle East has piled more pressure on the economy. The conflict could further affect Mexico’s 2026 growth prospects at a time when the economy is again showing signs of weakness, central bank Governor Victoria Rodríguez Ceja told lawmakers this week during a Senate hearing.

Speaking later on Thursday, Finance Minister Edgar Amador attributed the economic slowdown primarily to external factors, such as ongoing trade uncertainty with the US plus the Iran war, which has caused oil prices to spike and hit manufacturing supply chains.

The lackluster economy also hurt government revenue, which fell 0.6% in real terms in the first quarter. Oil revenue fell more sharply, down 9.4% during the first three months of the year, according to the finance ministry’s quarterly report. Amador chalked up the oil revenue slide to Mexico’s peso currency strengthening by about the same rate during the quarter.

Plan Mexico

Amid headwinds from US tariff tensions and a high-stakes review of the North American trade accord later this year, Sheinbaum is seeking to boost growth through domestic and foreign investment with her government-led “Plan Mexico” economic blueprint, which includes building dozens of development hubs across the country. The plan also aims to lure private capital to various sectors in a bid to grow the economy and promote job creation.

Earlier this month, Congress passed a Sheinbaum-proposed bill to promote both public and private investment in highways, water infrastructure and energy. Also part of “Plan Mexico,” the legislation seeks to speed up project authorizations especially for key infrastructure.

While she has at times promoted her efforts to boost growth, including at meetings with economists and bankers aimed at identifying investment opportunities, Sheinbaum has also sought to minimize low GDP growth data in the past. She’s argued that low growth rates don’t reflect citizen wellbeing or the government’s ability to lift millions out of poverty in recent years.

But so far this year, her efforts haven’t yet translated in more government funds for projects as first-quarter public investment fell nearly 16% in real terms from a year ago. Amador explained that the quarterly decline was due to delayed spending on projects. He noted that March public investment was up by 70% compared to the same month last year.

–With assistance from Rafael Gayol and Gonzalo Soto.

(Updates to add finance minister comments starting in the tenth paragraph. A previous version corrected comparison to biggest quarterly fall since 2024 in headline, first and second paragraphs.)

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