OECD Urges Mexico to Unlock Productivity Amid Slower Growth Forecast for 2025
The Organization for Economic Cooperation and Development (OECD) anticipates that Mexico’s economy will slow significantly in 2025, with growth expected at just 0.7%, before gradually recovering to 1.2% in 2026 and 1.7% in 2027. The organization attributes this cooling down to weaker investment, moderate consumption, and a less favorable external environment. In this context, the OECD proposes a package of three reforms to boost productivity—Mexico’s “Achilles’ heel”: strengthening the tax system, simplifying and digitizing administrative processes at all levels of government, and expanding vocational training alongside early childhood education.
The OECD highlights that despite domestic sluggishness, the export sector continues to drive activity, particularly with strong performance in non-automotive manufacturing, supported by demand from the United States and supply chains linked to emerging technologies, including artificial intelligence. The nearshoring phenomenon is keeping employment high in industrial parks in the north and the Bajío region; however, its full impact faces bottlenecks in energy, logistics, and regulation.
Productivity has been stagnant for decades, hampered by widespread informality, low technology adoption among small and mid-sized enterprises (SMEs), and uneven regulatory frameworks across states and municipalities. The OECD warns that with core inflation still above 4%, monetary policy needs to remain cautious to consolidate disinflation. At the same time, the labor market remains tight, with low unemployment and real wage increases driven by higher minimum wages. While this strengthens purchasing power, it also requires macroeconomic discipline to avoid second-round effects.
Fiscally, the organization recommends moving toward a broader, more stable revenue base to finance quality education, healthcare, and infrastructure. Mexico ranks among the lowest in terms of tax revenue as a share of GDP among OECD countries, limiting public investment and budgetary resilience. Possible avenues include strengthening property taxes, reviewing exemptions, enhancing tax enforcement, and advancing environmental taxes, all without undermining competitiveness. Achieving fiscal consolidation after the recent deficit increase is a central challenge, especially amid spending pressures and the need to clean up state-owned enterprises.
The second pillar targets cutting compliance costs and reducing the time required to start, operate, and expand businesses through regulatory simplification and digitalization across all levels of government. Interoperable one-stop shops, online permits, trackable procedures, and greater legal certainty in regulation—even in matters of legal security—would spur investment and productivity, especially for SMEs. The OECD stresses that subnational regulatory consistency is just as important as federal modernization.
The third area focuses on human capital: expanding technical education and training (dual school-company models) to align skills with industrial demand, and strengthening early childhood education and care to increase women’s participation. Mexico’s female labor participation rate remains below the OECD average; expanding childcare services, safe transportation, and extended school hours could help bridge these gaps, boost household incomes, and increase productivity.
The analysis details both risks and opportunities. On the risk side: global trade tensions, the high interest rate cycle, electricity and water shortages in industrial regions, and the looming USMCA review in 2026. On the opportunity side: digitalizing the public sector to lower transaction costs and combat corruption, and the nearshoring window to attract higher value-added manufacturing—provided reliable energy, logistics infrastructure, and regulatory certainty are ensured.
Regionally, the OECD projects growth of 2.3% for Latin America in 2025 and 1.9% in 2026, with fiscal and productivity deficits still weighing on many countries. Nations like Brazil and Colombia have made progress on digital government; Mexico is working on strengthening the institutional framework for digital transformation, which—if implemented with interoperability and open data—could translate into more agile services and a more competitive business environment.
Outlook: Mexico heads into 2025 backed by strong exports and a resilient labor market, but with weaker domestic momentum. The way forward requires reforms that deliver sustained productivity gains: more and better public revenue for investment, less regulatory red tape, and a leap in human capital. If the country seizes the nearshoring opportunity with sufficient energy, water, and infrastructure, while maintaining macro stability, its growth potential could improve gradually.
In summary, the OECD anticipates a growth slowdown in 2025 and calls for addressing structural gaps. Key factors to watch: credible fiscal consolidation, measurable advances in regulatory digitalization, and effective technical training and care programs. The nearshoring window remains open, but delivering results requires execution capacity and policy certainty.
