OECD Warns of Slowing Growth and Calls for Reforms to Unlock Productivity in Mexico
The Organization for Economic Cooperation and Development (OECD) forecasts that the Mexican economy will face a significant slowdown in 2025, with estimated growth of 0.7%, before gradually recovering to 1.2% in 2026 and 1.7% in 2027. The organization points to weaker activity due to sluggish investment, moderating consumption, and a more challenging external environment. Against this backdrop, the OECD proposes a package of reforms aimed at boosting productivity, which it identifies as the country’s main structural lag.
The external sector continues to cushion the economic cycle. The strength of non-automotive exports, supported by the USMCA and U.S. demand tied to tech supply chains and the adoption of artificial intelligence, has helped sustain Mexico’s GDP in spite of domestic weakness. According to the OECD, Mexico has a window of opportunity with investment relocation (nearshoring); however, turning this momentum into sustained growth requires removing bottlenecks that limit productive capacity.
On the macroeconomic front, although headline inflation has eased, core inflation remains above 4%, which justifies the Bank of Mexico’s cautious stance. In the short term, still-restrictive real interest rates and slower job growth could limit consumption. At the same time, minimum wage hikes have increased household incomes for lower-income families, but international organizations recommend calibrating the pace of these increases to avoid potential second-round effects on prices and formal employment.
The first policy lever identified by the OECD is a more robust fiscal system to finance quality investment. Mexico remains among the OECD countries with the lowest tax revenues as a percentage of GDP, limiting fiscal space and the ability to increase spending on infrastructure, education, and preventive healthcare. Progressively strengthening revenues, improving tax collection efficiency, and tackling informality would be key to boosting potential growth without undermining macroeconomic stability.
The second pillar is to simplify and digitize regulations, especially at the state and municipal levels. Regulatory heterogeneity and lengthy in-person procedures make it costly to start and grow businesses. Interoperable one-stop digital windows, online licenses and permits, clear land-use rules, and set timelines for authorizations—including electrical grid interconnections—could help lower costs, accelerate investment, and increase competition.
The third focus is on human capital. The OECD proposes expanding and modernizing technical and vocational education to better align skills with industrial needs, from electronics and electrical equipment to engineering services. In addition, strengthening early childhood education and increasing the supply of childcare services would help raise women’s participation in the labor market, with positive effects on productivity and formal employment.
The analysis comes in the context of a Latin American region that, according to the OECD, is expected to grow by 2.3% in 2025 and 1.9% in 2026, yet still faces vulnerabilities from trade tensions, political uncertainty, and weak fiscal frameworks. Digitalizing the public sector is seen as a cross-cutting opportunity to increase productivity. In Mexico, various federal and local initiatives are seeking to streamline procedures and share data across agencies, but efforts still require greater scale, interoperability, and continuity.
Beyond economic policy, there are still restrictions hampering the ability to attract and retain investment: availability and quality of electricity, transmission capacity, water management in northern manufacturing hubs, logistics infrastructure, and regulatory certainty. Addressing these bottlenecks—along with improvements in the rule of law and security—will be critical to fully capitalizing on nearshoring. The scheduled USMCA review in 2026 adds an incentive to consolidate regulatory compliance and send clear signals to investors about the medium-term rules of the game.
Looking ahead, Mexico’s performance will depend on how quickly reforms that boost total factor productivity are implemented. If public revenues are strengthened, regulations are simplified, and investments are made in skills and care services, potential growth could accelerate and diversify. If lags persist, momentum will remain tied to exports, but GDP growth will be moderate with greater exposure to external shocks.
In short: the OECD projects a dip in growth in 2025 and a gradual recovery thereafter. Policy responses will need to address three areas—fiscal, regulatory, and human capital—while also tackling constraints in energy, water, and infrastructure. The balance of risks remains tilted to the downside, but the window of opportunity provided by nearshoring stays open if reforms move forward and certainty is provided.
