The Mexican economy carried some of the momentum from its resilient 2023 into the first quarter of 2024. We expect growth to moderate through the rest of the year, pulled down by still-high interest rates, reduced worker remittances owing to recent peso strength, and falling external demand, especially from the U.S. Factors likely to be supportive include fixed investment from nearshoring (U.S. businesses relocating their supply chains from longer distances to Mexico) and consumer spending fueled by a strong labor market.

Core inflation has fallen steadily since the beginning of 2023. We expect that it will finish 2024 near the upper end of the 2%–4% target range set by the Bank of Mexico (Banxico), but we don’t foresee it falling to the 3% midpoint until late 2025. The last mile in the inflation fight is proving challenging, as strong wage growth from a tight labor market has buoyed spending, keeping services prices elevated. 

Banxico has cut the target for its overnight interbank rate once this year. We anticipate an additional 75–125 basis points of cuts in 2024, albeit to levels that would still be restrictive.¹ Stalled progress toward Banxico’s inflation target would warrant the elevated policy rate, a decision made easier by the likelihood that the Federal Reserve won’t cut rates this year.

The labor market remains robust, with year-over-year employment growth reaching its prepandemic average of 3.7%. The market’s strength continues to support strong wage growth. An unemployment rate near historical lows stands below what Banxico considers the nonaccelerating inflation rate of unemployment, or NAIRU, suggesting continuing upward pressure on wages and inflation.