MEXICAN ECONOMY GAINS MOMENTUM

The following information was released by the Federal Reserve Bank of Dallas:

Mexico Economic Update

Jesus Caas, Luis Torres and Diego Morales-Burnett

August 06, 2026

June 2026 economic report

GDP, real

Q2 '26 Employment, formal

June '26 CPI

June '26 Peso/dollar

June '26

1.5% q/q 107,000 jobs m/m 3.4% y/y 17.4

Mexico's economy expanded in the second quarter. According to preliminary estimates, GDP grew 6.1 percent annualized quarter over quarter, up from a 2.4 percent contraction in the first quarter. Growth was broad-based, with agricultural output, manufacturing production and service activity all growing faster than in the previous quarter. Nevertheless, the consensus forecast for 2026 real GDP growth compiled by Banco de Mexico held steady at 1.1 percent (Table 1).

Most data point to continued growth. Industrial production, exports and employment increased, while retail sales were flat. Inflation slowed and the peso's value remained steady.

Table 1

Consensus forecasts for 2026 Mexico growth, inflation and exchange rate

May June

Real GDP growth in Q4, year over year 1.3 1.3

Real GDP growth in 2026 1.1 1.1

CPI December 2026, year over year 4.4 4.2

Peso/dollar exchange rate at end of year 17.95 17.88

GDP growth strong in second quarter

Mexico's GDP grew 6.1 percent annualized quarter over quarter in the second quarter (Chart 1). On a nonannual basis, goods-producing sectors (manufacturing, construction, utilities and mining) grew 1.6 percent. Services sectors (wholesale and retail trade, transportation and business services) grew 1.5 percent and agricultural output increased 3.3 percent.

Industrial production grows in May

The three-month moving average of Mexico's industrial production (IP) index, which includes manufacturing, construction, oil and gas extraction and utilities, grew 0.3 percent in May, as did Mexico's manufacturing IP (Chart 2). In the U.S., the three-month moving average of industrial production rose 0.3 percent in June.

Export growth continues

The three-month moving average of Mexico's total exports rose 1.7 percent in June (Chart 3). Exports in the manufacturing sector, which account for the majority of trade, increased 1.9 percent. After bottoming out in January, oil exports grew 5.6 percent in June amid rising energy prices. Through June, total exports were up 20.0 percent and manufacturing exports increased 21.1 percent compared with the same period last year, while oil exports were 7.5 percent lower.

Retail sales move sideways

The smoothed retail sales index ticked up 0.1 percent in May after remaining unchanged in April (Chart 4). On a year-over-year basis, the index grew 3.1 percent. Consumption in Mexico has been driven mainly by rising purchasing power from minimum wage increases and direct government transfers, including universal payments to adults aged 65 and older.

Payrolls grow strongly in June

Formal employment (jobs with government benefits and pensions) increased an annualized 5.8 percent (107,000 jobs) in June, up from a 1.2 percent increase in May (Chart 5).On a year-over-year basis, employment grew 2.0 percent. Total employment, which represents 60.1 million workers and includes informal sector jobs, contracted by 0.1 percent year over year. The unemployment rate, which tracks only the formal sector, ticked up from 2.7 percent in May to 2.8 percent in June.

Mexican peso remains stable

The Mexican currency averaged 17.4 pesos per dollar in June, about the same as May's 17.3 pesos per dollar (Chart 6). After registering more volatility during the first quarter of the year, the exchange rate has changed little over the last three months.

Remittances fall in May

The three-month moving average of inflation-adjusted remittances to Mexico fell 0.8 percent in May after declining 1.3 percent in April(Chart 7). Through May, remittances were down 0.5 percent compared with the same period in 2025. Transfers from the U.S. account for 95 percent of Mexican remittances.

Headline inflation slows notably in June

Mexico's headline consumer price index (CPI) grew 3.4 percent year over year in June after increasing 3.9 percent in May (Chart 8). Core CPI inflation, which excludes food and energy, slowed to 4.0 percent, while services inflation ticked down to 4.5 percent. In August, Mexico's central bank maintained its benchmark rate at 6.5 percent. The central bank anticipates that above-target inflation will persist before returning to the bank's 3.0 percent target by the fourth quarter of 2027.

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About the authors

Jesus Caas is a senior business economist in the Research Department of the Federal Reserve Bank of Dallas.

Luis Torres is a senior business economist in the San Antonio Branch of the Federal Reserve Bank of Dallas.

Diego Morales-Burnett is a research analyst in the Research Department at the Federal Reserve Bank of Dallas.

The views expressed are those of the authors and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System.