Mexico

Tariffs and uncertainty put the economy at a high risk of recession

In the wake of the trade war launched by the Trump administration, Mexico’s bet on a growth model built to service the US market and on attracting nearshoring investment is looking like a double-edged sword. USMCA membership has granted Mexican exports a degree of protection from tariffs (see the exemption on section 232 tariffs on USMCA content of cars and car parts, and the 25% blanket tariff). However, the investment boom the country experienced in 2022-2023 was predicated on the assumption of long-term preferential market access to the US. Resolution of uncertainty will depend on the speed with which the USMCA review (scheduled for 2026 but likely to be brought forward) is achieved. We therefore expect private investment (21% of GDP) to contract in 2025 and only bounce back tentatively in 2026 as firms maintain a wait-and-see stance. Exports should follow a similar dynamic, and fiscal consolidation efforts should lead to a reduction in public investment. The tariff limbo will be particularly challenging for the automotive sector, the stalwart of Mexican manufacturing (one-fifth of the total) and the most regionally integrated industry, but also for metals and food products. The construction sector, meanwhile, will suffer the arrested boom in non-residential investment. Though the labour market has met the tariff shock in historically good health (unemployment at 2.5% in April 2025), we expect continued job destruction, slower wage growth and a reduction of hours worked.

Remittance flows (4% of GDP) will be stymied by the immigration crackdown and loosening labour market in the US, as well as their possible taxation. We therefore expect household consumption to slow nearly to a halt in 2025 and recover gradually in 2026. Given this recessionary context and the continued moderation of inflation, Banxico should continue cutting rates in 2026. We cautiously expect some of the trade uncertainty to have dissipated by mid-2026, which, combined with looser financial conditions, should allow a recovery to begin taking shape towards the middle of next year.

External vulnerabilities under control and a challenging return to fiscal discipline

Fiscal deficits like the one that occurred in 2024 on the back of pre-election spending sends a worrying signal for a country one downgrade away from losing its investment grade status. To improve credibility, the Sheinbaum government has set ambitious consolidation targets, seeking to bring deficits to 3% of GDP by 2027. Serious expenditure cuts have been programmed for 2025: a 34% budget reduction for the Ministry of Health and a 44% cut on defence. Infrastructure megaprojects that have weighed heavily in past years (Dos Bocas refinery, Maya train, Tehuantepec interoceanic corridor) will be completed or downscaled. Similarly, efforts are being made to boost tax collection through digitalisation. Nevertheless, we see several downside risks to the deficit reduction potential. The “Plan Mexico” industrial policy package aims to incentivise USD 277 billion in foreign investment by 2030 (geared to the automotive, aerospace, semiconductors, electronics and pharmaceutical industries), but its heavy reliance on tax incentives means it can lead to cost overshooting. Similarly, efforts to placate unpredictable American demands in securing the border and fighting drug trafficking can limit the potential for security savings. Social spending will continue to be generous, and no significant tax increases have been proposed. Pemex, the state-owned oil company, will continue to require state support to stay afloat and represents a contingent debt liability of about 6% of GDP. Overall, budget deficits will moderate, but could end up underperforming the government’s targets across several years depending on how much the subdued GDP performance lasts.

We should continue to see a gradual deepening of the current account deficit, driven mostly by a larger merchandise deficit. Reduced remittance inflows will result in a weakening of the secondary income surplus (3.5% of GDP). Though growth in net FDI inflows (1.5% of GDP) has disappointed, it does not show signs of collapsing, having been sustained mainly by profit reinvestments. The funding composition of the current account has therefore remained stable. FX reserves cover four months of imports, external debt is relatively low (26% of GDP) and its service is backed by an IMF flexible credit line arrangement (2% of GDP) up for renewal at the end of 2026.

Business climate under pressure from trade uncertainties and institutional reforms

The leftist Morena party consolidated its rule in the 2024 general elections, securing the presidency with 61% of the popular vote and a de facto supermajority in Congress. President Claudia Sheinbaum succeeds her still-influential mentor, Andres Manuel Lopez Obrador, and will continue implementing an agenda based on state-led economic development, reducing poverty and inequality through welfare and redistribution, and and by introducing institutional reforms. Notable among these is the constitutional amendment to elect judges by popular vote, which allowed Morena-aligned magistrates to dominate the June 2025 elections where half the seats were in play. Critics of the reform emphasise the risk of eroding Mexico’s judicial independence, which may undermine business interests if these conflict with those of public authorities, and create openings for corruption. Similarly, formerly independent regulatory agencies have been placed under the auspices of cabinet members, including the energy, telecoms and competition authorities. The state’s primary role in the energy sector (exploration, processing and distribution) will continue to be defended. The pervasiveness of crime is becoming an increasing business hazard as it often interferes with everyday operations and forces firms to incur insurance and security costs. Sheinbaum is expected to serve a full term of office, which is due to end in 2030, while all seats in the Chamber of Deputies will be up for election in 2027.

D’autres exigences probables, telles que des règles d’origine plus strictes (notamment une part plus élevée de contenu américain) et des normes du travail plus exigeantes, pourraient éroder certains des avantages comparatifs du Mexique à la marge.

The upcoming USMCA review will be key in shaping the business environment in years to come. Energy sector liberalisation is likely to be a significant area of discord. Despite some overtures to private sector involvement, Morena overall continues to support state dominance at all levels of the energy supply chain, while the US is likely to push for more openness to private foreign capital. Other likely demands such as tighter rules of origin (including higher US content) and more demanding labour standards could also erode some of Mexico’s comparative advantages. Under the “Plan Mexico” industrial policy initiative, the government has sought to introduce further nearshoring incentives (amortisation expensing and other tax breaks, national origin requirements for public procurement), but clarification and stabilisation of the US trade relationship will meaningfully restore nearshoring momentum. To gain favour with the US, we expect a reduction of the dependence on Chinese imports.

Payment

Debts are commonly paid in Mexico by cheques, wire transfers and – in some special cases – credit cards. Corporate payment processes are governed by companies’ internal policies. Most companies request supporting documentation from the other party before proceeding with a transaction (e.g. the company’s articles of incorporation, or its tax identification, known as the Registro Federal de Contribuyentes). The documents most frequently related to commercial transaction are invoices, promissory notes, and cheques. Promissory notes are unconditional promises, in writing, to pay a person a sum of money. In Mexico, this document is normally used as a guarantee of payment from the buyer. It is signed by the legal representative of the buyer – and hence, the debtor – for an amount which is superior to the total amount of the debt. Promissory notes and cheques also serve as certificates of indebtedness. Once buyers possess the relevant information, they can proceed to make payments by wire transfer or cheque, with both methods taking approximately ten to fifteen working days. Wire transfers are more common, as cheques can be post-dated, thus presenting the risk that buyers will issue cheques that they cannot finance.

Debt Collection

INVOICES

In terms of debt collection, original invoices act as proof of the acceptance of the debt and the establishment of a commercial relationship between the parties. According to commercial and civil laws, the commercial agreement is sealed by two elements: an object (in this case the product or the service), and the price of the object as agreed by the parties. Even in the absence of a written agreement, an invoice provides both of these elements. Invoices are therefore the most effective form of proof in a lawsuit situation, as they show that the parties made a sale agreement and have a reciprocal obligation to pay the price agreed and to deliver the goods or provide the service.

In 2014, the Mexican Tax Authorities (Servicio de Administraci Servicio de Administración Tributaria) ruled that all invoices must be electronic, with an XML file. They must also be verified by the tax authority system in order to be validated. The tax authority also requests electronic confirmation when the creditor receives payment, along with a receipt in an XML file as legal confirmation. These new requirements entered into force in December 2017. The goal of these changes is to limit the amount of fraud cases and ghost companies, both of which are prevalent in Mexico.

Amicable phase

Before entering into legal proceedings in Mexico, creditors normally attempt to contact their debtors via telephone. A written letter is sent to the debtor, in which the debtor is notified of the amount of the debt and the creditor’s intentions to negotiate payment?terms, other steps include a visit to the debtor by a collection specialist. During this visit, the collection specialist will attempt to develop a more detailed perspective on the debtor’s situation. The specialist will endeavour to ascertain if the company is still in business and if it has assets (such as real estate, merchandise or other rights) that could be seized in the event of a legal process.

When creditors initiate collection actions with an amicable phase, it is common for debtor companies to disappear altogether. This means the discontinuation of commercial activities that could potentially enable the payment of sums due.

When entering into commercial export relationships, companies are advised to ensure that all documentation conforms to Mexican law. A lack of correct information and documentation opens exporters up to the possibility of fraud committed by Mexican companies and reduces the likelihood of successful debt recovery during the amicable phase.

Legal proceedings

The Medios Preparatorios a Juicio Ejecutivo Mercantil is a pre-legal process takes place when there is an invoice as a proof of the pending payment and of the commercial relationship. Creditors request that the judge obtains a citation from the debtor or its legal representative. He then obtains the confession and acceptance of debt from the debtor, as well as the pending payment. As the confession before the judge is an executive document, the creditor is then able to initiate the Summary Business Proceeding legal process. This pre-legal process takes approximately two or three months. There are subsequently three types of proceedings that can be initiated against debtors:

SUMMARY BUSINESS PROCEEDING

This legal process takes place when there is a Certificate of Indebtedness (promissory notes, cheques or legal confessions before the judge by the debtor or its legal representative). The process begins with the phase of citation, when the creditor initiates the lawsuit by requesting that the debtor pays the total amount of the debt due. If the debtor does not have sufficient funds, the creditor can request that some of its assets be seized. These assets can include real estate, merchandise, bank accounts, industrial property rights and trademarks, to be used as a guarantee against the total amount of the debt. Once the assets are seized as a guarantee of the debt, the legal process continues until the judge renders his final resolution. Then, if there is no negotiation or payment, the creditor can initiate the auction of assets to recover the debt. This legal process takes approximately six to eighteen months, although this can vary from case to case.

ORDINARY BUSINESS PROCEEDING

Ordinary Business Proceedings are the most time consuming procedure in Mexican commercial law. They can take place in the absence of a Certificate of Indebtedness, which means that the only proof of a commercial sale between the parties is the commercial agreement with invoices. In this type of process, assets can only be seized as a guarantee of the total amount of the debt when the judge has rendered his final sentence condemning the debtor to make payment. This legal process takes approximately one to two years.

ORAL PROCEEDINGS

Oral proceedings take place when the total amount of the debt does not exceed EUR 31,856.68. As with Ordinary Business Proceedings, assets can only be seized as a guarantee of the total amount of the debt when the judge has rendered his final judgment condemning the debtor to pay the amount due. This process takes approximately four to six months. On May 2, 2017, Mexican congress made a modification which ruled that all commercial disputes be processed through Oral Proceedings, with no limitations on amounts, with effect from January 25, 2018.

Enforcement of a Legal Decision

A judgment is enforceable as soon as it becomes final. If the debtor does not comply with the judgment, the creditor can request a mandatory enforcement order from the court, in the form of an attachment order, sale of specific assets, or liquidation of the company. This takes between six months to two years.

Foreign judgments can be enforced through exequatur proceedings. The court will verify that certain requirements are fulfilled, prior to recognising the foreign decision. The court establishes whether the foreign court had jurisdiction to decide on the issue and whether enforcing the decision will not conflict with Mexican law or public policy.

Insolvency Proceedings

OUT OF COURT PROCEEDINGS

With the approval of creditors holding 40% of the debt, debtors can constitute a “pre-packaged” reorganisation agreement. This enables the court to issue an insolvency declaration and declare the company in concurso mercantile.

LIQUIDATION

Liquidation can only be requested by the debtor itself, but the debtor can be placed into liquidation as a result of its failure to submit an acceptable debt restructuration proposal to its creditors through the concurso mercantile proceedings. A liquidator is appointed and given the responsibility for managing the company, selling its assets and distributing the proceeds to the creditors according to their rank.

Last updated: June 2025