OECD Economic Surveys: Mexico 2026

Executive summary

Key messages

Mexico’s economy remains stable despite heightened uncertainty and trade barriers. Yet growth remains modest and two decades of sluggish economic and productivity growth highlight the need for reforms.

• Following the sharp increase in the deficit in 2024, Mexico needs steady and gradual fiscal consolidation to ensure sustainability and rebuild fiscal buffers, relying on higher revenues and better targeted spending. A medium-term fiscal framework would support multi-year planning, reduce procyclicality and help safeguard fiscal space for key investments in education, digitalisation, green transition and security. Strengthening governance and independent institutions is essential to boost growth and productivity.

• Building skills is key to reducing labour informality, given the strong link between low education and informal work. Expanding childcare and eldercare provision would reduce barriers that push many women into informal jobs or out of the labour force.

• Mexico is highly vulnerable to climate change but is also reengaging with global efforts to reduce greenhouse gas emissions, which will require unlocking its considerable renewable energy potential. A comprehensive national adaptation plan would strengthen preparedness, while better information on water availability and usage would help ensure reliable and sustainable access for households and firms.

• The digital transformation presents major opportunities to boost productivity and employment and is a central pillar of Plan México, the government’s agenda to stimulate investment. To realise its potential, Mexico needs to ensure strong pro-competitive regulations in the telecommunication sector, guarantee regulator’s independence and advance digital government to expand coverage, foster innovation and improve service delivery.

The economy remains stable, yet revitalizing growth is a priority

Mexico’s economy has demonstrated resilience despite elevated uncertainty and trade barriers. Fiscal consolidation is advancing after the sharp rise in the deficit in 2024, an electoral year. Inflation has eased but remains above the 3% target. After two decades of modest growth, structural reforms are needed to boost productivity and unlock stronger economic growth.

The Mexican economy has been significantly affected by heightened global uncertainty. Private consumption and non-automotive exports have supported activity. Sound public debt management, a well-capitalised and liquid financial system, and low private sector indebtedness continue to underpin economic stability.

Mexico is particularly exposed to trade restrictions. Over 80% of its exports go to the United States and supply chain integration is deep. The increase in the tariff rate on exports to the United States has started to impact exports, particularly in the automotive sector, though the full impact is expected to unfold only over the medium-term. Preferential treatment for exports compliant with the United States–Mexico–Canada Agreement (USMCA) framework has helped sustain Mexico’s trade competitiveness. Expanding compliance with rules of origin, for example through e-certification tools, would further ease the adjustment to higher tariffs.

Revitalizing growth remains a key priority. Multidimensional poverty has fallen, with the share of people living in poverty declining from 36% in 2022 to 30% in 2024. Following two decades of relatively weak performance and stagnant productivity, boosting growth is an urgent challenge (Figure 1). To this end, the government has launched Plan México to revitalise investment by streamlining regulations, closing infrastructure gaps, and promoting local supply chains. Mexico needs also to increase public spending in growth enhancing areas, strengthen skills development, accelerate digitalization, strengthen governance, and expand women’s labour force participation to boost potential growth. Unlocking the country’s considerable renewable energy potential could further attract investment while supporting climate change mitigation.

Improving governance is essential to boost growth and productivity. Strengthening the rule of law, the de facto independence of institutions and judicial effectiveness would enhance contract enforcement and investor confidence. Preserving a stable and predictable regulatory framework is equally important to provide clarity for long-term investment decisions. Further reducing crime would also boost investment and improve citizens’ well-being.

Figure 1. GDP per capita growth has remained subdued over the past two decades

Index of real PPP-adjusted GDP per capita, 2000 = 100

Source: World Bank World Development Indicators (WDI) (database)

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Growth is set to remain modest amid elevated risks

GDP growth is projected at 1.4% in 2026 and 1.7% in 2027, supported by private consumption and external demand from the United States. Inflation is expected to gradually ease. Trade tensions and heightened global policy uncertainty remain significant risks to the outlook.

Private consumption will support growth. This will be aided by low unemployment and easing inflation. Private investment will gradually benefit from lower interest rates, though it will remain constrained by high domestic and global uncertainty. Public investment is set to stay subdued amid efforts to reduce the fiscal deficit. Export growth will be dampened by higher trade tariffs and high global uncertainty.

Inflation is expected to fall gradually (Table 1). After increasing in the first half of 2025, mainly driven by food prices, both headline and core inflation are projected to ease, as growth remains moderate. However, risks remain, particularly from food and services prices, which could slow the disinflation process. Further reductions in the policy rate should remain data dependant and take place once there is clear evidence that inflation is on a path back to the 3% target.

The financial sector has ample buffers. It has reacted in an orderly manner to the high uncertainty. It maintains capitalisation, profitability and liquidity levels above most OECD countries. Private sector indebtedness remains contained. Safeguarding the financial system from criminal networks remains an ongoing priority. Mexico’s financial authorities have established frameworks and procedures to address potential risks, and maintaining close coordination among financial regulators, the tax authority, law enforcement agencies, as well as with international partners, will help sustain these efforts.

Risks remain substantial. A sharper slowdown in the United States, Mexico’s main trading partner, may weigh further on external demand and exports. Increased global risk aversion and exchange rate volatility could raise sovereign borrowing costs and trigger capital outflows. However, Mexico’s strong external position, underpinned by moderate external debt, ample foreign exchange reserves and a sustainable current account balance, provides buffers to absorb shocks.

Table 1. Growth will remain moderate

Annual growth rates

	2024	2025	2026	2027
Gross domestic product (GDP)	1.4	0.7	1.4	1.7
Unemployment rate	2.7	2.6	2.7	2.7
Headline inflation index (average)	4.7	3.8	3.6	3.2
Government fiscal balance (% of GDP)	-5.0	-3.9	-3.6	-3.0
Public net debt (% of GDP)	52.4	53.6	53.0	52.7

Source: OECD Economic Outlook (database).

Higher revenues are needed to safeguard fiscal sustainability and boost productivity-enhancing spending

The fiscal deficit rose in 2024 to its highest level in 35 years. Fiscal consolidation is now underway and should advance, guided by a well-defined set of measures on both the spending and revenue sides. Rising expenditures on interest payments, non-contributory pensions and support for PEMEX have constrained fiscal space, limiting resources for key areas such as education, the digital and green transitions, and the fight against crime. Mobilizing additional revenues would help address priority spending needs and safeguard fiscal sustainability.

Fiscal consolidation is underway and should be maintained overtime. In 2024 the public sector deficit rose sharply (Figure 2), reaching its highest level in 35 years, driven by spending on flagship infrastructure projects, universal non-contributory pensions and additional support to PEMEX, the state-owned oil company. In 2025, the authorities initiated a consolidation process aimed at reducing the deficit to 3% of GDP by 2027. Consolidation efforts in 2025 relied mainly on expenditure restraint, while tax revenues increased only marginally.

Raising revenues and improving the quality of public spending are essential to safeguard fiscal sustainability and create space for productivity-enhancing investments. Public spending remains relatively low and key areas such as education and health already receive less funding than in OECD and regional peers. Expanding revenues and allocating that fiscal space to areas with limited economic returns, such as infrastructure projects with questionable cost-benefit profiles or PEMEX, would also be counterproductive. Establishing a medium-term fiscal framework can improve strategic planning and help reconciling spending needs with fiscal prudence.

A more strategic approach to expenditure planning and prioritisation would boost growth while supporting fiscal consolidation. Basing infrastructure projects on rigorous technical evaluation, clear prioritisation, and strong accountability mechanisms would allow resources to be allocated more efficiently while reducing the risk of cost overruns. Stronger project appraisal systems and greater transparency across the investment cycle are essential to raise the quality of public investment, build public trust, and ensure spending supports medium-term growth. Moving toward targeted non-contributory pensions would ensure that support reaches those most in need, while preserving public resources for future generations and other pressing priorities.

There is room to increase tax revenues. Mexico has the lowest tax-to-GDP ratio in the OECD. More effective use of existing taxes could help raise additional revenues without undermining growth. For instance, authorities are working to strengthen customs duties by addressing under-invoicing through robust enforcement and digital tracking systems. Modernizing the cadastral system would support higher collections from property taxes. Further gains could come from reducing tax expenditures, particularly in VAT, from broadening the carbon tax base, and from enhancing incentives for states to collect the vehicle ownership tax.

Upgrading Mexico’s fiscal framework can help smooth economic fluctuations and provide countercyclical support during downturns. The Fiscal Responsibility Law, enacted in 2006, institutionalised the country’s commitment to fiscal discipline and has been central to maintaining prudence. However, its current design favours short-term discretionary cuts to meet annual targets, making fiscal policy highly procyclical. Upgrading Mexico’s fiscal framework is urgent to strengthen credibility and create space for priority spending. A genuine medium-term framework would reduce procyclicality and facilitate that new revenues are channelled into areas with highest economic and social returns. Introducing a debt anchor and a better-designed expenditure rule would safeguard sustainability.

Figure 2. The public sector deficit increased sharply in 2024

Source: OECD Economic Outlook (database).

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Building up skills and facilitating women employment would reduce informality

Labour informality has no single cause. Therefore, tackling it requires a comprehensive policy strategy. As informality is strongly linked to low levels of education, enhancing skills should be a key element of that strategy. Ensuring that more students complete at least secondary education, improving the quality of education and aligning tertiary and vocational programs with labour market needs are essential. Expanding childcare and eldercare provision would also reduce barriers that push many women into informal jobs or out of the labour force.

Informality is closely linked to low educational attainment (Figure 3). Many young people leave school before finishing secondary education and end in informal jobs with limited training opportunities. PISA results show that many students leave secondary school without mastering basic competencies, also limiting their ability to transition into formal jobs. This creates a vicious cycle in which low skills lead to low productivity and low-paid informal work, with little chance to upgrade skills and transition to better jobs.

Ensuring than more students complete secondary education is a critical priority. This requires better data to identify students at risk of dropping out. Annual national diagnostic tests would help track learning outcomes, detect early signs of academic lag and guide tutoring support to students most in need. They would also help identify subject areas where teacher training should be prioritised. Strengthening professional orientation across all education levels would improve students’ education choices and outcomes.

Better aligning educational programmes with labour market demand is another crucial priority. Nearly 30% of university graduates are employed informally, while businesses face significant talent shortages. Strengthening the link between education and labour market needs would ease skills gaps and expand access to higher-productivity, formal employment. Dual vocational education, though still limited, has delivered positive outcomes and should be scaled up.

Efforts to increase access to affordable childcare are underway and should be given greater priority. Care responsibilities fall disproportionally on women, often preventing them from taking up jobs or pursue education. The childcare network should prioritise low-income families and cover both formal and informal workers. Robust quality standards will be key to ensure positive outcomes for both child development and women’s access to formal work. Strengthening eldercare would also support female formal employment.

The structure of the school day creates an additional barrier to formal employment for mothers. Public primary schools often operate in shifts, providing only four to five hours of instruction. In the absence of after-school provision, many mothers are unable to take up or remain in full-time formal jobs or must rely on extended family for childcare. Scaling up full-time schedule programmes would advance both women's access to formal employment and education outcomes.

Figure 3. Workers with lower education are more likely to end up in informal employment

Informality rate by education level, % of workers, 2025-Q3

Source: OECD calculations based on INEGI.

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Mexico is raising its climate ambition

Mexico is taking decisive steps to reinvigorate its climate ambition and reengage with global efforts to reduce greenhouse gas emissions. Meeting climate targets will require unlocking its considerable renewable energy potential. Given Mexico’s high vulnerability to climate change, stronger adaptation measures are also needed. More accurate, consistent, and timely information on water availability and usage would help to improve water management and ensure reliable access for households and firms.

Mexico has recently pledged to achieve net-zero greenhouse gas emissions by 2050. These renewed commitments are a significant policy shift from the previous administration and provide a clearer roadmap for government agencies and the private sector, strengthen policy predictability and improve investment incentives, helping both to reduce emissions and to boost growth prospects.

The country has set a target of providing 38.5% of electricity supply through clean sources by 2030. This comes after a recent decline in the share of clean energy in electricity generation, despite the country’s abundant renewable energy resources (Figure 4). Achieving this target will require a substantial increase in private investment, supported by a regulatory environment that provides clarity, stability, and long-term confidence. Modernising and expanding the electricity transmission network, that suffers from grid congestion, is also essential to integrate new clean energy projects and meet rising electricity demand.

Mexico is particularly vulnerable climate change due to its geographic location, ecological diversity and socioeconomic conditions. Establishing a comprehensive and formal national adaptation plan would help consolidate and update current climate efforts, assess vulnerabilities and integrate adaptation more forcefully into policies. It would provide a clearer basis for quantifying investment needs and also help to coordinate actions across levels of government. This is particularly important in Mexico, where adaptation responsibilities are shared among federal, state, and municipal levels. Many municipalities lack the technical and financial capacity to fully integrate climate resilience into their planning. Providing them with targeted technical assistance would strengthen local implementation and help reduce regional disparities.

Mexico faces growing water stress. This is driven by a combination of rising temperatures, shifting rainfall patterns, increasing demand from population growth and high distribution losses. Effective water management depends on accurate, consistent, and timely information on availability, usage, and quality, yet monitoring capacity has weakened due to budget constraints. Around 46% of water is lost through leakages caused by aging infrastructure, outdated technologies and insufficient maintenance.

Figure 4. Despite high potential, the share of electricity generated from renewables is low

Source: OECD Green Growth (database); and World Bank Global Atlas Solar (database).

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Boosting digitalization would boost productivity

Mexico’s digital transformation presents major opportunities to boost productivity and employment. The new Agency for Digital Transformation and Telecommunications can help accelerate reforms to boost digitalisation. To fully realise the benefits of digitalisation, Mexico needs to address persistent challenges, including high concentration in the mobile telecommunications market, low digital adoption among firms, particularly SMEs, cybersecurity vulnerabilities, and limited digital skills.

Sound telecommunication regulation is essential to close connectivity gaps and ensure reliable nationwide infrastructure. High spectrum fees contribute to a high market concentration in Mexico’s mobile telecommunications sector. Reducing spectrum costs can enhance competition, encourage investment and extend coverage. Ensuring a strong pro-competition framework remains critical to advance digitalization. A recent constitutional reform removed the formal independence of the telecommunications sector regulator. Guaranteeing its full autonomy would boost investor confidence and foster innovation.

An enhanced digital government can streamline public service delivery while reducing bureaucratic costs, delays and corruption. The creation of the Agency for Digital Transformation and Telecommunications in 2025 provides a strong foundation for advancing digital government. Priorities include simplifying procedures across all levels of government and digitalising 80% of the most frequently used services. Achieving these goals will require strong efforts at the local level, adequate human and financial resources, enhanced capacity among local government staff, as well as intergovernmental cooperation and support.

Limited digital skills remain a major barrier to faster digital adoption (Figure 5). Equipping more Mexicans with basic digital skills would support lifelong learning and adaptability in a changing labour market. Expanding the pool of professionals with advanced digital skills would enable more firms to adopt digital tools. Strengthening digital competencies within the public sector would also facilitate the development of more effective digital government services.

Firms lag in adopting advanced digital technologies, including artificial intelligence (AI). Adoption is especially challenging for SMEs. Support programmes should be scaled up and made more comprehensive, offering funding for digital investments as well as technical assistance and training support. Developing a national AI strategy would provide a long-term vision and concrete actions for the development, use, and governance of AI.

Figure 5. Digital skills among adults are weak

Digital skills among active population, from 1 ("not at all") to 7 ("to a great extent"), 2023

Source: IDB (2023), Informe anual del Índice de Desarrollo de la Banda Ancha: brecha digital en América Latina y el Caribe.

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MAIN FINDINGS	KEY RECOMMENDATIONS
Securing macroeconomic stability and fostering growth
Inflation has eased but remains close to 4%. The Central Bank has reduced the policy rate by 425 points, but the monetary stance has remained restrictive until November. Economic growth remains moderate, and existing slack limits demand pressures.	Continue a gradual, prudent and data-dependent reduction in the policy rate.
The public sector deficit significantly increased in 2024, to 5%, the highest in 35 years. The deficit decreased to 3.9% in 2025 and, according to the 2026 budget, is expected to fall to 3.6% in 2026 and to 3% in 2027. The measures underpinning this additional consolidation have not yet been defined. Debt servicing costs will increase to 4.1% of GDP in 2026.	Further reduce the fiscal deficit in a steady and gradual manner, anchored in well-defined and credible measures, including raising more revenues and improving the targeting and quality of spending.
Public spending is relatively low. Rising public spending on debt interest spending, PEMEX, and non-contributory pensions have reduced the fiscal space available for priority spending such as education, health, digitalization and the green transition. Mexico has the lowest tax-to-GDP ratio of the OECD. The absence of a medium-term fiscal framework limits strategic planning and hampers reconciling spending needs with fiscal prudence.	Anchor fiscal policy in a medium-term framework that creates room for priority spending, while financing it through stronger and more efficient revenues, prioritizing tax areas with the biggest revenue raising potential, such as property taxes and improved custom administration.
A deep judicial reform is underway. A judiciary perceived as partial can deter investment, particularly by domestic firms. Despite formal eligibility requirements, many of the newly elected judges lack significant prior judicial experience, which can slow judicial processes.	Strengthen eligibility criteria for future judicial elections to secure greater professional experience and expertise among incoming judges.
A recent constitutional reform in Mexico removes the formal independence of the competition authority and sector regulators by placing them under line ministries	Ensure the de facto independence of the competition authority and sector regulators by decoupling board members' mandates from the political cycle, strengthening technical requirements for appointments and ensuring adequate budgets.
Crime remains a key concern for firms and citizens and reduces significantly growth. A new national security strategy has strengthened intelligence and coordination and contributed to a decline in homicides. Intelligence and investigative capacities remain uneven across states.	Further reinforce intelligence capacities across federal and state levels by scaling up financial, technological, and human resources.
Reducing informality
55% of employment in Mexico is informal, among the highest in the OECD and Latin America. Informality is especially prevalent among youth and adults with low education.	Adopt a comprehensive strategy to reduce informality, including by improving learning outcomes in schools and expanding upskilling training for workers.
The shortage of affordable childcare forces many women into informal work or out of the labour force as the only option to combine work and care.	Establish a publicly funded federal network of early education and care, giving priority to low-income households and covering both formal and informal workers.
Promoting decarbonization and adapting to climate change
The electricity sector is one the largest sources of greenhouse gas emissions. The share of electricity generated from clean energy sources has fallen due to regulatory changes that have discouraged private investment. The administration has recently set an ambitious target for clean energy sources to account for 38.5% of electricity generation by 2030. Achieving this target will require significant private sector investment.	Establish clear, transparent, and predictable procedures for granting renewables generation permits and for conducting reviews and handle appeals.
The carbon tax applies to a limited set of fossil fuels and at relatively low rates, with key sectors such as natural gas and gasoline exempt.	Broaden the carbon tax to cover all fossil fuels, raise rates in line with carbon content, and use part of the revenues to support vulnerable households.
Mexico is highly exposed to climate-related hazards such as droughts, hurricanes, floods, and heatwaves. Although preparatory work is starting, Mexico has not formally developed a national adaptation plan.	Establish a comprehensive and formal National Adaptation Plan, identifying adaptation needs and priorities.
Water data is fragmented and often outdated, hampering the monitoring of overuse, illegal extraction and water quality and hindering policy design.	Develop a robust national water information system based on accurate, up-to-date, and consistent data on water resources, usage and quality.
Boosting digitalization
Mobile telecommunications markets are highly concentrated. Spectrum fees are among the highest in the OECD, hindering competition in the telecommunications sector and slowing the rollout of 5G networks, especially in rural and underserved areas. Access conditions to the preponderant operator’s infrastructure have limited competition.	Enhance competition by lowering annual spectrum fees, linking spectrum costs to investment and coverage commitments in underserved areas, and ensuring that the preponderant operator does not impose excessive charges for the use of its infrastructure.
The digitalisation of public services risks excluding vulnerable groups, often the ones who need them most.	Adopt the principle of inclusivity in the design of digital public services and offer a multichannel approach that combines digital, in-person, and assisted services.
The Agency for Digital Transformation and Telecommunications (ADTT) oversees digital transformation and telecommunications policies but lacks sufficient staff and funding to meet its wide-ranging responsibilities.	Guarantee adequate resources for the ADTT and adopt a digital government agenda with clear priorities, planning, funding and measurable outcomes.
Mexico’s digital transformation is hindered by a growing shortage of skilled talent.	Expand digital training opportunities for low-skilled adults via initiatives co-designed with employers and learning providers.
Mexico lacks a comprehensive strategy or robust governance for AI and advanced digital technologies.	Adopt a national AI strategy providing long-term vision and including concrete actions for the development, use, and governance of AI and other advanced technologies.