Latin America’s economic engine is stalling, and Mexico is leading the slowdown. The International Monetary Fund (IMF) has slashed its 2025 growth forecast for the region, blaming geopolitical turmoil, US protectionist policies, and tightening global financial conditions for a widespread downturn — with Mexico emerging as the epicentre of the crisis.

In its April 2025 World Economic Outlook, the IMF revised down its GDP forecast for Latin America and the Caribbean to 2.0%, from a January projection of 2.5%. Most of the downgrade stems from Mexico, which is now expected to contract by 0.3% in 2025 — a dramatic reversal from the 1.4% expansion previously forecast. Reuters highlighted that Mexico’s downgrade was the largest among all major global economies.

The sharp revision is a direct consequence of trade tariffs imposed by the US under the administration of President Donald Trump. El País reported that the 25% duties on Mexican imports — particularly aluminium, steel, and automotive goods — have strained cross-border supply chains and injected deep uncertainty into business planning. These measures are not just economically disruptive; they are also politically charged, reinforcing a broader climate of geopolitical fragmentation that is heavily weighing on investor sentiment.

Mexico, which overtook China in 2023 to become the United States’ largest trading partner, sent exports worth over $505bn north of the border last year. However, this record-breaking trade surplus has not shielded it from the fallout. The fund warns that US tariffs, combined with weaker-than-expected activity in late 2024, are pushing Mexico into a technical recession — a scenario that could include more than one consecutive quarter of negative growth before a modest recovery in 2026.

Despite this downturn, Mexico remains crucial to regional dynamics. Its contraction is significant enough to drag down overall Latin American performance, offsetting modest improvements in other economies. Argentina, for instance, has seen its 2025 forecast revised up to 5.5%, from 5.0%, buoyed by a recent IMF-supported stabilisation programme widely seen as a sign of confidence for President Javier Milei's cost-slashing efforts. Similarly, Peru and Ecuador received upward revisions to 2.8% and 1.7%, respectively.

Meanwhile, Brazil — the region’s powerhouse — is also feeling the chill, with growth now expected at 2.0% in 2025, down slightly from January estimates. But unlike Mexico, Brazil’s economy is less dependent on US trade and thus more insulated from Washington’s tariff regime.

The IMF notes that Central America is faring slightly better, with projected growth of 3.8%, while the Caribbean will see a sharp deceleration to 4.2% after last year’s 12.1% tourism-driven rebound. Inflation across the region is expected to fall from an average of 16.6% in 2024 to 7.2% in 2025, largely due to corrections in Argentina and Venezuela.

The fund’s assessment, cited by EFE, underscores an environment of high uncertainty and warns that downside risks predominate, especially if protectionist policies escalate. With Trump signalling further tariff hikes, including secondary tariffs on countries importing Venezuelan oil, the IMF’s forecasts are hedged with caution.

Ultimately, the prognosis is clear: Latin America’s economic future hinges not just on domestic reform but on the whims of US trade policy. And for Mexico's export-dependent economy, tightly interconnected with its northern neighbour, the cost of that dependency is now becoming painfully evident.