Economy records sharpest contraction since Q3 2021 in the fourth quarter

GDP reading: According to a preliminary reading, GDP dropped 0.6% on a seasonally adjusted quarter on quarter basis in the final quarter of 2024, contrasting the 1.1% expansion recorded in the third quarter and marking the worst result since Q3 2021. The contraction was three times as steep as markets were expecting. On an annual basis, economic growth slowed markedly to 0.6% in Q4 from the previous period's 1.6% expansion, also below market expectations.

Broad-based downturn: The services sector grew 0.2% over the previous quarter in seasonally-adjusted terms in Q4, decelerating from the third quarter's 1.1% increase. In addition, the industrial sector fell 1.2% in Q4 (Q3: +0.9% s.a. qoq). This was partly due to the completion of some flagship public infrastructure projects weighing on construction activity, as well as hurricanes and strikes in the U.S. hitting manufacturing. The primary sector contracted 8.9% in Q4, marking the worst result since Q2 1999 (Q3: +4.9% s.a. qoq).

GDP outlook: Our panelists expect the economy to return to growth in Q1, though the expansion will be muted by historical standards.

Panelist insight: BBVA analysts said: “We anticipate the weakness of economic activity will extend throughout 2025, in a context of high uncertainty for investment, with the implementation of the recently approved judicial reform and potential tariffs on Mexican imports in the US.” Credicorp Capital analysts said: “We reduce our GDP growth estimate for 2025 from 1.2% to 0.9%. We expect a steeper adjustment in total investment, reflecting the dilution of election-related effects, nearshoring investment delays, and monetary policy tightening.”

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