Mexico shines in international financial markets: its proximity to the world’s largest financial center, Wall Street, and its status as an emerging market have made it a magnet for capital. However, the country’s economic growth trend has been raising red flags for some time. It seems as if there are two Mexicos: one of investments, and another of the real economy.
Portfolio Investment (PI) reached a historic level last year, and the peso is one of the strongest and most stable currencies in the world, buoyed by carry trade. Everything related to financial investments in the country points to a historic moment. But there is a deeply concerning structural problem: the economy is not growing, or is doing so at insufficient rates.
This stark contrast worries analysts and investors, particularly because it’s not a new scenario, and the available data shows no significant shift in the country’s economic growth trend. The worst part, according to some analysts who spoke with Funds Society, is that it appears to be a structural issue.
Productivity: One of the Warning Signs
“It’s hard to pinpoint a single reason why our economy isn’t growing. It’s definitely not something specific to this administration or the ruling party, it’s a structural issue. In my view, a lot of it has to do with productivity. Most growth factors are in place: consumer demand is solid, investment follows its cycles,” said Luis Gonzali, Co-Director of Investments at Franklin Templeton Mexico. “Once you strip away those factors, what remains is productivity, and this indicator has been declining steadily, unlike what we see in other global economies,” he added.
“That residual factor economists call productivity has been steadily falling in Mexico. And because it’s residual, it’s difficult to identify a clear cause for this deterioration. But if we focus specifically on the past two years, investment clearly stands out as a major determinant of low growth. Investment has essentially flatlined; a rebound is expected this year, which could push GDP growth to a maximum of 1.5%. That might seem like a favorable increase compared to the 0.3% the Mexican economy may have grown in 2025, but it’s well below its maximum potential rate of 2.5%, and far short of the 5% to 7% needed to make a real economic leap,” he explained in an interview.
A Golden Investment
For Gonzali, there’s no doubt Mexico is one of the top investment destinations in the world. The numbers speak for themselves. At the end of the first quarter last year, Portfolio Investment reached $496.09 billion, almost ten times more than the $49 billion recorded during the same period in 2020.
The appeal of interest rates, which peaked at a nominal 11% in the Mexican financial market after the pandemic, has been one of the biggest draws, creating a phenomenon known as carry trade, investments arriving from around the world, including markets previously unfamiliar with Mexico such as Japan, aiming to benefit from higher interest rates.
The Portfolio Investment figure largely explains another phenomenon: the “super peso,” which in 2025 appreciated by nearly 15%, its strongest performance since the free-floating exchange rate regime was established, following the traumatic December 21, 1994 devaluation.
Even Foreign Direct Investment (FDI), which does not necessarily reflect the allure of financial investments, reached historic levels last year, totaling around $61 billion. However, over 50% of that figure came from reinvestments, meaning funds that were already in the country.
The peso, the stock market, and interest rate performance all reflect a country that’s highly attractive to investors, and the investment data confirms it. This isn’t the first time Mexico has acted as a capital magnet, but the current moment is undeniably one of the most significant in decades.
Investment: A Key Cause
For Gabriela Siller, Director of Analysis at Banco Base, the reason Mexico’s economy isn’t growing as it should lies in the “uncertainty trap,” which has pushed the country into a vicious cycle it hasn’t escaped in decades.
“Uncertainty drags down fixed investment and formal job creation. Without formal employment and fixed investment, productivity and long-term growth are limited. For example, through October 2025, fixed investment in the country fell by 7%. With that number, Mexico won’t even be able to grow at 2% in the long term, potential growth drops to 1.4%, and we don’t expect to even hit that rate this year. Fixed investment also has a degree of inertia. No one wants to invest in the private sector, and in the public sector, it would require unlocking investment through higher public spending on physical infrastructure, but in 2025 this indicator fell 29%, the steepest decline since 1995. It’s a tough scenario, even though public spending is set to increase by 12% this year,” said the economist.
“With this investment outlook, if we’re lucky, growth over the next few years will be around 1.4%, below the historical potential of 2.5%,” she explained.
Within that context, while financial strength is undeniable, Siller warns about the volatility of these capital flows, a recurring theme in Mexico’s history.
“We’re seeing unprecedented strength in the peso, and it’s directly tied to carry trade, there’s no doubt about it. These are hot money flows. Investors aren’t concerned about the country’s GDP, they care about returns, good rates, and getting paid. As long as that remains attractive, the trend will continue. For now, capital is downplaying risks such as the USMCA or judicial reform,” she emphasized.
Still, Siller remains pessimistic about Mexico’s growth outlook. She doesn’t expect significant expansion in the coming years and believes that these financial investments driven by carry trade could even become a major risk if perceptions of country risk change.
Reforms for Growth: The Only Option
“We’re on the verge of another lost six-year term in terms of economic growth,” Julio Ruiz, Chief Economist at Citi Mexico, told Funds Society.
According to his data, the average growth rate in the first half of this administration would be around 0.5%, well below the economy’s potential of 2% to 2.5%. Beyond that, the average in the second half would need to rebound dramatically to suggest a different trajectory, but neither official projections nor private forecasts expect that.
For Ruiz, the key to escaping Mexico’s “growth trap” is clear: “It’s definitely a structural issue. Mexico is almost certain to post another six-year term of growth well below its potential, between 2% and 2.5%, and far short of the 5% to 7% it would need to make a real economic leap, which would also have to be sustained for decades. Therefore, the only way forward is major structural reforms to generate that momentum. Otherwise, it looks extremely difficult,” he warned.
The 5% Growth: Just Political Rhetoric
For those interviewed, talk of GDP growth rates of 5% or higher is nothing more than political rhetoric.
“In the previous administration, when they promised GDP growth rates of 5% or even 7%, it was purely political speech. It wasn’t even backed by official data, we never saw anything like that in the budget proposals from the Finance Ministry. We only heard it in presidential statements. It was purely political rhetoric, with no connection to reality,” said Luis Gonzali.
In this way, while the causes of Mexico’s low growth may vary depending on the expert consulted, there is strong consensus that the country faces a structural problem, one that requires deep reforms and could take years to yield results. In the meantime, all signs point to yet another decade of sluggish economic growth for this global investment giant.
