Mexico’s economy continues to slump, as two back-to-back quarters of contraction bring the nation closer to a technical recession. With droughts stretching across the region and on-again, off-again tariffs from the United States, the nation is facing an uphill battle to revert course and avoid a recession.

When Mexico President Claudia Sheinbaum entered office last October, she inherited one of the country’s highest budget deficits since the 1980s, paired with rising tension with the nation’s largest trade ally Sheinbaum faces challenging economic woes.

In the final quarter of 2024, Mexico’s GDP contracted at a seasonally adjusted 0.6% rate, according to Reuters, with a full-year growth of 1.2%. The Mexican economy is forecast to contract by 1.3% this year and proceed to shrink another 0.6% in 2026, according to the Organization for Economic Co-operation and Development. This is notably darker forecast than previously expected, with earlier forecasts predicting growth by the same margin. This flip-flopping prediction has been attributed to the ongoing trade tension with the United States, which is one of the factors threatening to plunge the nation into a recession.

After reaching a tentative agreement in early February, U.S. President Donald Trump imposed a 25% tariff on all imports from Mexico and Canada before backing down and offering a month-long delay on the tariffs for all goods that comply with the United States-Mexico-Canada Agreement (USMCA), a regional trade agreement between the neighboring countries.

Around half of Mexican exports into the United States are USMCA compliant, according to Reuters, with the government aiming to boost these numbers to somewhere between 85% andto 90% in order toto mitigate economic fallout.

While the tariffs have been repeatedly delayed, the actuality of them has no bearing on the economic consequences for a country that trades heavily with the United States. The ongoing negotiations and the back-and-forth threats have left many businesses in Mexico that rely on trade with their Northern neighbors in limbo.

“We have to recognize the rules have changed,” said Citi’s chief economist for Latin America Ernesto Revilla. “There is a new level of uncertainty in the North American region that, regardless of whether the tariffs don’t happen, will cause permanent damage because it’s going to scare off investment.”

Declaring a recession at the moment would be premature, but the many extenuating circumstances plaguing the economic development of the region seem to hint at trouble down the line. Deputy Director of Mexico’s Central Bank told Reuters that while it is too early to say the country is in a recession, “Wwe do have to admit we are going through a bad streak of stagnation caused in large part by the prevailing uncertainty.”

According to FCIB’s Credit and Collections Survey, 45% of credit managers are granting Mexican customers 1–30-day terms, while 32% of credit managers grant 31–60-day terms. Additionally, 9% do not extend credit to customers in Mexico.

Those extending credit to customers in Mexico found that they are on average 24 days beyond terms, with the most common causes of delays being billing disputes (53%) and customer payment policy (35%). Survey respondents say payment delays are mostly staying the same (55%) with some seeing an increase (35%).

“Push to obtain financials from all customers, backstop with credit insurance,” one respondent wrote. Another respondent warned, “understand in advance that there will be delays in paying.”