Private consumption, which makes up roughly two-thirds of Mexico’s GDP, is entering 2025 on a weaker footing. A confluence of factors—including declining consumer confidence, slower remittance growth, and high interest rates—is beginning to erode the momentum that had underpinned domestic demand in recent years. The implications are broad, particularly for sectors reliant on household spending such as retail, food services, and consumer credit.
The consumer confidence index has fallen for three consecutive months through October 2024, reflecting persistent concerns over inflation, borrowing costs, and political uncertainty following the June elections. While inflation has moderated from earlier peaks, the central bank’s benchmark interest rate remains at a restrictive 11.25%, curbing appetite for credit-driven purchases. Durable goods and housing are especially affected, as households defer big-ticket spending in the face of tighter financial conditions.
Remittances—a key source of income for millions of households—have also lost some steam. After reaching a record $63 billion in 2023, inflows have slowed to single-digit growth in 2024. The deceleration is notable given the outsized role remittances play in supporting consumption, particularly in lower-income regions. Combined with limited real wage growth in the informal sector, this trend is squeezing disposable income for a significant portion of the population.
Consumption softness exposes structural vulnerabilities in Mexico’s domestic economy that cyclical policy tools alone cannot resolve.
Retail sales data confirm the shift. Growth slowed to just 1.2% year-on-year in the third quarter of 2024, down from 3.8% in the first quarter. Non-essential categories have been hit hardest, suggesting that households are reprioritizing spending amid economic uncertainty. Services activity has followed a similar pattern, with discretionary segments such as dining and entertainment showing signs of fatigue.
Structural challenges compound the cyclical pressures. High levels of labor informality and persistently low productivity continue to undermine the resilience of household consumption during downturns. Informal workers—who make up a large share of Mexico’s labor force—often lack access to financial services and social protections that could buffer income shocks.
There are mitigating factors. Real wage gains in formal employment sectors may help sustain spending among middle-income households. Government social transfers and minimum wage increases could provide a cushion for the most vulnerable. Moreover, nearshoring-related job creation in northern states may support regional consumption pockets, even as national indicators weaken.
Still, the broader outlook for private consumption remains subdued heading into 2025. For investors and businesses, this implies a more cautious operating environment for domestic-facing sectors. It also underscores the importance of structural reforms to enhance household resilience and broaden formal employment—critical steps if Mexico is to sustain inclusive growth amid shifting global conditions.
