Banxico minutes reveal concerns over global slowdown and sticky inflation
The Bank of Mexico's Governing Board discussed a moderating global economy, persistent inflation pressures, and weak domestic activity at its December 2025 monetary policy meeting. Members noted a differentiated inflation behavior across countries and a cooling US labor market.
Global deceleration and Fed's easing cycle
The majority of Board members observed a continued moderation in global economic activity during the fourth quarter of 2025, with manufacturing sectors showing weakness while services expanded.
Elevated uncertainty persisted due to US trade policy, though the global economy demonstrated adaptability to shocks.
US economic growth in Q3 2025 was lower than the previous quarter, driven by private consumption, with a positive outlook despite a partial government shutdown.
Euro area activity remained stable, while China's economy moderated.
US labor markets showed signs of cooling, with unemployment rising to 4.6 percent in November, its highest since September 2021, reducing inflationary pressures from this sector.
Global economic deceleration is expected to continue into early 2026, with US expansion projected near 2.0 percent for 2026, supported by non-residential investment.
The Federal Reserve reduced its policy rate by 25 basis points for the third consecutive decision, also announcing short-term Treasury bond purchases.
The Fed reiterated increased labor market risks and rising inflation since early 2025, with its president describing tariff effects as transitory.
Most other central banks held rates steady, while some emerging economies continued easing.
The Bank of Japan was an exception, with an anticipated 25 basis point hike in December and further increases in 2026. International financial markets showed limited variations, with episodes of volatility in US equity markets, particularly in high-tech sectors, and a significant depreciation of the dollar over the past twelve months.
Mexico's economic weakness persists
Economic activity in Mexico remained weak in the fourth quarter of 2025, following a 0.29 percent contraction in Q3 GDP.
Annual growth slowed from 3.1 percent in 2023 to 1.4 percent in 2024, with a projected 0.3 percent for 2025, significantly below the 2000-2019 average of 1.8 percent.
The output gap continued to widen in negative territory, indicating deepening slack conditions.
Industrial production accentuated its downward trend, driven by weakness in manufacturing, particularly transport equipment.
Construction rebounded but remained at low levels due to reduced public civil engineering works.
Tertiary activities continued to decelerate, with cumulative growth of only 0.8 percent in the first nine months of the year.
Investment maintained its downward trend across all components, reflecting reductions in both private and public investment.
Private consumption continued to expand, primarily driven by imported goods, a dynamic observed since mid-2025, potentially linked to the appreciation of the national currency.
However, consumption of services decelerated, and private consumption showed stagnation in September.
Members concluded that current consumption and investment do not exert aggregate demand pressures.
Manufacturing exports, particularly computer equipment, continued to be driven by external demand despite US tariffs.
A complex balancing act for Banxico
The detailed discussion within the Banxico minutes underscores the challenging economic landscape facing policymakers.
With global growth moderating and domestic activity remaining subdued, the central bank must navigate persistent inflation pressures.
The divergence in global monetary policy, particularly the Fed's easing and BoJ's tightening, adds layers of complexity to Banxico's future decisions.