Mexico’s economy grows, but weak industrial sector signals risks for border trade

Mexico’s economy expanded in the first half of 2025, but weak industrial output and job losses could weigh on growth and affect border communities that depend on cross-border trade.

The Federal Reserve Bank of Dallas’ Mexico Economic Update, published last week, shows the country’s economy growing at a modest pace in early 2025, supported by stronger exports and consumer spending. But the report also highlights declines in industrial production and formal employment, along with steady inflation and a recent interest rate cut. The mixed picture points to continued growth, though with risks for border trade, labor markets and investment.

The report said gross domestic product rose at an annualized rate of 1.8% in the first half of the year. Economists now expect 0.5% growth for 2025, up slightly from earlier forecasts.

Industry slows

Mexico’s industrial production slipped this summer, with manufacturing down 0.5% in a three-month average through July. The report noted that lower investment and weaker global demand are pressuring factories.

Those trends are significant for border states such as Tamaulipas, Nuevo León and Coahuila, where maquiladoras dominate local economies.

Exports and retail hold up

Exports remain a bright spot. Shipments abroad increased 4.4% from a year earlier, with manufacturing exports up 6.3%.

Retail sales also rose, climbing 2.5% year over year. The data suggest households continue spending despite inflation, a trend that can boost cross-border shopping in U.S. cities such as McAllen and Brownsville.

Jobs decline

Formal employment fell by 22,300 positions in August, equal to a 1.4% annualized drop. Over the past year, job growth in this category was 0.8%.

The formal sector includes jobs with benefits and pensions, which are seen as more stable than informal work. Losses in these positions may increase labor pressures in border markets.

Inflation, currency and rates

Inflation rose to 3.6% in August, up slightly from July. Core inflation, which excludes food and energy, was 4.2%.

Mexico’s central bank cut its benchmark interest rate to 7.5% in September. The bank said it expects inflation to return to its 3% target by mid-2026.

The peso traded near 18.7 per dollar in July and August, providing relative stability for cross-border businesses.

Border impact

For the Rio Grande Valley, Mexico’s mixed economic picture means continued uncertainty. A slowdown in factories could disrupt supply chains that flow through local ports of entry, while stronger exports and retail sales may sustain cross-border traffic.

Stable currency levels ease trade, but job losses and weak investment in Mexico could bring new challenges to the Valley’s retail and labor markets.