Mexico’s economy is exceeding expectations, the Bank of Mexico reported on Friday in its quarterly update, while also raising its growth forecast for the remainder of the year for Latin America’s second-largest economy.

The report provided a cautiously optimistic view. Mexico’s economy is demonstrating resilience despite an uncertain business climate and the intermittent tariffs imposed by its largest trading partner, the United States.

However, Banxico, Mexico’s central bank, noted that economic growth remains slow and revised its inflation forecast upward for the rest of the year compared with earlier projections.

The bank added that the impact of US tariffs on the economy could take longer to fully materialise.

“The Mexican economy has performed better than the external environment would suggest and could continue performing better than anticipated as long as the adverse effects of change in US economy policy take time to materialise,” as per the bank's quarterly report.

Banxico upgraded its economic growth forecast for this year to 0.6%, up from the earlier estimate of 0.1%. The central bank also raised its 2026 growth projection to 1.1% from the previous 0.9% estimate.

“The Mexican economy grew more than expected,” said central bank governor Victoria Rodriguez during a presentation of the report.

The bank also underscored a rise in consumer prices, now projecting annual headline inflation to reach 3.7% in the fourth quarter, up from its previous forecast of 3.3%. Despite this, it maintained that headline inflation is expected to return to its 3% target by the third quarter of 2026, Reuters reports.

Meanwhile, the forecast for annual core inflation, which excludes certain volatile items and is seen as a more reliable gauge, was raised to 3.7% for Q4 2025, compared with the earlier projection of 3.4%.

Banxico pointed to the economy’s softness as a reason for reducing its benchmark interest rate earlier this month to 7.75%, marking the lowest level in three years.

Deputy Governor Jonathan Heath, the sole member of the five-person board to oppose the recent interest rate cut due to ongoing inflation, reiterated his concerns during Friday’s briefing, specifically pointing to rising food prices at taco stands and restaurants.

He added that Mexico’s economy clearly requires stronger growth, describing its current state as somewhere between “lethargy and stagnation.”