Mexico’s government expects the economy to expand between 1.5% and 2.3% this year, a downward revision from the previous projection of 2.0% to 3.0%, according to a draft budget from the finance ministry on Tuesday.

While the ministry described the forecast as conservative, it remains more optimistic than estimates from the private sector and Mexico’s central bank, despite concerns that the country may be nearing a recession.

For 2026, the finance ministry predicts economic growth in the range of 1.5% to 2.5%.

Latin America’s second-largest economy, recently unsettled by declining investor confidence, US tariff threats, and a prolonged drought, contracted in the fourth quarter and again in January. Another contraction in the first quarter would push Mexico into a technical recession.

In a statement, Mexico’s finance ministry cited weaker residential investment and ongoing supply shocks since late last year as key reasons for lowering its 2025 growth forecast, Reuters reports.

“Additionally, business caution driven by uncertainty over US trade policy is also a contributing factor,” the statement went on to add.

In February, the autonomous Bank of Mexico projected that the economy in 2025 could either contract by up to 0.2% or grow by as much as 1.4%.

Earlier on Tuesday, a survey of private sector analysts conducted by Mexico's central bank showed a downward revision of their average growth forecast for the year to just 0.5%.

The finance ministry expects domestic consumption, job creation, and investments in key sectors to support economic growth this year.

Mexico's economic challenges have been a major concern for President Claudia Sheinbaum, who assumed office in October, inheriting the country’s largest budget deficit since the 1980s. Despite this, she has resisted calls for significant fiscal reforms.

Tuesday’s budget document, which serves as a guide for lawmakers in planning future spending, forecasts Mexico’s budget deficit to range between 3.9% and 4.0% this year, before declining to between 3.2% and 3.5% in 2026.

The draft budget projects annual inflation to reach 3.5% by the end of the year, staying within the central bank’s target range of 3%, plus or minus one percentage point. This marks a slight decrease from the 3.77% annual inflation rate recorded in February.

For 2026, the draft budget anticipates inflation will ease further to 3.0%.

Furthermore, the finance ministry projects the Mexican Peso will trade at 20.0 pesos per Dollar by the end of this year, with a slight appreciation to 19.7 pesos per Dollar in 2026.

Meanwhile, average crude oil production is expected to reach 1.762 million barrels per day (bpd) this year, increasing to 1.775 million bpd in 2026.