Canada and Mexico Forge New Economic Pact Amid Trade Challenges

On September 21, 2025, Canadian Prime Minister Mark Carney and Mexican President Claudia Sheinbaum signed a "strategic comprehensive partnership" pact in Mexico City aimed at enhancing economic ties between the two nations. This agreement seeks to deepen trade and investment, particularly in infrastructure development, including ports, rail, and energy corridors. The leaders emphasized the importance of cooperation in light of ongoing negotiations regarding the United States-Mexico-Canada Agreement (USMCA). Carney remarked, “Of course, we are going to co-operate directly, as we always have,” while Sheinbaum stated that a “trade agreement for all three countries is the best thing for all three countries.” This marks a significant shift in the historically lukewarm Canada-Mexico relationship, as it has been nearly eight years since a Canadian prime minister visited Mexico outside of a trilateral meeting.

The Globe and Mail (Toronto)

The backdrop for this partnership is a challenging economic landscape for Canada, which has seen rising unemployment and a contraction in GDP. The Bank of Canada (BoC) recently cut its policy interest rate by 25 basis points to 2.5%, the first reduction since March. This decision was influenced by a 1.6% annualized decline in GDP during Q2 2025 and cumulative job losses exceeding 106,000 in July and August. The unemployment rate has risen to 7.1%, the highest in nearly four years, prompting the BoC to signal readiness for further rate cuts if economic conditions do not improve.

Castanet

The BoC's rate cut is a response to weakening economic indicators, including a 0.8% decline in retail sales in July. While the central bank aims to stimulate spending by making loans more attractive, it faces the challenge of balancing this with inflation concerns, which remain at 2.5%. Governor Tiff Macklem noted that the bank is closely monitoring short-term risks and is prepared to act further if necessary. Financial markets are currently pricing in a 50% chance of another rate cut at the BoC's next meeting in October.

A Rate Cut Bonanza

Critics argue that the BoC's decision to cut rates amidst persistent inflation could lead to unchecked spending and further inflationary pressures. Some economists caution against political influences on central bank decisions, emphasizing the need for objective analysis over political expediency. The delicate balance between stimulating economic growth and controlling inflation remains a contentious issue.

A Rate Cut Bonanza

As Canada and Mexico strengthen their economic partnership, both countries are navigating a complex landscape shaped by trade uncertainties, particularly with the United States. The upcoming release of Canadian GDP data is anticipated to provide further insights into the economic trajectory, potentially influencing future monetary policy decisions. The partnership may also serve as a strategic buffer against external economic pressures, reinforcing both nations' commitment to mutual growth and stability.

Central banks navigate economic, political and trade crosswinds

• “This is not a transition. This is a rupture,” — Mark Carney, Prime Minister of Canada

Carney says Canada ‘has what the world wants’ at a critical time

• “trade agreement for all three countries is the best thing for all three countries.” — Claudia Sheinbaum, President of Mexico

The Globe and Mail (Toronto)

• “Not necessarily but we are on shaky ground.” — Tiff Macklem, Governor of the Bank of Canada

Castanet

This new pact and the BoC's monetary policy adjustments reflect a proactive approach to addressing economic challenges while fostering international cooperation.

A Rate Cut Bonanza