Mexican Economic Landscape: A Shift Towards Recovery

The Mexican economy is experiencing a notable shift as the Overnight TIIE Funding Rate (F-TIIE) has decreased from 10.78% to 7.77% over recent months, a drop of approximately 300 basis points. This reduction in borrowing costs is contributing to a bullish sentiment among investors, particularly in the equity market, which tends to thrive in a declining-rate environment. Market expectations indicate a further decline in rates, with the Three-Month FTIIE futures for June 2026 settling at 93.2250, suggesting a projected future rate of 6.775%. Additionally, the weakening U.S. dollar against the Mexican peso has made dollar-denominated returns more attractive for international investors, further driving interest in Mexican equities.

Mexican Equity Market in Risk-On Mode as Rates DeclineLatam assets fall as US-China rare earths row revives global trade fearsLatAm assets recover from recent losses, underpinned by higher commodity pricesMexico’s Office Market Strengthens in 3Q25Latin American assets rebound as commodities jump, trade tensions simmer

Simultaneously, Mexico's office real estate sector is consolidating its recovery. By the end of the third quarter of 2025, the total office inventory reached 17.6 million square meters, with a significant reduction in vacancy rates to 16%, down 150 basis points from the previous year. The demand for office space surged, with gross absorption hitting 325,000 square meters, double the volume from a year earlier. Major cities like Mexico City, Monterrey, and Guadalajara saw substantial leasing activity, with occupancy increasing by 18% compared to 2024. Despite this robust demand, new developments are progressing cautiously, with only 1.2 million square meters under construction.

Mexico’s Office Market Strengthens in 3Q25

The positive trends in both the equity and office markets reflect a broader economic recovery in Mexico, supported by macroeconomic stability and increased corporate confidence. The Bank of Mexico's interest rate cuts have played a crucial role in fostering this environment, leading to new leasing decisions and a general uptick in business activity. National average rents for office spaces have also risen, with a year-over-year growth of 2%, indicating a move towards equilibrium in the market.

Mexico’s Office Market Strengthens in 3Q25

Despite the optimistic outlook, some analysts express caution regarding the sustainability of this recovery. Concerns remain about potential external shocks, particularly related to ongoing U.S.-China trade tensions, which could impact investor sentiment in Latin America. The recent fluctuations in Latin American assets highlight the sensitivity of markets to geopolitical developments.

Latam assets fall as US-China rare earths row revives global trade fears

The International Monetary Fund (IMF) has raised its growth estimate for Latin America and the Caribbean, projecting a 1% expansion for Mexico this year, an improvement from earlier forecasts. This optimistic outlook is tempered by the recognition that trade tensions could pose risks to economic stability.

Latam assets fall as US-China rare earths row revives global trade fears

• “The key question is whether these proposals are ultimately implemented or remain just efforts to gain negotiating leverage ahead of upcoming bilateral talks,” — David Mericle, Goldman Sachs Economist

Latam assets fall as US-China rare earths row revives global trade fears

• “While we have largely moved on from the tariff tantrum of April, Friday's market decline is an important reminder that trade tensions are still in the background and can cause bouts of short-term volatility,” — Richard Saperstein, Chief Investment Officer, Treasury Partners

Latin American assets rebound as commodities jump, trade tensions simmer

• “There is cautious optimism in some quarters, but some investors are still skeptical about what will happen.” — Andres Abadia, Chief LatAm Economist, Pantheon Macroeconomics

Latam assets fall as US-China rare earths row revives global trade fears

In summary, Mexico's economic landscape is showing signs of recovery, driven by declining interest rates and a revitalized office market. However, external factors, particularly trade tensions, remain a critical concern for investors navigating this evolving environment.

Latam assets fall as US-China rare earths row revives global trade fears