A view of the skyline during a sunset along Reforma Avenue in Mexico City, Mexico, November 6, 2023. REUTERS/Jose Luis Gonzalez

By Gabriel Burin

BUENOS AIRES (Reuters) -Mexico's economic growth is set to recover slowly in 2026 from this year's virtual stagnation amid higher inflation risks, a Reuters poll showed.

Latin America's second-biggest economy behind Brazil is picking up following a pause in the first half of 2025 caused by weaker public spending and elevated uncertainty over U.S. tariffs.

Key drivers are hopes for a successful renegotiation of the U.S.-Canada-Mexico (USMCA) trade deal and an expected short-term boost from the soccer World Cup to be hosted in the three countries in 2026.

Still, already implemented U.S. levies and the threat of more tariffs globally will continue limiting Mexico's economy while trade negotiations drag on, particularly in most affected sectors like the automotive industry.

Gross Domestic Product (GDP) is forecast to expand 1.3% next year after 0.5% in 2025, according to the median estimate of 33 economists polled October 13-17.

That would be an improvement from consensus forecasts of 0.0% and 1.2% in a July survey, respectively, as the central bank continues to pursue gradual policy easing.

Besides some extra monetary stimulus from rate cuts and greater private sector confidence on trade agreements, infrastructure projects are already gaining pace, said Marcos Arias, senior economist at GBM.

"In addition, Mexico will be one of the host nations for the World Cup, an event that, in itself, always serves as a catalyst for economic activity," he added.

But inflation is set to continue running close to the upper limit of the central bank's target of 3% plus or minus a margin of 1 percentage point.

Median estimates for annual increases in Mexico's consumer prices were little changed, at 3.8% in 2025 and 3.7% in 2026 compared to 3.9% and 3.7% respectively in July's poll.

Risks on this front are biased to the upside given a narrowing "output gap" or industrial spare capacity, said Jose Sanchez, Mexico chief economist at HSBC.

"This, combined with tariffs on Chinese imports, could begin to inject upside pressures in some prices," he added.

Mexico's Congress is holding off approving proposed tariff hikes on products from China and other Asian countries while the government holds talks with them and considers changes to the initiative.

Of 11 participants who answered an extra question on risk to their inflation forecasts, a majority of nine said it was more likely to be higher than they currently expect over the coming year rather than lower.

Asked a similar question on Mexico's economic growth, six participants said the risk to GDP growth was weaker than they expect while five said stronger, suggesting persistent worries about the outlook for trade.

"It is unlikely U.S. tariffs (on some Mexican sectors) will be reversed, and the sectoral decline is expected to persist in the coming months, affecting employment," said Jesus Lopez, deputy head of research at Banco Base.

(Other stories from the Reuters global economic poll)

(Reporting and polling by Gabriel Burin in Buenos Aires; Editing by Ross Finley and Chizu Nomiyama )