Mexico: GDP records sharpest contraction since Q2 2020 in Q3
According to a preliminary reading, GDP declined 0.2% on a seasonally-adjusted quarter-on-quarter basis in the third quarter, below the 1.5% expansion tallied in the second quarter. Q3’s reading marked the sharpest drop since Q2 2020.
The services sector contracted 0.6% over the previous quarter in seasonally-adjusted terms in Q3, contrasting the second quarter’s 2.0% increase and marking the worst result since Q2 2020. Services activity was likely held back by the surge in Covid-19 cases in the quarter, elevated inflation eating into purchasing power, and the impact of a law approved earlier this year restricting labor outsourcing. The industrial sector sped up to a 0.7% expansion in Q3 (Q2: +0.3% s.a. qoq), notwithstanding global supply bottlenecks. Primary sector growth fell to 0.7% in Q3, marking the worst result since Q4 2020 (Q2: +0.8% s.a. qoq).
On an annual basis, economic growth waned notably to 4.6% in Q3, following the previous quarter’s 19.6% growth.
Looking forward, the economy should recover in Q4 thanks to the acceleration in the vaccination campaign and the marked fall in new Covid-19 cases, and as the effect of the new outsourcing law fades.
On the outlook, Alberto Ramos, economist at Goldman Sachs, said:
“We expect the recovery to continue in coming quarters supported by firm terms of trade and further progress on the Covid vaccination front and related normalization of activity among a number of still lagging sectors (as of August 2021 non-financial services activity was still 14.0% below the August 2019 level and 14.4% below the May 2018 cyclical peak). However, high and sticky inflation, rising interest rates, and sluggish credit flows add near term downside risks to activity.”