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Mexico GDP Q1 2021

Mexico: Economy shows resilience in the first quarter

According to a second estimate, GDP fell at a softer rate of 3.6% year-on-year in the first quarter (previously reported: -3.8% year-on-year), above the 4.5% decline recorded in the fourth quarter of last year. Q1’s reading marked the smallest contraction since Q1 2020.

The services sector shrank 4.0% annually in the first quarter, moderating from the fourth quarter’s 5.0% decrease and marking the smallest contraction since Q1 2020. Primary sector growth improved to 2.8% in Q1, above the 1.3% increase recorded in the previous quarter. Meanwhile, the secondary sector shrank at a slower pace of 2.7% in Q1 (Q4: -3.3% yoy), largely thanks to a softer decline in construction activity.

On a seasonally-adjusted quarter-on-quarter basis, economic growth waned markedly to 0.8% in Q1 (flash estimate: +0.4% qoq) from 3.2% in the previous period. That said, the data showed the economy remained robust in Q1, notwithstanding tougher Covid-19 restrictions at the outset of the year and some disruptions to manufacturing activity. Economic activity was particularly strong in March, registering a 2.6% month-on-month expansion, largely thanks to rapid growth in the services sector.

The stronger momentum registered at the end of Q1 is likely to have carried over to the second quarter, aided by declining Covid-19 cases at home, rebounding activity in the U.S. and improved sentiment.

Alberto Ramos, economist at Goldman Sachs, was fairly positive about the outlook:

“We expect the recovery to continue and firm in 2021 supported by further easing of social distancing protocols with the vaccination of a significant part of the general population by 2H2021. Positive spillovers from solid U.S. real GDP and income growth (which should leverage exports and tourism and remittances flows), stronger terms of trade, and the lagged effects from monetary policy easing should support the recovery.”

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