Mexico: Economy shrinks at fastest pace in over a decade in Q1 on initial coronavirus impact
May 26, 2020
The economy contracted at the steepest rate since the 2009 global financial crisis in the first quarter as the Covid-19 pandemic started to bite, with GDP falling 1.4% on an annual basis (Q4 2019: -0.7% year-on-year). The decline in output was smaller than the 1.6% contraction reported in the preliminary estimate. On a seasonally-adjusted, quarter-on-quarter basis, economic activity shrank 1.2% in Q1, greater than Q4 2019's 0.6% fall and also revised up from the 1.6% downturn reported in the flash estimate.
The marked contraction in Q1 was driven by the initial effects of the coronavirus outbreak and associated containment measures that began to be implemented in March. Industrial sector output tumbled 2.9% year-on-year (Q4 2019: -2.0% yoy), dragged down by a steep fall in construction activity and manufacturing production. Similarly, services activity—the economy’s growth engine—declined 0.7% (Q4 2019: -0.2% yoy) as the leisure and hospitality sectors reeled amid the suspension of non-essential activities. Lastly, primary sector activity expanded 1.4% in annual terms, rebounding from the 0.3% slip recorded in the prior quarter—cushioning the overall downturn to some extent.
The economy is set to suffer a deep recession this year. Social distancing measures will hammer household spending; investment will be derailed amid elevated uncertainty; and exports will crumble as the pandemic ravages global demand. The shaky finances of debt-saddled Pemex and economic difficulties in the U.S. are major risks ahead.
Author: Javier Colato, Economist