Mexico: GDP collapses at unprecedented pace in Q2 on massive Covid-19 blow
September 21, 2020
Expenditure-based national accounts data released by the Statistical Institute on 21 September confirmed that GDP collapsed 18.7% year-on-year in Q2 (Q1: -1.3% yoy) as the Covid-19 outbreak and measures introduced to curb its spread hammered activity. Q2’S reading marked the steepest contraction on record and the fifth consecutive quarter of declining output. Meanwhile, GDP plummeted 17.1% on a quarter-on-quarter seasonally-adjusted basis in Q2 (Q1: -1.2% qoqsa), also an unprecedented drop.
Both domestic and foreign demand were decimated as a result of the Covid-19 fallout. Private consumption plunged an unparalleled 20.6% year-on-year (Q1: -0.5% yoy) due to social distancing measures and the shutdown of non-essential business activity. In addition, capital spending nosedived 34.0% on an annual basis (Q1: -9.3% yoy), marking the sharpest decline since the 1995 tequila crisis and the seventh quarter in a row of receding investment. Government expenditure, for its part, eased in Q2, growing a modest 2.4% year-on-year (Q1: +3.4% yoy).
On the external front, metrics were also grim. Exports of goods and services tanked 30.9%, swinging from the 1.8% expansion logged in the first quarter. Similarly, imports crashed 29.7% year-on-year in Q2 (Q1: -3.2% yoy) as domestic demand languished.
The economy is expected to contract at the sharpest pace on record this year due to the pandemic’s blow. A spike in unemployment and underemployment will pummel household spending, while investment activity will remain depressed amid heightened uncertainty. Next year, however, output is seen rebounding in line with recovering activity. Weak demand from the U.S. and a prolongation of the health crisis pose key risks to the outlook.
Author: Javier Colato, Economist