Mexico: GDP declines at slower rate in Q3
Expenditure-based national accounts data released by the Statistical Institute on 18 December confirmed that GDP slid at a more moderate rate of 8.6% year-on-year in the third quarter, significantly above the 18.7% contraction seen in the second quarter. Meanwhile, on a seasonally-adjusted quarter-on-quarter basis, the economy grew 12.1% in Q3, contrasting the previous quarter’s 17.0% contraction.
The milder downturn reflected a broad-based improvement in private consumption, public spending, fixed investment and exports. Household spending fell at a softer pace of 12.7% year-on-year in Q3 compared to a 21.0% contraction in Q2. Meanwhile, public spending growth accelerated to 2.5% in Q3 (Q2: +2.0% yoy) and fixed investment slid at a milder pace of 18.0%, following the 33.7% contraction logged in the prior quarter.
On the external front, metrics improved markedly from the second quarter’s grim readings. Exports of goods and services fell just 2.7% on an annual basis in the third quarter, which was well above the second quarter’s 30.5% contraction. In addition, imports of goods and services dropped at a milder pace of 18.7% in Q3, having plunged 29.7% in Q2. Consequently, the external sector contributed a considerable 6.2 percentage points to overall growth, swinging sharply from Q2’s 0.9 percentage-point deduction.
Moving forward, the pace of the economic recovery has likely slowed somewhat in Q4, but gradual and robust growth should return during 2021 as the economy shakes off the shackles of Covid-19-related restrictions. However, growth is projected to be below that of most regional peers as elevated unemployment domestically, subdued consumer and business sentiment, and the unpredictable course of the pandemic all weigh on activity.
Commenting on what lies ahead for the economy, Alberto Ramos, an economist at Goldman Sachs, noted:
“The outlook for real GDP growth remains uninspiring and so far the policy response has been underwhelming, particularly on the fiscal front. […] Following the record-breaking 18.0% yoy contraction in 1H2020, we expect the economy to recover part of the losses in 2H2020. The recovery should continue in 2021 supported by further easing of social distancing protocols with the approval of a safe and effective vaccine, leading to the vaccination of a significant part of the general population by 2H2021. Firmer growth in the US and stronger terms of trade should leverage the recovery. We expect real GDP to contract 8.9% in 2020 (adding to the 0.1% decline in 2019) and to grow 3.8% in 2021, with the growth momentum skewed towards 2H2021.”