Mexico: GDP declines at softer rate in Q4; records worst annual contraction in at least 25 years
Expenditure-based national accounts data released by the Statistical Institute on 19 March confirmed that GDP fell 4.3% year-on-year in the fourth quarter of 2020, softening significantly from the 8.6% contraction logged in the third quarter. Meanwhile, on a seasonally-adjusted quarter-on-quarter basis, the economy grew 3.3% in Q4, easing from the previous quarter’s 12.4% growth. For the year as a whole, GDP contracted 8.2%, following 2019’s 0.1% decrease and marking the sharpest contraction since comparable records began over 25 years ago.
Q4’s milder annual downturn reflected an improvement in private consumption and fixed investment, as well as a solid rebound in exports. Domestically, household spending fell at a softer pace of 7.2% year-on-year in Q4 compared to a 12.7% decline in Q3, and fixed investment slid 12.7%, easing from the 18.0% contraction logged in the prior quarter. Conversely, government spending slowed in the quarter (Q4: +1.6% yoy; Q3: +2.5% yoy), weighing slightly on the overall improvement.
On the external front, metrics continued to improve from the third quarter’s readings. Exports of goods and services bounced back, growing 3.7% in Q4 (Q3: -2.7% yoy). Meanwhile, imports of goods and services dropped at a slower rate of 7.2% in Q4, following the 18.5% drop in Q3. As a result, the external sector added 3.9 percentage points to overall growth, slowing from Q3’s 6.2 percentage-point contribution.
Looking ahead, a spike in new Covid-19 cases in January and a continuation of containment measures will likely have had an impact on activity in Q1 2021: In January-February, consumer sentiment remained subdued, PMI data indicated a continued deterioration in manufacturing conditions and unemployment figures stayed elevated amid uncertainty surrounding the evolution of the pandemic. That said, Covid-19-related restrictions were eased at the start of March and the vaccine rollout has accelerated in recent weeks, which should support the return of robust growth from the second quarter onwards.