Mexico: GDP shrinks in Q4 2019 on weak domestic and external demand
March 20, 2020
Expenditure-based national accounts released by the Statistical Institute (INEGI) on 20 March confirmed that output fell 0.5% in year-on-year, unadjusted terms in the fourth quarter of 2019, more sharply than the 0.3% drop logged in the prior quarter and marking the third consecutive quarter of contraction. Meanwhile, output slipped 0.1% on a seasonally-adjusted, quarter-on-quarter basis in Q4, matching Q3’s outturn. For the year as a whole, GDP shrank 0.1%, contrasting 2018’s 2.1% expansion and marking the first slump since the 2009 global economic crisis.
Domestic demand remained frail in Q4, though to a lesser degree than in Q3. Public spending slipped 0.2% year-on-year amid the government’s continued adherence to fiscal prudence (Q3: -2.0% year-on-year). Additionally, fixed investment dropped for the fifth consecutive quarter, restrained in large part by depressed business confidence and lingering uncertainty over government policy (Q4: -5.2% yoy; Q3: -6.5% yoy). A marked drawdown in inventories also weighed on the fourth-quarter outturn. On a more positive note, consumer spending rose 0.9%, slightly picking up from the 0.8% expansion in Q3 amid upbeat remittance inflows and contained price pressures.
Similarly, the external sector fared poorly. Although net trade contributed positively to Q4’s reading, this mainly reflected the marked downturn in imports. Exports of goods and services fell 2.8% year-on-year (Q3: +2.8% yoy), marking the sharpest drop in over a decade as the General Motors worker strike in the U.S. took a toll on the key automobile manufacturing segment. Similarly, imports plunged 4.5%, marking the third successive quarter of decline (Q3: -0.1% yoy).
This year’s economic outlook has drastically deteriorated amid the collapse of international oil prices, which is likely to take a toll on Pemex’s already fragile finances and in turn hurt the credit rating standing of the sovereign, and the economic impact from the widening coronavirus fallout which is set to disrupt supply chains, foreign demand and domestic activity.
Author: Javier Colato, Economist