Investment in Mexico

Mexico - Investment

Economy contracts at softer annual pace than initially reported in Q4 2020

According to a second estimate released by the INEGI on 25 February, GDP contracted 4.3% on an annual basis in the final quarter of 2020 (Q3: -8.6% yoy), revised slightly up from the flash estimate of 4.5%. Meanwhile, on a seasonally-adjusted quarter-on-quarter basis, economic output increased 3.3% (Q3: +12.4% s.a. qoq), also above the preliminary reading of 3.1%. For the year overall, GDP collapsed 8.2% (previously reported: -8.3%), marking the steepest decline in decades and the second successive year of falling output (2019: -0.1%).

The milder annual downturn reflected an improvement across most major sectors of the economy. The industrial sector shrank a softer 3.1% year-on-year (Q3: -8.7% yoy), largely owing to the manufacturing segment gaining momentum thanks to reviving external demand, particularly from the U.S. Moreover, activity in the services sector—the economy’s engine of growth—dropped 5.0% on an annual basis, less severely than the 8.9% fall logged in Q3, in part due to improving conditions in the retail and wholesale trade sectors. Meanwhile, primary activities lost steam, yet still grew a solid 4.8% in annual terms (Q3: +7.3% yoy).

GDP is poised to rebound in 2021, primarily on the back of the external sector as improving foreign demand buoys exports. Meanwhile, slow employment growth and subdued confidence could weigh on a robust revival of household spending and business investment. A still-raging pandemic, uncertainties over vaccine distribution and weak fiscal support cloud the outlook further.

FocusEconomics Consensus Forecast analysts see the economy expanding 4.0% in 2021, which is up 0.1 percentage points from last month’s forecast. In 2022, they see GDP growth at 2.7%.