Mexican Economy Suffers Record Drop in Second Quarter

Date: Friday, July 31, 2020
Source: The Wall Street Journal

Economic output fell 18.9% from the second quarter of 2019 as shutdowns to slow the spread of the coronavirus stilled many factories and services

MEXICO CITY—Mexico’s economic output suffered its steepest drop on record in the second quarter as shutdowns to slow the spread of the coronavirus brought many factories and services to a standstill.

Gross domestic product, a broad measure of output in goods and services, contracted 17.3% in seasonally adjusted terms from the first quarter, and was down 18.9% from the second quarter of 2019, the National Statistics Institute said Thursday.

Mexico closed down activities considered nonessential throughout April and May, causing the loss of millions of jobs. Gradual reopenings began in June, but capacity restrictions have remained in place for most of the country.

Mexico has confirmed 408,449 cases of the new coronavirus, and 45,361 related deaths, figures some say underestimate the true toll.

Industrial production in the April through June period fell 23.6% from the first quarter of the year, and services contracted 14.5%. Agricultural production fell 2.5%.

The decline marked a fifth consecutive quarterly contraction, and was the sharpest on record, putting the economy on track for its deepest recession since the Great Depression of the early 1930s. In the first six months of the year, GDP was down 10.5% from the first half of 2019.

The data suggest the start of a pickup in June, although the recovery is widely expected to be slow given the loss of employment and what many see as an inadequate fiscal response by the government of President Andrés Manuel López Obrador.

“Many jobs were destroyed, and it’s going to take time to get them back,” said Itau BBA’s chief Mexico economist Julio Ruiz.

The statistics institute is scheduled to report revised data and June figures on Aug. 26.

“Exports recovered well, and I think the first push will come from the export sector,” said Barclays chief Latin America economist Marco Oviedo. “The big question mark is how domestic consumption and investment does in the third quarter, and if the recovery in the U.S. doesn’t get derailed with the rebound in coronavirus infections.”

U.S. second-quarter GDP shrank at a 32.9% seasonally adjusted annualized rate in the second quarter, the Commerce Department said Thursday. By comparison, the contraction in Mexico translates into an annualized decline of 53.1%.

Even with the gradual reopenings in June, demand is likely to be slow picking up, especially as the pandemic has yet to recede, said Alonso Cervera, chief Latin America economist at Credit Suisse.

“The supply shock may be easing, because business is reopening, but what will persist is the demand shock,” he said. “Even if the restaurant around the corner is open, people may not want to go out because the virus hasn’t gone away.”

Economists polled last week by Citibanamex project that GDP will shrink 9.6% in all of 2020. The International Monetary Funds predicts a 10.5% full-year contraction.


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