Mexico Economy Declines Most Since 2009 as Virus Takes Hold

(Bloomberg) -- Mexico’s economy suffered its deepest contraction in over a decade during the first quarter, even before the nation was shut down to contain the pandemic that analysts see unleashing a slump to rival the Great Depression.

Gross domestic product in the three months through March fell 1.6% compared to the previous quarter, according to preliminary data. The result, the worst since the first quarter of 2009, came in below the median estimate for a 1.4% drop from economists surveyed by Bloomberg.

On an annual basis, GDP declined 1.6% during the quarter, the national statistics institute reported on its website Thursday.

Mexico Economy Declines Most Since 2009 as Virus Takes Hold

The nationwide lockdown and an oil price rout will lead to a 6.7% plunge in economic activity this year, exceeding the Tequila Crisis of the mid-1990s, economists say. But President Andres Manuel Lopez Obrador’s decision not to spend on an aggressive recovery plan could push GDP down as much as 12%, according to BBVA Bancomer’s most pessimistic forecast.

What Our Economist Says

The sharp contraction in the first quarter is consistent with headwinds from the Covid-19 outbreak, lockdown measures, lower oil prices and tighter financial conditions. Compared with monthly economic activity numbers through February, the data implies a sharp decline in March. Results are consistent with high frequency indicators that point to a sharper contraction in April and in the second quarter and support concerns about the economic outlook in 2020.

-- Felipe Hernandez, Latin America economist for Bloomberg Economics

Industrial sectors, including mining, construction and manufacturing fell 1.4% compared to the prior quarter, while agriculture, livestock and fishing industries grew 0.5%. Service sectors including commercial activity, transportation, financial and media contracted 1.4% from the previous three months, according to the preliminary data

Health Emergency

Mexico declared a national health emergency March 30, just a day before the end of the quarter, requiring non-essential companies to halt production. But the impact from shutdowns in the U.S. was already rippling through Latin America’s second-biggest economy and some activity, such as tourism, had stalled before the emergency was declared, according to Barclays Plc

“Local authorities and private companies moved to lock down conditions ahead of the government,” Barclays economist Marco Oviedo said. “Services represent 60% of the economy, and these are going to suffer more from the pandemic.”

The nation was already suffering from a technical recession last year after government decisions including the cancellation of a $13 billion airport project helped trigger a reduction in investment, and North American countries delayed the passage of USMCA, the trade agreement that replaces Nafta.

Mexico’s stimulus plan to contain the virus is set to be so far the smallest in Latin America, according to the International Monetary Fund, and Lopez Obrador announced he’d cut spending to pay for the recovery rather than taking on more debt.

©2020 Bloomberg L.P.

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