Mexican economy suffers record contraction, slow recovery seen ahead

MEXICO CITY (Reuters) - Mexico’s economy shrank by a record 17% during April as the coronavirus lockdown devastated economic activity, official data showed on Friday, and recovery is expected to be a long, hard slog with new infections still surging.

People walk past a building undergoing construction in Mexico City, Mexico January 30, 2020. REUTERS/Andres Martinez Casares/Files

With factories closed, manufacturing took a big hit. So did hotels, restaurants and retail as consumers stayed home.

Adjusted for seasonal swings, Latin America’s second-biggest economy contracted 17.3% from March, the biggest fall since modern data began being published in early 1993, according to figures put out by national statistics agency INEGI.

The decline, however, was milder than the 19.4% drop forecast by a Reuters poll of economists. In unadjusted terms, the economy shrank 19.9% in April compared with a year earlier.

The figures suggested gross domestic product (GDP) will decline 16% in the second quarter versus the previous quarter, said Joan Domene, senior economist at Oxford Economics.

“The uncontrolled spread of the virus prevents a timely and swift reopening, which adds a substantial risk to our third quarter forecast,” Domene added.

Mexico has the seventh highest coronavirus death toll in the world with 25,060 deaths and 202,951 cases.

A breakdown of the data showed that primary activities such as farming, fishing and mining shrank 6.4% from March. Secondary activities, which include manufacturing, plummeted 25.1% and tertiary activities, which cover the service sector, fell 14.4%.

Auto production almost ground to a halt in April, falling by 98.8% on the year, and the main industry group forecast output in the sector could drop by nearly a third in 2020.

The government hopes the economy fared slightly better in May, when authorities gradually began to permit sectors such as carmaking, mining and construction to start up again.

Still, the government’s reluctance to spend to support businesses and workers is seen weighing on the recovery.

That spending is worth only 1.0-1.5% of GDP and consists of “narrow-based and poorly targeted measures, with extremely limited support for the productive sector of the economy,” said Goldman Sachs economist Alberto Ramos.

This will likely to lead to a “deeper contraction and a shallower recovery,” Ramos added.

Reporting by Dave Graham; Additional reporting by Anthony Esposito; Editing by Steve Orlofsky, Paul Simao and Jonathan Oatis