Mexican economy beats forecasts in first-quarter, but shrinks most since 2009

MEXICO CITY (Reuters) - Mexico’s economy emerged better than expected from its first brush with the coronavirus outbreak at the start of 2020, but was still on track to suffer its sharpest quarterly contraction in more than a decade, preliminary data showed on Thursday.

A seasonally adjusted estimate from the national statistics agency showed gross domestic product (GDP) shrank 1.6% in the January-March period compared with the previous quarter.

The outcome was slightly better than the consensus forecast of a Reuters poll of economists on Monday, which predicted an economic contraction of 1.7%. Predictions made after the poll’s publication pointed to an even bigger contraction.

Mexico's peso MXN= showed little reaction to the data in early morning trading.

A breakdown of the data showed that primary activities such as farming, fishing and mining even grew by 0.5% on the quarter.

Secondary activities, which include manufacturing, and tertiary activities, which cover the service sector, both declined 1.4% from the fourth quarter, the figures showed.

Mexico did not begin to impose major curbs on the economy until the second half of March, so the main impact of the coronavirus pandemic is not expected to be fully reflected in official data until the second quarter.

Still, auto sales fell about 25% last month.

Nikhil Sanghani, an analyst at Capital Economics, said there was a risk the first-quarter figures could be revised down if the estimate had failed to capture the breadth of the slowdown in March.

“And the government’s feeble policy response means that domestic demand will stay weak, even if policymakers can bring the virus under control this quarter,” Sanghani said.

Capital Economics expects the economy to contract by around 12% quarter-on-quarter in the April-June period.

Critics charge that President Andres Manuel Lopez Obrador was slow to respond to the spread of the novel coronavirus and reluctant to lend economic support to companies battered by the crisis.

Lopez Obrador, a leftist who has had an uneasy relationship with corporate leaders, says he is not willing to get the country into debt to deal with what he has called a “transitory” crisis and stressed there would be no bailouts for big business.

Analysts are forecasting that the Mexican economy, which had already entered a mild recession in 2019, could shrink by anything up to around 10% this year.

The statistics agency is due to publish a final estimate for the economy’s first-quarter performance on May 26.

If confirmed, the quarterly contraction would be the sharpest since the first quarter of 2009, when the economy shrank by 5.1%.

In unadjusted terms, the economy also shrank by 1.6% compared with the same quarter a year earlier, the data showed.

Reporting by Dave Graham; Editing by Gareth Jones and Paul Simao