Mexico: Economy shrinks in Q1 on falling domestic demand as Covid-19 starts to bite
Expenditure-based national accounts released by the Statistical Institute (INEGI) on 19 June confirmed that GDP fell 1.4% year-on-year in the first quarter (Q4 2019: -0.7% year-on-year). Q1’s reading marked the sharpest drop since Q4 2009 and the fourth consecutive quarter of contracting output. Meanwhile, the economy shrank 1.2% on a seasonally-adjusted, quarter-on-quarter basis in Q1 (Q4 2019: -0.6% s.a. qoq).
The initial effects from the Covid-19 outbreak and measures enacted to curb its spread, which began in March, were largely behind the first-quarter contraction, with domestic demand particularly being hard hit. Household spending dipped 0.5% in Q1, marking the steepest decline since the height of the 2009 global financial crisis (Q4 2019: +0.7% yoy). In addition, fixed investment plunged 9.3% in Q1 as already-deteriorated sentiment was pummeled even further by the pandemic, marking the sixth consecutive quarter of contraction (Q4 2019: -5.3% yoy). In contrast, public consumption grew a solid 3.4% in Q1, rebounding from the 0.4% decline logged in the previous quarter.
On the external front, metrics were slightly more upbeat. Exports of goods and services increased 1.7% in Q1, rebounding from Q4 2019’s 2.2% decline. Conversely, imports of goods and services contracted at a slower pace of 3.4% in Q1 (Q4 2019: -4.3% yoy), largely reflecting the retreat in domestic demand.
The pandemic is set to push the economy into a deep recession this year. Mobility restrictions and increasing unemployment are set to pummel consumer spending; investment will be derailed amid rising uncertainty and weak prospects for activity; and exports will suffer amid a halt in tourism, low oil prices and subdued U.S. demand. The underwhelming fiscal response to the crisis clouds the outlook further.