Economic Activity Contracts by Historic Levels in May

INEGI’s Global Index of Economic Activity has reported a record 21.6 percent fall in economic activity for May in a year-on-year comparison.

May's severe drop was precipitated by a -19.6 percent variation in April again to the same month in 2019. According to El Financiero, these figures point toward a “historic collapse” in economic activity for 2Q20.

Primary activities, which include industries dealing with natural resources, such as agriculture or energy, increased 2.6 percent in May year-on-year. These industries were considered “essential” by the government and were permitted to remain open at a reduced rate. They were also among the first industries to fully reopen following lockdown.

Meanwhile, secondary activities including those engaged in manufacturing like the automotive industry recorded a 29.7 percent drop in their year-on-year rate, while tertiary industry sectors including tourism and hospitality, saw activity plummet 19.1 percent.

May was Mexico’s second month of stringent confinement including the total closure of most of the tertiary industry. Restaurants, bars and stores were shut down while offices were abandoned in favor of working from home. According to INEGI figures, a total of 12.5 million jobs were lost in April due to confinement orders to face COVID-19. Banxico Deputy Governor said that 2.1 million jobs were lost in the formal sector compared to 10.4 million from Mexico’s informal sector.

INEGI’s 1Q20 National Survey of Occupation and Employment reported that 56.1 percent of the country’s fully employed population work in the grey economy, representing just over 31 million people. Many informal economy jobs are situated in the tertiary sector like street food stands or restaurants and bars.

Though May’s figures mark a disastrous moment for Mexico, some believe that the worst of the impact of COVID-19 has passed. Last week, Director General of Banorte Marcos Ramírez Miguel said that the country is “past the worst,” though he admitted the effects will be continued to be felt for the rest of the year.

However, the reduction of oil production in Mexico, one of the country’s most important industries, is expected to remain short by up to 50Mb/d into 2021 as energy demand remains low.

Similarly, the country’s aviation sector is facing extreme difficulty. As reported by Mexico Business News, the low-cost airline Viva Aerobus has reported a net income loss of US$49.7 million in 2Q20 and Mexico’s flagship airline Aeroméxico filed for bankruptcy in the US as passenger counts plummeted. The country’s tourism industry has already reopened but with many people choosing to avoid air travel, 53.4 percent fewer foreign tourists arrived into Mexico during 1Q20 compared to the previous year.