Mexican Economy Shrank 8.5 Percent in 2020: INEGI

After much debate and opposing reports, the official verdict has arrived. Though not as high as the double-digit dip that many economists predicted, Mexico’s economy contracted by a massive 8.5 percent, according to INEGI.

The agency’s finding reported today confirm that the global economic crisis generated by the arrival of COVID-19, which has now claimed the lives of 2.19 million people worldwide, condemned Mexico to its most devastating economic contraction since the Mexican peso crisis of 1994.

INEGI’s report shows that the contraction was not felt equally across all economic sectors. The primary sector – like mining and oil and gas activities, which were both declared essential – actually grew 2 percent during 2020. The secondary sector, which includes automotive manufacturing, shrank by 10.2 percent, while the tertiary sector, including the banking and food and drink services, fell by 7.9 percent in comparison to 2019.

Likewise, the virus’ crippling impact fell unevenly across the year’s quarters. The second quarter of 2020 when the pandemic became truly global was by far the heaviest effected quarter with a collective 18.7 percent contraction. During 2Q20, the secondary and tertiary sectors dropped 25.5 percent and 16.3 percent respectively, while the primary sector grew 1.5 percent. The third and fourth quarters showed signs of recovery despite a second wave of infections, as 3Q20 ended down 8.6 percent and 4Q20 fell 4.5 percent in comparison to 4Q19.

INEGI’s figures show a slightly lesser drop than the -10 percent GDP forecast given by the World Bank as recently as October.

Analysts believe that 2021 will see growth again. The CCE forecasts a 4 percent growth, while CEPAL believes GDP will rise by 3.8 percent this year. The start of the country’s vaccination campaign has also raised hopes, though shortage worldwide of the various vaccine types and President López Obrador’s recent announcement that Mexico would receive only half the planned number of Pfizer vaccines has kept these hopes low. 

While growth is positive, the previously hoped-for “V-shaped” recovery will be elusive, and the combined impact on the economy and job losses that have been concentrated on the workers in the large and vulnerable informal sector could push an additional 10.7 million Mexicans into extreme poverty, according to studies by CONEVAL.

Remittances have hit their highest ever amounts in Mexico as migrants living abroad supported communities at home bearing the brunt of the declining economy. Mexico's uncertain recovery means these remittances will need to continue.