Mexico Suffers Its Worst Q2 Contraction

Mexico has suffered the worst Q2 contraction in its history propelled by low economic production and the ongoing suspension of economic activities in response to the COVID-19 pandemic.

INEGI reported a 17.3 percent drop in GDP in 2Q20 against the figures reported in 1Q20 and a 18.9 percent fall in GDP compared to 2Q19. According to the institute, secondary sector activities, including automotive manufacturing and construction, suffered a contraction of 26 percent during the quarter while tertiary activities, including the financial sector and tourism, saw activity drop 15.6 percent. Primary sector economies like energy, agriculture and mining suffered losses of only 0.3 percent.

While 2Q20 data marks a fifth consecutive quarterly contraction, April and May saw the economy hit hardest as all non-essential activities were forced into total suspension. In April, 12.5 million people across the formal and informal sectors lost their job due to shutdowns. In May, economic activity contracted by a historic 21 percent in comparison to May 2019.

Explaining the severity of the Mexican situation, INEGI President Julio Santaella tweeted: “The strong quarterly contraction of GDP estimated in 2Q20 (-17.3% y/y) is the largest in the history of this macroeconomic indicator and almost doubles the declines in 2Q95 (-9.1%) and 2Q09 (-8.9%)."

With over 45,000 deaths now reported, Mexico occupies the fourth position in the world for deaths caused by COVID-19 and sixth in terms of positive cases, according to John Hopkins data. Testing for the virus remains scarce.

A report published yesterday and led by Banxico Deputy Governor Gerardo Esquivel predicted that Mexico would take two years to recover economically from the economic devastation COVID-19 has caused, while the outlook for the country’s most vulnerable poor has soured dramatically. The report noted that the economic contraction “could lead to the highest poverty rates so far this century” and that “in the long run, this will perhaps be the most lasting and painful impact of the crisis.”

However, the report also echoed comments made recently by Director General of Banorte Marcos Ramírez Miguel who stated that the country was “past the worst,” as recovery should begin from June onwards. "The drop in economic activity bottomed out in May and recovery began to be observed as of June with the incipient reopening of some economic sectors,” it said.