Itaú BBA - MEXICO – Flash GDP collapsed in 2Q20

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MEXICO – Flash GDP collapsed in 2Q20

July 30, 2020

Industrial sector was affected the most by COVID-19

Mexico’s GDP preliminary estimate collapsed in 2Q20 amid COVID-19. The flash estimate of GDP growth for 2Q20, published by Mexico’s statistics institute (INEGI), came in at -18.9% year-over-year (from -1.4% in 1Q20), in line with our forecast and slightly above market expectations of -19.4% (as per Bloomberg). According to calendar & seasonally-adjusted data reported by the statistics institute (INEGI), GDP in 2Q20 contracted at the same pace of the unadjusted series. Looking at the breakdown, also using calendar & seasonally-adjusted data, industrial sector was the most affected by the outbreak, contracting 26.0% year-over-year in 2Q20 (from -3.5% in 1Q20), while services sector deteriorated to -15.6% (from -1.3%).

At the margin, GDP growth also deteriorated significantly in 2Q20. Using seasonally adjusted figures, GDP contracted 17.3% quarter-over-quarter in 2Q20 (from -1.2% in 1Q20). The quarterly figure implies the monthly GDP proxy for June started to recover (8.6% month-over-month, from -2.6% in May and -17.3% in April).  Looking at the breakdown, industrial sector deteriorated to -23.6% in 2Q20 (from -1.2% in 1Q20), while services sector fell by 14.5% (from -0.9%).

The figures imply downside risks to our GDP forecast for 2020 of -9.0%. While we expect a recovery in the second half of the year, a modest fiscal stimulus and prevailing uncertainties over domestic policy direction will likely curb growth. 

Julio Ruiz

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