Itaú BBA - MEXICO – Flash GDP in 1Q20 weakened amid COVID

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MEXICO – Flash GDP in 1Q20 weakened amid COVID

Abril 30, 2020

Economic growth deteriorated in 1Q20 from an already weak growth pace in 2019

Mexico’s GDP preliminary estimate was weak in 1Q20, starting to reflect negative effects from COVID-19.  The flash estimate of GDP growth for 1Q20, published by Mexico’s statistics institute (INEGI), came in at -1.6% year-over-year, below our forecast (-0.9%) and above market expectations of -2.0% (as per Bloomberg). The quarterly figure implies the monthly GDP proxy for March contracted around 3.3% year-over-year (from -0.6% in February), reflecting the negative effects from the outbreak. According to calendar & seasonally-adjusted data reported by the statistics institute (INEGI), GDP in 1Q20 contracted at a faster pace (-2.4% year-over-year in 1Q20, from -0.5% in 4Q19). Looking at the breakdown, also using calendar & seasonally-adjusted data, industrial sector contracted 3.8% in 1Q20 (from 2.1% in 4Q19), while services sector deteriorated to -1.4% (from 0.0%).

At the margin, GDP growth also deteriorated significantly in 1Q20 from an already weak growth pace in 2019. Using seasonally adjusted figures, the GDP contracted 1.6% quarter-over-quarter in 1Q20 (from -0.1% in 4Q19). Looking at the breakdown, industrial sector deteriorated further (-1.4% in 1Q20, from  -1.2% in 4Q19), while services sector, the largest sector of the economy, fell by 1.4% (from 0.2%). 

Our -3.7% GDP growth forecast for this year has a downside bias amid a shy fiscal stimulus to support the economic recovery in 2H2020, after a sharp contraction expected in the 2S20 due to social distancing measures to contain the coronavirus outbreak. Uncertainty from domestic policy direction is also a drag to Mexico’s economic outlook. 

Julio Ruiz

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