Mexico’s economy has a 10-year setback

GDP falls 18.9% in the second quarter and returns to the level of 10 years ago.

MEXICO CITY (Times Media Mexico) – The worst of the economic destruction from the Covid-19 pandemic is over, but its damage was profound and practically erased the growth of 10 years.

The Gross Domestic Product (GDP) collapsed 18.9% during the second quarter of 2020 over the same period last year, according to the Inegi. This historical figure was not seen in other crises such as Mexico’s 1995 or the financial crisis of 2008-2009.

The SARS-Cov-2 virus spread through all productive sectors and weakened them to the point of sending the economy into intensive care and returning it to 2010 levels.

This means that the country’s capacity to generate wealth was reduced to the size it was ten years ago, all because of the closure of businesses and the suspension of work carried out to prevent further contagion. The Mexican economy spun five quarters down, deepening the country’s recession even before the health emergency. 

“These data were already expected because April, May, and June are being measured, which are the three worst months if you remember the pandemic begins to affect in March; it already affected us in the first quarter, the economy fell, but it bottomed out in April and May,” said Andres Manuel Lopez Obrador in the morning conference after learning the data from Inegi. 

He stressed that his strategy to face the crisis through Covid-19 “is turning out to be favorable because we said that as of July, we were beginning to get up, and there are already signs in that direction. After falling in the case of employment, there are practically no job losses in July. 

Mexico’s economic contraction almost doubled the 9.5% drop in U.S. GDP between April and June. The result shows that “when the U.S. is doing well, Mexico is doing super well, but when the U.S. is doing badly, Mexico sinks,” said Alfredo Coutiño, director for Latin America at Moody’s Analytics. The three major activities into which the Mexican economy is divided fell. The most beaten was industry, with a contraction of 26%, followed by services, with 15.6%.

In both cases, they suffered from work suspensions due to restrictions and confinement measures to prevent the spread of the virus.

The least affected was the agricultural industry, with -0.3%, a less affected sector because it remained more active, given its status as an essential activity. 

The bottom of the economic fall would have been reached in May, so the rest of the year is expected to see positive quarterly variations that mark the beginning of a gradual recovery. However, the still prevailing intensity of the pandemic, the severe damage to the labor market, and the effects on domestic demand will limit the pace of improvement, and the balance of risks remains skewed downwards.

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