Home Business-newBusiness Mexico’s economy sinks the most on record in the second quarter

Mexico’s economy sinks the most on record in the second quarter

by Yucatan Times
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Mexico’s economy tanks by most on record in second quarter.

GDP in the three months through June fell 17.3 percent from previous quarter, as virus poses grave challenge to AMLO.

Mexico’s economy sank the most on record in the second quarter, as a haphazard national response to the coronavirus pandemic hurt jobs and output while failing to slow the outbreak, posing a dire challenge to President Andres Manuel Lopez Obrador.

Gross domestic product in the three months through June fell 17.3% compared to the previous quarter, according to preliminary data. The result, the biggest quarterly slump going back to 1993, came in slightly worse than the median estimate for a 17% drop from economists surveyed by Bloomberg.

On an annual, non-seasonally adjusted basis, GDP declined 18.9% during the quarter, the national statistics institute reported on its website Thursday, compared to a forecast of a 19.4% drop.

Latin America’s second-largest economy is expected to shrink close to 10% this year, representing its deepest recession since the Great Depression in 1932, according to analysts. Their forecasts have grown bleaker as Mexico continues to post records in new Covid-19 cases, putting the country on track to overtake the U.K. to have the world’s third-highest death toll.

“The worst has passed, our strategy worked and we are already improving,” Lopez Obrador said at his morning press conference on Thursday, pointing to a slower pace of job losses in July and saying he was optimistic about the third-quarter recovery.

However, Jessica Roldan, an economist at Mexican brokerage Finamex, said signs of fresh outbreaks as the economy tries to reopen suggested that Mexico may not see a significant drop in the pace of new virus cases until October.

“If the outbreak is not controlled, the hope for a robust recovery is totally off the table,” Roldan said. She said Mexico will take seven years to get back to GDP levels seen before the crash, with risks for an even longer recovery if the government further alienates investors with its policy decisions.

Lopez Obrador’s refusal to fund major stimulus to support companies, combined with the government’s response to the coronavirus outbreak, will consign Mexico to the slowest recovery among Latin America’s economies, according to Carlos Serrano, chief economist at BBVA in Mexico City.

While data on Thursday showed the U.S. economy recoiled at an annualized pace of 32.9%, Mexico’s collapse was a much steeper 53.2%, despite the fact that both countries shut down, Serrano said. “Why? The U.S. had a counter cyclical policy while Mexico had none.”

What Our Economist Says

The sharp drop in the second quarter GDP was mainly due to transitory headwinds from the outbreak and lockdown measures, but the scope and magnitude imply it is likely to have lasting effects. It is also consistent with government policies providing little relief and actions adding some headwinds.

The GDP number supports concerns about the economic growth and fiscal outlooks. The result was much worse than anticipated by the central bank in its quarterly June report. It implies a wider than officially projected negative output gap and downside risks to inflation forecasts. It also supports expectations for the central bank to provide additional monetary accommodation, while maintaining its cautious tone.

Lopez Obrador has downplayed the use of face masks even as his finance minister said they were key to a successful reopening. Over the past weekend, officials said that there may be tens of thousands unrecorded deaths from the virus.

by -Felipe Hernandez, Latin America economist, Bloomberg Economics

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