July 24, 2020 / 1:46 PM / 14 days ago

Mexican economy shrinks further in May to darken recovery prospects

MEXICO CITY (Reuters) - Mexico’s economy shrank another 2.6% in May from April after a record decline the previous month, official data showed on Friday, dimming the chances of a sharp rebound in activity from the economic destruction of the coronavirus pandemic.

FILE PHOTO: People walk past a building undergoing construction in Mexico City, Mexico January 30, 2020. REUTERS/Andres Martinez Casares

The economy contracted a record 22.7% compared with the same month last year, the biggest fall since modern records began in early 1993, according to figures put out by national statistics agency INEGI. In April, the economy shrank by 19.8% on the year.

The deepening contraction came even though Mexico in late May began allowing sectors such as carmaking, mining and construction to reopen after workers were idled in late March to slow the spread of the virus.

Economists forecast Latin America’s second-largest economy will suffer its biggest recession since the 1930s.

In a client note, Scotia Bank said the data, coupled with weak investment figures and job creation in recent months, means Mexico may have to revise its growth forecasts downward once again.

A breakdown of the seasonally adjusted monthly data for May showed that primary activities, such as farming, fishing and mining, rose 1.6% from April.

But secondary activities, which include manufacturing, tumbled 1.8% and tertiary activities, which cover the services sector, fell 3.2%.

Mexico’s record monthly decline of 17.3% in April from March came as the coronavirus lockdown paralyzed economic activity, leading to a shutdown of factories, shops and tourist resorts.

The government’s “underwhelming” fiscal countermeasures against the economic crisis suggests the road to recovery may long be fraught, Goldman Sachs said in a note to clients.

“The weak fiscal policy response to the pandemic induced sudden stop of activity is likely to lead to a deeper contraction and a shallower recovery,” the bank said.

Writing by Drazen Jorgic; Editing by Alex Richardson and Jonathan Oatis

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