The economy contracted less than initially estimated in the first quarter of 2020 but still recorded its biggest slump in almost 11 years.

Seasonally adjusted data published by the national statistics agency Inegi on Tuesday showed that GDP declined 1.2% between January and March compared to the final quarter of last year, 0.4% less than the preliminary estimate of a 1.6% downturn.

The slump was still the worst since the second quarter of 2009, a year in which Mexico’s economy contracted by more than 5%.

The downturn occurred even though lockdown measures to limit the spread of Covid-19, including the suspension of all nonessential activities, were not enforced until late March.

As a result, the economic impact of the restrictions are expected to weigh heavily on economic data for the April-June quarter.

The Inegi data showed that primary sector activities including agriculture, logging, fishing and mining grew by 1.7% in the first quarter of the year but secondary sector activities including manufacturing contracted by 1.2% and the tertiary, or services, sector declined 0.9%.

In unadjusted terms, the economy contracted 1.4% between January and March compared to the first quarter of 2019. The annual downturn was 0.2% less than Inegi’s preliminary estimate at the end of April.

With many sectors of the economy at a standstill since late March, the overall impact of the pandemic on GDP in 2020 is predicted to be much greater than that seen in the first quarter.

The Bank of America (BofA) adjusted its outlook for the Mexican economy on Monday from an 8% contraction to one of 10%.

It’s forecasting a 40% contraction in the second quarter compared to the January-March period and a slump of up to 12% compared to the April-June period of 2019.

The bank predicts that Mexico will shed one million formal sector jobs this year, a forecast in line with a prediction made by President López Obrador on Sunday.

More than 750,000 jobs have already been lost due to the pandemic, according to Mexican Social Security Institute data published earlier this month.

The BofA said that both internal and external factors will affect Mexico’s ability to recover from the coronavirus-induced economic downturn.

It said that the economy of the United States – the global epicenter of the pandemic – is likely to suffer a deeper recession and take longer to recover than previously anticipated, a situation that will inevitably affect Mexico, whose largest trading partner is its northern neighbor.

Internally, the federal government’s moves to consolidate control of the electricity market in the state-owned Federal Electricity Commission and limit the participation of private, renewable energy firms represents a risk to investment, the BofA said.

The bank also said that there has been insufficient fiscal and monetary policy stimulus to lay the groundwork for a quick recovery.

It said that fiscal stimulus during the “economic emergency” period has been less than 1% of GDP and suggested that the central bank’s benchmark interest rate is still too high even though it has cut rates by 50 basis points on three occasions since March.

The Bank of America also said that the recovery will be hampered because  the central bank’s loan program for small and medium-sized businesses affected by the pandemic – “the largest program to help the economy” – is not yet in force.

Source: Reuters (sp), El Universal (sp)