Industrial activity in Mexico falls by 30% in April, its biggest drop in more than 25 years

13/06/2020

The blow of the coronavirus to the Mexican economy already has figures. In April, when non-essential activities were suspended, the industry sank by 29.6% compared to the same month last year, the largest drop since records began more than a quarter of a century ago, according to data published this Thursday by the National Institute of Statistics and Geography (Inegi).

Industrial activity in Mexico falls by 30% in April
Industrial activity in Mexico falls by 30% in April

If compared month by month, the fall was 25.1% compared to March. By sector, manufacturing was left at 35% and construction at 38%, in annual terms. These signs point to a deeper downturn than the recession of 2009 and even the debt crisis of 1995.

Of historic proportions. This is how Inegi's president, Julio Santaella, has described the size of the blow. The annual fall in April exceeds the previous minimum of October 1995, when industrial activity collapsed by 17.6%. It was 12 percentage points less than in the collapse of this April. As for the monthly comparison, one has to go back to March 1996, with a drop of 25.1%, to have a similar figure. This is the 19th consecutive fall for the sector, according to the analysis center Instituto para el Desarrollo Industrial, and the quarterly decline of 9.3% is the largest since 1980.

At the end of March, the government of Andrés Manuel López Obrador decreed the suspension of non-essential activities to stop the spread of the virus. Over the next two months, manufacturers of all kinds had to shut down, including the powerful automotive industry, the second-largest component of Mexican exports. Vehicle production was down 98.7% in April from the same month last year, another unprecedented figure. Only a handful of activities considered essential, such as the production of hydrocarbons or sanitary material, were excluded from that list.

The US confinement, which had its key month in April, has also contributed to the shock. Both countries are closely linked through cross-border value chains. As an example, 80% of auto parts production is destined for factories in the northern neighbor. They are communicating vessels; if for one, for the other. The earlier reopening of the US economy may have caused friction in those chains.

But the closure of the USA does not explain, for example, the collapse of the construction. In this sense, the coronavirus has been the final blow to an economy that has been stagnating for years. Industrial activity was on a downward trend since early 2018 and in 2019 GDP fell by 0.1%, the worst figure in a decade. A modest rebound was expected in 2020 until the pandemic broke out.

Now the Bank of Mexico forecasts an 8.8% drop for this year and the World Bank a 7.5% drop. According to the international organization, Mexico will be one of the hardest-hit countries in the region, almost on par with Brazil. The annual comparison of the first quarter shows that the country has already suffered a significant decline. There was structural damage before the pandemic and this situation is accelerating its fall.

Getting out of the rut will take time. Although the industry has restarted in June, Mexico remains at the peak of the contagion, and several states in the country have imposed restrictions on manufacturing capacity to prevent resurgence. There will be a gradual reactivation of essential sectors, but not 100%. It remains to be seen how many companies survive. This fall will most likely lead to bankruptcies.