Dave Graham (NYSE)

MEXICO CITY, (Reuters) – Mexico’s third quarter saw a 0.2 percent decline in its economy compared to the three months before, marking the first quarterly drop since the recovery from the pandemic. This was according to preliminary data released Friday by INEGI, the national statistical agency.

The coronavirus pandemic returned to the country in summer, and the service sector suffered from the effects of global disruptions in supply chains. This has impeded the nation’s recovery in manufacturing.

Seasonally adjusted contractions in GDP (gross domestic product) in July and September were lower than the 0.1% consensus estimate in a Reuters poll. This was in addition to surprisingly poor August data.

Capital Economics’ analyst Nikhil Sanghani stated that GDP was 2.3% lower than it was before the pandemic. He suggested however, that August data might be revised upwards and said that things were “moving in a positive direction” as October approached.

Sanghani, in a research note said that it was clearer than the smaller picture that recovery would still be difficult from here.

According to the note, “Global component shortages will cause auto production to remain low for the near future, while a slowdown of the U.S. in the long-term will restrict external demand, while domestic demand will remain weak due the absence policy support.”

Mexico’s central banks are facing a problem due to the slow economy. They have begun a series rate rises after inflation has risen well past its 3% target. Its board is divided over raising rates.

The GDP numbers were broken down and showed that the contraction was caused by weakening in the tertiary (which covers services) sector. This decreased by 0.6% over the second quarter.

The data revealed that secondary activities like manufacturing grew by 0.7% while primary activities like farming, fishing, and mining climbed by 0.7%.

Mexico is suffering a loss of growth due to the 8.5% economic contraction it suffered last year during the pandemic. This was its largest slump since the 1930s Great Depression.

In 2020’s second quarter, the main success was recorded. Mexico’s quarterly growth rate has been increasing steadily for four quarters, with a 1.5% increase in April-June.

Mexico’s finance minister said that it will continue its 6.3% growth forecast despite the country’s poor third quarter.

INEGI stated that Mexico’s economy grew 4.6% in unadjusted terms compared with the same quarter a decade earlier.

The final third quarter GDP figures of Latin America’s second largest economy will be released on November 25.