Mexico’s factory output continues plummet, data suggests bottom is near

(C) Reuters. Worker holds stainless steel wire produced at TIM stainless steel wire factory in Huamantla

MEXICO CITY (Reuters) – Mexico’s manufacturing sector deteriorated sharply in May, following a record contraction in April, as restrictions put in place to prevent the spread of the coronavirus shuttered factories, depressed demand and dampened sentiment, a survey showed on Monday.

The IHS Markit Mexico Manufacturing Purchasing Managers’ Index stood at 38.3 in May after 35.0 in April. The April figure was by far the lowest in the survey’s nine-year history.

A figure above 50 signals expansion in the sector, while a reading below that threshold points to contraction.

While the May data underscored a broad-based rise in index readings, the figures nonetheless pointed to further reductions from April’s already low base, said Eliot Kerr, economist at IHS Markit and author of the report.

The survey showed that in May output fell sharply, demand conditions softened, new orders tumbled in part due to a decline in exports and firms continued to lay off workers.

“That said, the rates of decline in key metrics such as output and new orders eased during May, suggesting that contractions are beginning to bottom out,” said Kerr.

From June 1, Mexico’s government has planned to start reopening the country from anti-coronavirus measures, but deaths and new infections continue to rise, dampening expectations for major changes.

In spite of hold-ups in reopening schools and non-essential businesses, Mexico has started to allow automakers, mining firms and builders to exit the lockdown.

“With the recent announcement that restrictive measures are to be gradually removed, the trend towards recovery should accelerate over the coming weeks,” said Kerr.

Mexico’s economy, the second largest in Latin America, slipped into a recession last year and some private analysts forecast it will contract by as much as 10% or more in 2020.

The PMI index is composed of five sub-indexes tracking changes in new orders, output, employment, suppliers’ delivery times and stocks of raw materials.