Mexico economy shrinks 8.2 percent in 1Q

Mexico’s economy shrank 8.2% in the first quarter, even before accounting for the impact of the swine flu, and appears headed for its biggest contraction since the 1995 crisis that followed the devaluation of the peso.

The decline was led by a 13.8% plunge in manufacturing activity, followed by a 7.7% drop in construction compared to the same quarter of 2008, the national statistics agency announced Wednesday.

Economists at Grupo Financiero Banamex, one of Mexico’s biggest banks, had predicted a 7.7% contraction overall.

Mexico’s manufacturing sector, which accounts for about a quarter of gross domestic product and four-fifths of exports, was hit especially hard because of its close links with the U.S., said Sergio Kurczyn, an economic analyst at Banamex.

Finance Minister Agustin Carstens declared Mexico in recession on May 7, predicting that its economy would shrink 4.1% this year.

The central bank forecasts a 4.8% contraction, while Banamex expects 5.2%.

The decline has already pushed seasonally adjusted economic activity back to 2005 levels, erasing three years of gains, Goldman Sachs senior economist Alberto Ramos said.

Mexico has been pummeled as the U.S. downturn decreases exports, foreign investment, tourism and money sent home by migrants, four main pillars of its $1-trillion economy.