Itaú BBA - Evening Edition – Weaker-than-expected GDP estimate in Mexico

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Evening Edition – Weaker-than-expected GDP estimate in Mexico

January 30, 2019

We expect economic activity to decelerate to 1.7% this year, from a preliminary estimate of 2.0% in 2018


Mexico’s GDP flash estimate came in below market expectations in 4Q18, dragged by the industrial sector. The flash estimate of GDP growth for the 4Q18 came in at 1.8% yoy, below our forecast (1.9%) and market expectations (2.0%), taking the annual growth to 2.0%. Looking at the breakdown, using calendar & seasonally-adjusted data, industrial sector was the main drag to economic activity, receding -0.6% yoy (from 1.1% in the 3Q18).

At the margin, GDP also decelerated. Using seasonally adjusted figures, the economy decelerated to 0.3% qoq in the 4Q18 (from 0.8% in the 3Q18). Looking at the breakdown, industrial sector contracted 1.1% qoq (from 0.5% in the 3Q18), while primary sector accelerated to 1.9% (from 0.4%) and services sector remained virtually unchanged (0.8%).

We expect economic activity to decelerate to 1.7% this year, from a preliminary estimate of 2.0% in 2018. Uncertainty over the new administration’s policy direction and remaining uncertainties over the approval of NAFTA by the U.S. Congress will continue to impact the investment. Deceleration in the U.S. economy will also curb growth.
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According to FGV, confidence within the services sector rose 3.7% in January to 98.2, the fourth consecutive increase, reaching the highest level since March 2014. The increase was driven mainly by expectations (5.6%), while current conditions rose 1.2%.

Tomorrow’s agenda: December’s PNAD national unemployment rate will be released at 9:00 AM (SP Time). We forecast a 0.2 p.p. decrease to 11.4% (stable on seasonally adjusted terms). Also, the consolidated public sector result for the month of December will be released at 10:30 AM (SP Time), for which we expect a BRL 37.7 billion deficit. 


Tomorrow’s agenda: The national institute of statistics (INE) releases industrial activity indicators for December at 10:00 AM (SP Time). We expect manufacturing production to increase 1.5% yoy (-4.7% previously), aided by a particularly low base of comparison. At the same time, INE will release the national unemployment rate for 4Q18. We expect the unemployment rate to come in at 6.7%, above the 6.4% recorded one year before and result in an average unemployment rate of 7% in 2018 (6.7% in 2017).


Tomorrow’s agenda: The institute of statistics will release the unemployment rate for December at 1:00 PM (SP Time). We expect the urban unemployment rate in December to come in at 10.6% (from 9.8% one year before), leading to 10.2% unemployment in 4Q18 (9.6% one year before). Also, the central bank will hold its first monetary policy meeting of 2019. We expect no change of status-quo, with stable rates (4.25%) remaining likely for still some time. The dilution of the financing law reduces the inflation risks for this year, inflation expectations are anchored, the activity recovery fragile and the external environment risky meaning the board is unlikely to reduce the mild stimulus just yet.

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