Itaú BBA - Mexican GDP rebounded in 4Q17, according to flash estimate

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Mexican GDP rebounded in 4Q17, according to flash estimate

January 31, 2018

We maintain our GDP growth forecasts of 2.1% for both 2017 and 2018

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GDP growth accelerated in 4Q17, recovering from the downturn observed in 3Q17 (largely explained by natural hazards which were particularly detrimental for oil output and services activities). The flash estimate of GDP growth for 4Q17 came in at 1.8% year-over-year, above our forecast and median market expectations (both 1.6%, as per Bloomberg). According to calendar & seasonally-adjusted data reported by the statistics institute (INEGI), GDP growth was slightly lower (1.7% year-over-year in 4Q17) but still accelerated with respect to the previous quarter (1.5% in 3Q17), with services sectors picking up (2.6%, from 2.4%) and industrial sectors moderating their contraction (-0.7%, from -0.8%). At the margin, the flash estimate indicates that GDP growth rebounded significantly (gaining 1% from the previous quarter) led by the service sectors.

We maintain our GDP growth forecasts of 2.1% for both 2017 and 2018. Factors playing against economic growth in the short-term are tight macro policies and the uncertainties associated to NAFTA renegotiation and the presidential elections (which put investment decisions on hold). On the positive side, we note that the fiscal drag will be smaller in 2018 relative to 2017. Moreover, a dynamic U.S. industry, coupled with a competitive real exchange rate, will likely sustain Mexico’s manufacturing exports. Finally, lower inflation and a robust labor market will stimulate consumption in 2018. ** Full Story here.


The unemployment rate came in below expectations in December, but can be explained by lower participation and rural employment growth, thereby, continuing to reflect labor market weakness. In December, the national unemployment rate ticked down to 8.6%, from 8.7% one year ago. The result is due to lower unemployment in rural areas, with a broadly stable rate in urban areas (9.8%). The urban unemployment rate came in well below our 10.7% expectation and the Bloomberg market consensus of 10.4%. Overall, the average unemployment rate for 2017 was 9.4%, up from 9.2% in 2016 as the labor market loosened amid the growth slowdown. In the same period, participation in the labor force fell to 67.1% from 67.5%, another sign of deteriorating labor dynamics.

The labor market weakness (fragility of the formal sector and falling participation) means our growth recovery scenario is not exempt of risks. We see an activity pick-up to 2.5% this year, from the 1.5% expected for 2017, aided by higher real wages (as inflation falls), low interest rates and a favorable external environment. ** Full Story here.


In 2017, Chile registered its fifth consecutive fiscal deficit. The fiscal deficit reached 2.8% of GDP, from 2.7% of GDP in 2016, slightly above the 2.7% forecasted by the government in September. Lower non-mining revenue explains the wider than expected deficit. Revenue increased 4.7% in real terms from 2017 (it grew 1.1% in 2016), boosted by a recovery in mining-operation revenue. Private mining operation revenue increased 6513% while income from public operations rose 47%. VAT revenue rose by 4.8% (2.1% in 2016). Revenue for this year is expected to surpass 7% as mining income continues to recover. Expenditures grew by 4.7% in real terms, up from 3.8% in 2016. This is up from the initial 2.7% approved in October 2016 (and the revised 4.6% estimated in September last year) mainly due to changes to the base of comparison and lower than initially-forecasted inflation for the year. Government outlays exceeded the budget by 0.5%, driven by current expenditure. The 6.5% expansion in current expenditure was led by health and education, while capital spending fell 3.1%. As a result, Chile’s 2017 structural deficit came in at 1.7%, from the 1.1% recorded in the previous year. The government estimated a decline to 1.5% this year when it presented the 2018 budget, in line with the commitment to narrow the structural deficit by a quarter point each year. We estimate nominal deficit of 1.9% for this year and 1.5% in 2019. Higher copper prices, larger tax revenue amid stronger growth, and heightened fiscal prudence following the sovereign rating downgrades will support the narrowing.

Household credit demand continued to strengthen in 4Q17, while household credit supply conditions are more restrictive, according to the Central Bank’s quarterly survey of credit conditions. On balance, entities saw signs of increasing demand for consumer loans in the fourth quarter (+21 percent from +29 percent in 3Q17; index centered at 0). Meanwhile, demand for mortgages also showed an expansion (8 percent; from 33 percent in 3Q17). Despite the moderation in mortgage demand growth, none of the respondents reported a weakening of demand, hinting at the recovery consolidation. Once more, there was no notable change in demand from large business, while SME’s demand remained restrained (-8 percent). Meanwhile, demand from real estate companies is no longer deteriorating (sitting at the neutral level 0, from -27 in 3Q17), the first such case since 1Q15. Nevertheless, construction demand on balance worsened (-15 percent). On the supply side, large business and SME credit supply was unchanged from 3Q17. Meanwhile, consumer credit is tighter as well as construction and real estate offerings. With inflation low and interest rates reduced, the improvement in private sentiment could be favoring the demand for loans, which in turn would aid the expected recovery of the Chilean economy.

Today, the national statistics agency (INE) will publish the national unemployment rate for the final quarter of 2017 and the industrial activity indicators for the month of December at 10:00 AM (SP Time). We see the unemployment rate reaching 6.4% in the final quarter of the year – matching market consensus – and the expected manufacturing production to expand 1.2% from one year before (consensus: 0.5%).


According to a poll conducted by Datafolha, former president Lula still leads in all voting simulations. In a scenario in which Lula runs for president, he would amass 34% of votes in the first round, followed by Jair Bolsonaro (16%) and Marina Silva (8%). Both Luciano Huck and Geraldo Alckmin would have 6% of votes. In an alternative scenario, Bolsonaro would lead with 18%, with Marina gathering 13% and Ciro Gomes 10%. Both Huck and Alckmin registered 8% of voting intention. In an eventual second round, Lula would defeat Bolsonaro (49% vs 32%), as would Marina Silva (42% vs 32%). In another run-off simulation, Lula would also win against Alckmin (49% vs 30%) and against Marina (47% vs 32%). In yet another scenario, Alckmin and Ciro Gomes would be technically tied (34% vs 32%). In this simulation, almost a third of voters say they would vote blank or null.

The poll also shows that the percentage of voters who would not vote for a candidate supported by Lula rose to 53% from 48% in November. The percentage of respondents who might vote on his candidate fell to 17% from 21%. Finally, those which would certainly choose his candidate fell to 27% from 29%. We will release our Datafolha poll tracker once the details of the poll are released. 

The nation-wide unemployment rate for December will be released today at 9:00 AM (SP Time). We and the market consensus expect it to decline 0.1 p.p. to 11.9 (remaining stable at 12.5% in seasonally adjusted terms). Also, Brazil’s Consolidated Primary Budget Balance (December) will be posted at 10:30 AM (SP Time), for which we expect a deficit of BRL 28.6 billion (market consensus: BRL -30.8 billion).


The INDEC will publish today the manufacturing and construction data for December at 5:00 (SP Time).


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