Itaú BBA - MEXICO – 2Q20 GDP collapsed, but recovery started in June

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MEXICO – 2Q20 GDP collapsed, but recovery started in June

August 26, 2020

Still monthly GDP is far below pre-outbreak levels

GDP in 2Q20 collapsed due to COVID-19. Mexico’s GDP in 2Q20 fell by 18.7% year-over-year in 2Q20 (revised slightly up from the flash estimate of -18.9%, announced by the Statistics Institute four weeks ago), in line with our forecast and broadly in line with consensus (-18.8%, as per Bloomberg). Using calendar adjusted figures (published by the Statistics Institute), GDP contracted at the same pace in 2Q20 (from -2.2% in 1Q20). Looking at the breakdown, also with calendar adjusted figures, the industrial sector fell by 25.7% year-over-year in 2Q20 (from -3.3% in 1Q20), mainly dragged by construction (-34.2%) and manufacturing (-29.6%) sectors.  In turn, services sector, the largest sector of the economy, deteriorated to -16.2% year-over-year in 2Q20 (from -1.4% in 1Q20). GDP excluding primary sector and mining output fell 20.0% year-over-year in 2Q20 (from -2.7% in the 1Q20), also adjusted by calendar effects.

At the margin, GDP also deteriorated sharply in 2Q20. Seasonally-adjusted GDP fell by 17.1% quarter-over-quarter in 2Q20 (from -1.2% in 1Q20). Looking at the breakdown, industrial sector fell by 23.4% (from -1.1% in 1Q20), with manufacturing and construction falling by 26.4% (from -1.8%) and 31.0% (from -0.4%), respectively. Likewise, services sector contracted 15.1% (from -0.9%). 

Monthly GDP started to recover in June but it is still far below pre-outbreak levels. Along with the quarterly data, INEGI also published June’s monthly GDP, which fell by 13.2% year-over-year (from -22.7% in May), better than our forecast of -13.5% and market consensus (-13.8%, as per Bloomberg). Seasonally adjusted figures show monthly GDP started to recover in June (8.9% month-over-month, from -2.4% in May), with industrial production (17.9%), supported by the manufacturing sector (26.7%), recovering at a faster pace than services (6.2%). Still the monthly GDP is 13.3% below February level (pre-outbreak), also using seasonally adjusted figures.

We expect GDP for 2020 to fall by 10.7%. We expect a recovery in the second half of the year, supported mainly by the manufacturing sector (available data for July – PMI manufacturing: 48.1 and vehicle production: +0.7% yoy – are encouraging) driven by a recovery of the U.S. economy. However, a modest fiscal stimulus and prevailing uncertainties over the domestic policy direction are likely to curb growth.  A more gradual than expected reopening of the economy is also a downside risk to the recovery.

Julio Ruiz

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