Itaú BBA - MEXICO – A temporary trade deficit widening in May

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MEXICO – A temporary trade deficit widening in May

June 27, 2017

A larger energy deficit explains the deterioration of the trade balance

Mexico’s trade deficit widened a bit in May, as the non-energy surplus was not enough to offset a larger energy deficit. The trade balance posted a USD 1,079 million deficit in May, surprising median market expectations of a USD 273 million surplus (as per Bloomberg) to the downside. Thus, the 12-month rolling trade deficit widened to USD 9.6 billion (from USD 8.9 billion in April), with the energy deficit growing to USD 15.2 billion (from USD 14.6 billion in April) and the non-energy surplus standing unchanged at USD 5.7 billion. Notably, the trade deficit has been narrowing consistently since 2Q16 (after peaking at USD 18.6 billion in April 2016, the historical low), so we do not see May’s results as an indication that that this trend is changing. In fact, the 12-month rolling deficit will probably be smaller by the end of 2Q17 than it was in 1Q17 (USD 11.9 billion).  

At the margin, the trade deficit also widened. The 3-month, seasonally-adjusted, annualized deficit increased to USD 8.5 billion in May (from USD 7.1 billion in April). Looking at the breakdown, the same measure of the energy balance posted a USD 17.7 billion deficit (setting a new historical low, from USD 17.3 billion in April). Conversely, on the non-energy side, the 3-month trade balance posted a large USD 9.2 billion surplus (a bit below the print recorded in April, but still significantly above the USD 5.8 billion recorded at the end  1Q17). Manufacturing exports slowed down (to 2.5% qoq/saar, from 6.5% in April), after very strong growth in 4Q16 and 1Q17. Non-oil imports have also slowed down (to 0.7% qoq/saar, from 3.3% in April), in spite of the stronger Mexican peso. However, within non-oil imports, imports of consumer goods remained expanding at a strong pace (25.3% qoq/saar, 33.3% previously), while imports of capital goods picked up (to 7.6% qoq/saar, 3.9% previously).  

Looking ahead, we expect the trade deficit to resume a narrowing trend on the back of a larger non-energy surplus, which will be driven by higher export growth (due to a dynamic U.S. economy) and weaker domestic demand. However, the recent appreciation of the MXN (13% year-to-date) and falling oil output will exert downward pressure on the trade balance. Lower oil prices can also exert downward pressure, in spite of the fact that Mexico now runs an energy deficit. In fact, energy exports (mostly crude) are more elastic to international oil prices than energy imports (mostly refined products).  



Alexander Müller


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