Itaú BBA - MEXICO – Activity recovery continued in August, but at a slower pace

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MEXICO – Activity recovery continued in August, but at a slower pace

October 26, 2020

Industrial output is recovering at a faster pace than services sector

Monthly GDP was below market expectations in August.The monthly GDP proxy (IGAE) fell by 9.4% year-over-year in August (from -9.9% in July), worse than our forecast of -8.9% and market expectations of -8.3% (as per Bloomberg). According to calendar adjusted figures, monthly GDP contracted at a slower pace (-8.5%), taking the annual quarterly rate to -11.0% in August (from -15.4% in July). Looking at the breakdown, also using calendar adjusted figures, the annual quarterly rate of the industrial sector improved to a contraction of 12.3% (from -19.6% in July), with construction (-21.0%, from -28.7%) and manufacturing (-11.6%, from -21.0%) output also contracting by less than last month. Meanwhile the quarterly annual rate of services improved to a contraction of -11.0% (from -14.3%).

At the margin, monthly GDP was supported by industrial output, while services sector expanded at a soft pace. Using seasonally adjusted figures, monthly GDP continued recovering, but at a slower pace (1.1% month-over-month in August, from 5.7% in July), taking the quarter-over-quarter annualized rate (qoq/saar) to 17.8% in August (-28.4% in July). The expansion in monthly GDP in August was driven by the industrial sector (3.3% month-over-month), supported mainly by construction output (11.2%), reflecting the easing of social distancing measures. Meanwhile, services sector expanded at a soft 0.4% (from 4.7%). We note some services sub-indexes registered a negative growth in August after expanding at fast pace in the previous month: retail sales (-1.4% month-over-month, 17.0%); professional and corporate services (-2.9%, from 11.3%); cultural & entertainment services (-0.3%, from 11.2%).  

We expect the economy to recover during the rest of the year, helped by manufacturing output (supported by the U.S. recovery and a weaker peso).  On the other hand, prevailing uncertainties over domestic micro policies and a modest fiscal stimulus will likely curb internal demand growth. A more gradual than-expected reopening of the economy, due to the resurgence of the outbreak, is also a downside risk to the recovery (recently a state returned to a maximum alert, restricting non-essential activities).

Julio Ruiz

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