Itaú BBA - MEXICO – Adjusted by calendar effects, GDP improved in 3Q18

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MEXICO – Adjusted by calendar effects, GDP improved in 3Q18

November 23, 2018

At the margin, acceleration in GDP was broad-based

Adjusted by calendar effects, GDP accelerated in 3Q18 on an annual basis. Mexico’s monthly GDP proxy (IGAE) expanded 2.1% year-over-year in September (from 1.7% in August), below our forecast and median market expectations (2.8%, as per Bloomberg) – which implied a GDP growth of 2.5% year-over-year in the 3Q18 (revised down from the 2.6% flash estimate, announced by the Statistics Institute three weeks ago and from 2.6% in the 2Q18). However, using calendar adjusted figures, GDP grew at the same rate as the original growth rate (which is an improvement from 1.5% in the 2Q18). Looking at the breakdown, also using calendar adjusted figures, all sectors improved. Primary sector accelerated (2.2% year-over-year in the 3Q18, from 1.5% in the 2Q18), while services sector grew 3.2% in the 3Q18 (from 2.3% in the 2Q18).  Likewise, Industrial sector accelerated to 1.1% year-over-year (from 0.1% in the 2Q18), supported by an improvement in mining (-2.9%, from -6.0% in the 2Q18) and manufacturing (2.3%, from 1.5% in the 2Q18) sectors, while construction sector (0.7%, from 0.9% in the 2Q18) decelerated slightly. GDP excluding primary sectors and mining output accelerated to 2.8% year over year (from 1.9%), also adjusted by calendar effects.   

At the margin, acceleration in GDP was also broad-based.  Seasonally-adjusted GDP grew 3.4% (annualized) in 3Q18 (from -0.4% in the 2Q18). Looking at the breakdown, also with qoq/saar figures, all sectors accelerated: primary sectors (1.5% in the 3Q18, from -3.9% in the 2Q18); industrial Sectors (1.9% in the 3Q18, from -1.0% in the 2Q18), and services (3.1% in the 3Q18, from 1.3% 2Q18). Importantly, GDP excluding primary sectors and mining output accelerated to 4.0% qoq/saar in 3Q18 (from -0.3% in the 2Q18).  

We expect economic activity to grow 2.0% in 2018, as manufacturing exports recover (benefited by growth in the U.S.) and the labor market (coupled with lower inflation) supports consumption growth. While growth in Mexico remains around potential, uncertainty over domestic policy direction from the incoming administration and remaining uncertainties over the approval of NAFTA in the US congress could weight on the investment outlook, posing downside risks for growth next  year (we currently expect 2.0% for 2019). Oil production trend is also an important risk for the economic outlook. 
 

Julio Ruiz



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