Itaú BBA - MEXICO – Domestic demand collapsed in 2Q20

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MEXICO – Domestic demand collapsed in 2Q20

September 21, 2020

Weak domestic demand in 2Q20 reflect the negative shock from COVID-19

Domestic demand deteriorated in 2Q20 reflecting the negative shock from COVID-19. Aggregate supply and demand fell by 21.6% year-over-year, better than our forecast of -23.0% and below median market expectations of -19.0% (as per Bloomberg) and down from 1Q20 growth rate of -1.8%. Aggregate supply and demand fell by at the same pace using calendar adjusted figures, with both imports of goods and services (-29.7%, from -5.0%) and GDP (-18.7%, from -2.2%) deteriorating. On the demand side, domestic demand fell by 20.4% year-over-year in 2Q20 (from -2.5% in 1Q20), while exports of goods and services fell by 30.9% (from 1.8%). Within domestic demand, final private demand weakened (-24.0%, from -3.0%), dragged by private consumption (-20.6%, from -1.2%) and private gross fixed investment (-37.3%, from -9.6%). In turn, final public demand decelerated to 0.3% (from 1.6%), supported by government consumption (2.4%), while public gross fixed investment fell by 10.5%.

At the margin, domestic demand also weakened sharply. Using seasonally-adjusted figures, final domestic demand fell by 18.7% quarter-over-quarter in 2Q20 (from -1.4% in 1Q20). Within domestic demand, final private demand deteriorated to -22.0% (from -1.6%), with both private consumption and gross fixed investment weakening, to -19.4% (from -1.4%) and -33.2% (from -2.3%), respectively. In turn, public sector demand fell by 1.6% (from 2.2%), dragged by government consumption (-1.0%, from 3.1%) and gross fixed public investment (-4.4%, form -1.9%).

We expect GDP for 2020 to fall by 10.7%. We expect a recovery over the rest of the year, supported mainly by the export sector (driven by a recovery in the U.S. economy). However, a modest fiscal stimulus and prevailing uncertainties over the domestic policy direction are likely to curb growth of internal demand.

Julio Ruiz

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