Itaú BBA - MEXICO – Domestic demand weakened in 4Q18

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MEXICO – Domestic demand weakened in 4Q18

March 21, 2019

Public and private demand decelerated on an annual basis

Domestic demand weakened in 4Q18, dragged by both public and private spending, while exports also decelerated (reflecting slowdown in the US economy). Mexico’s aggregate supply grew 2.7% year-over-year, above median market expectations (2.5% as per Bloomberg) and down from 3Q18 growth rate of 3.5%. According to calendar adjusted figures, reported by the Statistics Institute (INEGI), aggregate supply grew at a similar rate, with GDP and imports decelerating to 1.7% year-over-year (from 2.5% in the 3Q18) and 5.6% (from 6.3%), respectively. Domestic demand decelerated to 0.8% year-over-year in 4Q18 (from 1.8% in the 3Q18). Looking at the breakdown, private consumption and private gross fixed investment decelerated to 1.4% (from 2.2%) and -1.1% (from 0.1%), respectively. On the government’s side, consumption (0.2%, from 1.0%) and gross fixed investment (-8.6%, from 2.8%) also weakened. Finally, exports decelerated to 4.3% (from 8.6%), reflecting slowdown in the US economy.

At the margin, domestic demand also weakened. Using seasonally-adjusted figures, the quarter-over-quarter annualized growth rate (qoq/saar) was -2.1% in the 4Q18 (from 0.3% in 3Q18). Private sector demand was dragged both by consumption and investment, decreasing 1.1% qoq/saar in the 4Q18 (from 2.0% in the 3Q18) and by 3.8% (from -3.5%), respectively. In turn, government consumption (0.0% qoq/saar in the 4Q18, from -6.5% in the 3Q18) stood flat, while public gross fixed investment (-27.5% qoq/saar in the 4Q18, from -5.2% in the 3Q18) decelerated sharply. Finally, imports grew 7.3% qoq/saar in the 4Q18 (from 7.0% in the 3Q18), while exports kept contracting (-0.3% qoq/saar in the 4Q18, from -1.5% in the 3Q18).

We expect a GDP growth of 1.4% for 2019 (from 2.0% in 2018). Uncertainty over the direction of domestic policy and remaining uncertainties about the approval of the USMCA by the U.S. Congress are weighing on investment, while deceleration in the U.S. economy is limiting exports. In this context, the labor market is weakening, curbing consumption growth. Moreover, in the short term (January and February) we expect activity to be affected by one-off factors (gasoline shortages) and strikes in some manufacturing firms (still going on).

Julio Ruiz


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