Itaú BBA - MEXICO – Further recovery of internal demand in October

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MEXICO – Further recovery of internal demand in October

January 12, 2021

Internal demand indicators remain far below pre-outbreak levels

Gross fixed investment (GFI) was below market expectations in October. The monthly GFI fell by 14.7% year-over-year in October, close to our forecast of -15.0% and below market expectations of -13.7% (as per Bloomberg). Using figures adjusted by working days, GFI contracted at a slower pace (-13.6%), taking the quarterly annual rate to -15.8% in October (from -18.2% in 3Q20). Looking at the breakdown, also with calendar adjusted figures, construction investment fell by 15.1% year-over-year in the quarter ended in October (-18.7% in 3Q20), with both residential and non-residential construction investment contracting by less than before, while machinery & equipment investment fell by 16.3% (form -17.2%).

At the margin, GFI improved in October, but remains far below pre-outbreak levels (February). Using seasonally adjusted figures, GFI expanded 2.8% month-over-month in October (from -2.6% in September but still 12.4% below pre-outbreak levels), supported mainly by construction investment (4.7%). Given the low base of comparison, the quarter-over-quarter annualized rate (qoq/saar) stood at 67.6% in October, with construction investment at 66.5% while machinery and investment stood at 80.0%.

Meanwhile, private consumption recovery continued in October, but at a slower pace than previous months. The monthly proxy for private consumption fell by 10.3% year-over-year in October (from -9.8% in September). According to figures adjusted by working days, private consumption fell at a slower pace in October (-9.7%), taking the annual quarterly contraction rate to 11.4% in October (from -13.2% in 3Q20). At the margin, using seasonally adjusted figures, private consumption expanded 1.1% month-over-month in October (from 2.2% in September and still 9.0% below February levels), with the qoq/saar at 44.5% in October, reflecting a low base of comparison. 

We expect the economic recovery to be driven mainly by external demand, while the internal demand recovers at a slower pace. The re-tightening of social distancing measures (mainly in Mexico City and the state of Mexico) in December and January are expected to have a negative impact in internal demand, while the prevailing uncertainties over domestic policy direction will likely curb the recovery later in the year. 

Julio Ruiz

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