Itaú BBA - MEXICO - GDP expanded at a firm pace in 4Q16

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MEXICO - GDP expanded at a firm pace in 4Q16

January 31, 2017

We expect GDP growth of 1.6% in 2017

Mexico’s economic activity was solid in 4Q16. The flash estimate of GDP growth for Q4 came in at 2.2% year-over-year, in line with market expectations. Adjusting for calendar effects, GDP growth was also 2.2% year-over-year – up from 2.0% in 3Q16. At the margin (seasonally-adjusted), GDP expanded 0.6% from the previous quarter, bringing quarter-over-quarter annualized growth to 2.6% in 4Q16 (below the 4% qoq/saar observed in 3Q16, when the economy rebounded from a trough in Q2).

Growth continues to be led by service sectors, while industrial production is weak. Calendar-adjusted figures show that the growth of services stood at 3.2% year-over-year in 4Q16 (slightly below the 3.3% recorded in 3Q16), while industrial production growth remained in negative terrain (-0.2% year-over-year, from -0.9% previously). Services are underpinned by solid consumption. Industrial production, in contrast, is dragged by falling oil output and poor infrastructure spending by the public sector. Nevertheless, manufacturing has been stronger, preventing a further deterioration of industrial activity.

This preliminary/flash result for 4Q16 implies annual GDP growth of 2.3% in 2016, down from 2.6% in 2015; that is, only a moderate slowdown. While the flash result (as well as the time series) could be revised, it is likely that annual growth in 2016 was a bit above our forecast and market expectations (both 2.1%, as per Bloomberg). However, the prospects for 2017 have deteriorated, considering that higher inflation (eating through real wages), tighter macro policies (higher domestic rates and fiscal consolidation), and uncertainty surrounding trade relations with the U.S. will weigh on aggregate demand. We expect growth of 1.6% in 2017.


Alexander Müller 



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