Itaú BBA - MEXICO - GDP growth was resilient in 1Q17

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MEXICO - GDP growth was resilient in 1Q17

April 28, 2017

Services activity remained robust

The flash estimate of GDP growth was stronger than expected in 1Q17. Growth for 1Q17 came in at 2.7% year-over-year, above market expectations (2.5%, as per Bloomberg). Adjusting for calendar effects, growth was a bit lower (2.5% year-over-year), about the same as in 4Q16. A negative leap-year effect in February was offset by a positive calendar effect in March (due to Easter holidays taking place in April). At the margin, GDP expanded 0.6% from the previous quarter, with quarter-over-quarter annualized growth slowing down to 2.4% (from 2.9% in 4Q16).

The breakdown by sectors shows that industrial growth is anemic (in spite of stronger manufacturing) and that services activity remains robust. Industrial growth was nil at the margin. Stronger manufacturing, as shown in February’s industrial data and March’s trade balance figures, is falling short to offset the sharp contraction of oil & gas output and weaker construction. Services, in contrast, advanced 4.1%qoq/saarfrom the previous quarter. The volatile primary sectors (mostly agriculture) rebounded in 1Q17 (2.8% qoq/saar, -1.4% previously) contributing positively to GDP growth.  

Our take from the flash estimate is that Mexico’s activity is showing resilience to the shocks. The bearish sentiment triggered by the result of the U.S. presidential elections and the spike of inflation in January (caused by gasoline price liberalization and the MXN sell-off) haven’t had a material impact in GDP figures yet. We recently revised up our GDP growth forecast for 2017 (to 1.8%, from 1.6%) but still expect a slowdown from last year’s annual growth (2.3%). In our view, domestic demand will likely slow down. Tighter macro policies (both fiscal and monetary), higher inflation (eroding consumer spending), and the uncertainty over trade protectionism in the U.S. (affecting investment decisions in Mexico) will have a negative effect. Conversely, stronger manufacturing exports – boosted by firmer U.S. activity a competitive real exchange rate – will act as a buffer.  


Alexander Müller 

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