Itaú BBA - MEXICO – GDP recovery confirmed in 3Q20

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MEXICO – GDP recovery confirmed in 3Q20

November 26, 2020

The recovery was driven mainly by the manufacturing output

GDP in 3Q20 was in line with the flash GDP estimate. Mexico’s monthly GDP proxy (IGAE) fell by 5.5% year-over-year in September (from -9.2% in August), better than our forecast of -6.5% and market expectations of -7.0% (as per Bloomberg) – which implied an annual GDP contraction of 8.6% in 3Q20 (from -18.7% in 2Q20). Using calendar adjusted figures (published by the Statistics Institute), GDP fell by at the same pace in 3Q20. Looking at the breakdown, also using calendar adjusted figures, industrial sector fell by 8.8% year-over-year in 3Q20 (from -25.5% in 2Q20), while services sector contracted 8.8% (from -16.3%). 

At the margin, industrial output recovered at a faster pace than services sectors. Using seasonally adjusted figures, Monthly GDP posted its fourth consecutive monthly expansion in September (1.0% month over month), but it remains 6.6% below pre-outbreak levels (February). On a quarterly basis, GDP increased 12.1% quarter over quarter in 3Q20 (from -17.0% in 2Q20). The industrial sector grew at a solid pace (21.7%, from -23.3%), supported mainly by the manufacturing sector (31.5%, from -26.0%) – partly reflecting the recovery of the U.S. economy - while construction output expanded 21.8% (from -31.1%). Meanwhile, services sector gained a more modest 8.8% (from -15.1%) amid the easing of social distancing measures.

The 3Q20 activity figure is consistent with our 2020 GDP forecast of -9.0%. We expect GDP to recover during the rest of the year and 2021 (we forecast 4.0%) driven by the recovery of the U.S. economy and the easing of social distancing measures.
However, growth will likely be curbed by a shy fiscal stimulus and prevailing uncertainties over economic policy direction. A more gradual than-expected reopening of the economy, due to the resurgence of the outbreak, is also a downside risk to activity.

Julio Ruiz


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