Itaú BBA - MEXICO – Industrial production momentum still weak

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MEXICO – Industrial production momentum still weak

April 11, 2019

Manufacturing sector fell on a quarter-over-quarter basis

Industrial production (IP) was in line with expectations. IP fell 0.8% year-over-year in February (from -1.0% in January), in line with our forecasts and market expectations as per Bloomberg. Adjusted by calendar effects, IP growth rate was similar to the headline figure, taking the 3 month moving average (3MMA) growth rate to -1.5% year-over-year in February (practically unchanged from last month). Looking at the breakdown, also using calendar adjusted figures, mining sector kept contracting (-8.4% 3MMA year-over-year, from -8.9%), mainly due to a fall in oil output. In turn, manufacturing sector decelerated to 0.9% 3MMA year-over-year (from 1.1%), while construction sector remained soft (-1.3%, from -1.9%).  


At the margin, momentum remained weak in the quarter ended in February. With seasonally adjusted figures, industrial production decelerated to 0.3% month-over-month in February (from 0.7% in January), taking the quarter-over-quarter annualized growth rate (qoq/saar) to -3.7% (from -5.5% in January). Within industrial production, mining output (-8.6%, from -14.4%) and manufacturing (-3.1%, from -3.0%) fell significantly. We note that manufacturing sector doesn't seem to be significantly affected by the strikes in the northern state of Tamaulipas and railway blockade in the state of Michoacan, as it expanded by 0.2% month-over-month in January and February. In turn, construction sector improved to 5.0% (from 0.8%), supported mainly by construction works, while engineering construction contracted. >

We expect economic activity to slow to 1.4% in 2019, from 2.0% in 2018. Uncertainty over the direction of domestic policy and the approval of the USMCA by the U.S. Congress will continue to weigh on investment. Deceleration in the U.S. economy will also curb growth. In this context, employment is already weakening. On the other hand, recent real wage increases are a buffer for activity, sustaining the real wage bill and consumption.

Julio Ruiz

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