Itaú BBA - MEXICO – Industrial production remained weak in January

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MEXICO – Industrial production remained weak in January

March 13, 2019

Risks to economic activity are tilted to the downside

Industrial production (IP) fell on an annual basis in January. IP fell 0.9% year-over-year in January (from -2.5% in December), above our forecasts and market expectations as per Bloomberg (-2.0%). Adjusted by calendar effects, IP growth rate was similar to the headline figure, taking 3 month moving average (3MMA) growth to -1.5% year-over-year in the quarter ended in January (from -1.2% in December). Looking at the breakdown, also using calendar adjusted figures, mining sector was the main drag, decreasing -9.0% 3MMA year-over-year in the quarter ended in January (from -7.3% in December). In contrast, construction and manufacturing sectors fell by less than in 4Q18: -1.8% (from -2.1%) and 1.1% (from 1.0%), respectively.  

At the margin, momentum remain weak. With seasonally adjusted figures, industrial production grew 0.6% month-over-month in January (from -0.5% in December). Even so, the quarter-over-quarter annualized growth rate (qoq/saar) was -5.5% (from -6.1% in December).  Within industrial production, mining kept deteriorating (-14.8%, from -14.0%) due to the fall in oil output, while construction (-7.2%, from -7.6%) and manufacturing (-3.1%, from -4.0%) fell by less than in 4Q18. However, manufacturing sector doesn't seem to be significantly affected (at least yet) by the strikes in the northern state of Tamaulipas and railway blockade in the state of Michoacan, as it expanded by 0.2% between December and January.

We expect economic activity to weaken in 2019 (relative to 2018: 2.0%). Uncertainty over domestic policy direction and remaining uncertainties over the approval of NAFTA by the U.S. Congress will continue to weight on investment. Deceleration in the U.S. economy will also curb growth in the manufacturing sector. In turn, we expect private consumption growth rate moderate its pace in 2019 as the labor market is already deteriorating. Moreover, one-off factors (gasoline shortages and the above-mentioned strikes in some manufacturing firms) can be a drag on 1Q19 GDP.

Julio Ruiz

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