Itaú BBA - MEXICO – Industrial Production’s recovery started in June

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MEXICO – Industrial Production’s recovery started in June

August 11, 2020

The recovery was driven mainly by the manufacturing sector

Industrial production (IP) was above market expectations in June. IP fell by 16.7% year-over-year in June, better than our forecast of -18.0% and market expectations of -17.9% (as per Bloomberg). According to figures adjusted by working days, IP contracted at a faster rate (17.5% year-over-year), taking the 2Q20 annual rate to -25.7% (from -3.1% in 1Q20). Looking at the breakdown, construction and manufacturing fell by 34.2% year-over-year in 2Q20 (from -8.0% in 1Q20) and -29.6% (from -3.2%), respectively, while mining stood at -4.8% (from 3.6%).

At the margin, IP started to recover in June, but is still far below the level of February (before COVID-19). Using seasonally adjusted figures, IP expanded 17.9% month-over-month in June, driven mainly by an expansion in the manufacturing sector 26.7%. Even so, the quarter-over-quarter annualized growth rate (qoq/saar) of IP remained poor in 1Q20 (-66.4%), with manufacturing, construction, and mining at -72.0%, -78.0% and -27.5%, respectively.

We expect GDP for 2020 to fall by 10.7%. We expect a recovery in the second half of the year, supported mainly by the manufacturing sector (available data for July – PMI manufacturing: 48.1 and vehicle production: +0.7% yoy – are encouraging) driven by a recovery of the U.S. economy. However, a modest fiscal stimulus and prevailing uncertainties over the domestic policy direction are likely to curb growth. A more gradual than expected reopening of the economy is also a downside risk to the recovery.

Julio Ruiz


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