Itaú BBA - MEXICO – Internal demand continued recovering in August

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MEXICO – Internal demand continued recovering in August

November 6, 2020

Still, internal demand indicators remain far below pre-outbreak levels

Gross fixed investment (GFI) was below market expectations in August. The monthly GFI fell by 17.4% year-over-year in August, below our forecast of -13.9% and market expectations (-16.0%, as per Bloomberg). Using figures adjusted by working days, GFI contracted at a slower pace (-16.4%), taking the quarterly annual rate to -20.9% in August (from -34.0% in 2Q20). Looking at the breakdown, also with calendar adjusted figures, construction investment fell by 21.6% year-over-year in the quarter ended in August (-32.7% in 2Q20), with both residential and non-residential construction investment contracting by less than before, while machinery & equipment investment fell by 20.3% (form -35.9%).

At the margin, GFI recovered further in August, but remains far below pre-outbreak levels (February). Using seasonally adjusted figures, GFI expanded 5.7% month-over-month in August (from 3.5% in July and still 12.6% below pre-outbreak levels), taking the quarter-over-quarter annualized rate (qoq/saar) to 35.2% in August (from -74.3% in 2Q20). Within GFI, construction investment expanded 17.0% qoq/saar in August (from -75.2% in 2Q20), while machinery & equipment stood at 65.1% (from -73.1%).

Meanwhile, private consumption also recovered further, but at a slower pace than previous months. The monthly proxy for private consumption fell by 14.2% year-over-year in August (from -15.1% in July). According to figures adjusted by working days, private consumption fell at a slower pace in August (-13.0%), taking the annual quarterly contraction rate to 15.9% in August (from -21.8% in 2Q20). At the margin, using seasonally adjusted figures, private consumption expanded 1.8% month-over-month in August (from 5.4% in July and still 12.4% below February levels), with the qoq/saar at 2.6% in August (from -59.8% in 2Q20).

We expect the economy to recover during the rest of the year, helped by manufacturing output (supported by the U.S. recovery).  On the other hand, prevailing uncertainties over domestic micro policies and a modest fiscal stimulus will likely curb internal demand growth. A more gradual than-expected reopening of the economy, due to the resurgence of the outbreak, is also a downside risk to activity (recently two states returned to a maximum alert, restricting non-essential activities).

Julio Ruiz

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