Itaú BBA - MEXICO – Internal demand recovered further in July

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MEXICO – Internal demand recovered further in July

October 6, 2020

However, momentum remains weak

Gross fixed investment (GFI) was above market expectations in July. The monthly GFI fell by 21.2% year-over-year in July, above our forecast of -23.3% and market expectations (-22.4%, as per Bloomberg). Using figures adjusted by working days, GFI contracted at a similar pace (-21.1%), taking the quarterly annual rate to -28.5% in July (from -34.0% in 2Q20). Looking at the breakdown, also with calendar adjusted figures, construction investment fell by 27.9% year-over-year in July (-32.7% in 2Q20), with both residential and non-residential construction investment contracting by less than before, while machinery & equipment investment fell by 29.3% (-35.9%).

At the margin, GFI recovered further in July, but momentum remains weak. Using seasonally adjusted figures, GFI expanded 4.4% month-over-month in July (from 20.1% in June and still 17.9% below pre-outbreak levels in February), taking the quarter-over-quarter annualized rate (qoq/saar) to -46.4% in July (from -75.4% in 2Q20). Within GFI, construction investment fell by 51.3% qoq/saar in July (from -76.5% in 2Q20), while machinery & equipment stood at -39.1% (from -73.1%).

Meanwhile, private consumption also continued recovering, but remains far below pre-outbreak levels (February). The monthly proxy for private consumption fell by 15.1% year-over-year in July (from -18.2% in June). According to figures adjusted by working days, private consumption fell at a similar pace in July (-15.2%), taking the annual quarterly contraction rate to 19.4% in July (from -21.8% in 2Q20). At the margin, using seasonally adjusted figures, private consumption expanded 5.2% month-over-month in July (from 5.6% in June and still 14.3% below February levels), with the qoq/saar at -38.6% in July (from -59.9% in 2Q20).

Our GDP forecast for 2020 stands at -10.7%. The manufacturing sector, supported by an improvement in the U.S. economy, will likely be the main driver of the economic recovery during the rest of the year. Meanwhile, a modest fiscal stimulus and prevailing uncertainties over domestic policy direction are likely to curb the recovery in internal demand.

Julio Ruiz


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