Itaú BBA - MEXICO – Internal demand remained weak in May

Macro Latam

< Back

MEXICO – Internal demand remained weak in May

August 6, 2020

May’s figures show a slower deterioration compared to last month

Gross fixed investment (GFI) was broadly in line with market expectations. The monthly GFI fell by 39.7% year-over-year in May, below our forecast of -38.2% and broadly in line with market expectations (-39.5%, as per Bloomberg). Using figures adjusted by working days, GFI contracted at a similar pace (-38.5%), taking the quarterly annual rate to -28.9% in May (from -19.4% in April). Looking at the breakdown, also with calendar adjusted figures, construction investment fell by 25.6% year-over-year in the quarter ended in May (-16.9% in April), with both residential and non-residential construction investment contracting sharply, while machinery & equipment investment fell by 33.2% (-22.6%).

At the margin, GFI deteriorated further in May, but at a slower pace compared to April. Using seasonally adjusted figures, GFI contracted 4.5% month-over-month in May (from -28.9% in April), taking the quarter-over-quarter annualized rate (qoq/saar) to -66.9% in May (from -44.6% in April). Within GFI, construction investment fell by 64.9% qoq/saar in May (from -40.0% in April), while machinery & equipment deteriorated to -70.1% (from -51.1%).

On another note, private consumption weakened further in May (also by less than last month). The monthly proxy for private consumption fell by 24.8% year-over-year, from -22.3% in April. According to figures adjusted by working days, private consumption fell at a similar pace in May (-23.5%), taking the annual quarterly contraction rate to 16.3% in May (from -8.7% in April). At the margin, using seasonally adjusted figures, private consumption contracted 1.7% month-over-month in May (from -19.6% in April), with the qoq/saar at -49.7% in May (from -29.9% in April).

The figures for May are consistent with the sharp contraction seen in the flash GDP for 2Q20. We expect a recovery in the second half of the year as social distancing measures are lifted (available data for July – PMI´s and vehicle production – are more encouraging), but a modest fiscal stimulus and prevailing uncertainties about the direction of domestic policy will likely curb growth.

Julio Ruiz

< Back