Itaú BBA - MEXICO – Internal demand weakened in the 4Q18

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MEXICO – Internal demand weakened in the 4Q18

March 8, 2019

Uncertainty weights on GFI

Gross fixed investment (GFI) fell in 4Q18. The monthly GFI indicator decreased 6.8% year-over-year, below our forecast of -5.4% and market expectations (-4.9%, as per Bloomberg). According to calendar adjusted figures, GFI decreased at a similar rate (-6.5% year-over-year, from -2.8% in November), taking the 4Q18 growth rate to -2.5% year-over-year (from 0.6% in 3Q18). Looking at the breakdown, also with calendar adjusted figures, construction investment decreased 2.6% in the 4Q18 (from -0.1% in the 3Q18), with residential construction improving (0.1%, from -0.2%), while non-residential construction decelerated sharply (-5.0%, from 0.2%). Likewise, Machinery & Equipment (M&E) investment decreased 2.9% in the 4Q18 (from 1.7% in the 3Q18).

At the margin, GFI fell sharply.  With seasonally adjusted figures, GFI decreased 0.7% month-over-month in December (from -3.5% in November), taking the quarter-over-quarter seasonally adjusted annualized rate (qoq/saar) to -12.5% in the 4Q18 (from -3.7% in 3Q18).

On another note, private consumption also decelerated in the last quarter of 2018.  The monthly proxy for private consumption decelerated to 0.4% year-over-year in December (from 2.2% in November). The results could have been influenced by gasoline shortages (started the last week of December in some states of Mexico), which in turn is reflected in private consumption indicator directly due to lower gasoline sales and indirectly as access to stores become more difficult. Moreover, the result is consistent with the weak monthly GDP proxy from December (0.04% year-over-year, from 1.8% in November), in particular the services index, which posted a growth rate of 1.0% year-over-year in December (from 3.1% in November). Using calendar-adjusted data reported by the Nation Statistics Institute (INEGI), private consumption decelerated to 0.7% year-over-year in the December (from 2.1% in November), taking the 4Q18 growth rate to 1.4% (from 2.6% in the 3Q18).

At the margin, private consumption fell. Using seasonally-adjusted figures, private consumption decreased 0.1% month-over-month in December (from 1% in November), taking the quarter-over-quarter annualized growth rate to -1.8% in the 4Q18 (from 1% in the 3Q18).

We expect economic activity to slow down in 2019 relative to 2018 (growth of 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 turn, we expect private consumption growth rate moderate its pace in 2019 (relative to 2018) as employment is already moderating. Moreover, in the short term (January and February) we expect activity to be affected by one-off factors (gasoline shortages) and strikes in some manufacturing firms. 

Julio Ruiz

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