Itaú BBA - MEXICO – Investment weakened, while consumption strengthened

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MEXICO – Investment weakened, while consumption strengthened

August 6, 2018

Investment deceleration is associated with the fading effect of reconstruction works

Mexico’s gross fixed investment weakened in May. The monthly gross fixed investment indicator decelerated to 0.9% year-over-year (from 10.6% in April) – above our forecast of (-2.6%) and below median market expectations (1.6%, as per Bloomberg). According to calendar-adjusted data reported by the statistics institute (INEGI), GFI grew at a similar rate of 0.8% year-over-year in May (from 4.91% in April), taking the 3 month moving average annual rate to 2.5% (from 3.9% in April). Within the calendar adjusted index, construction investment (-1.19% year-over-year, from 2.7% in April) and purchases of machinery & equipment (3.0% year-over-year, from 6.2% in April) also weakened.

At the margin, figures also showed a deceleration, indicating the reconstruction effect seems to be fading away. With seasonally adjusted figures, GFI grew 0.9% month-over-month in May (from -1.2% in April). Even so, the quarter-over-quarter annualized growth rate fell to -1.7% (from 6.7% qoq/saar in April). Construction investment decreased 11.9% qoq/saar (from -3.0% in April), with residential construction (-13.2% qoq/saar, from 1.9 in April) decelerating more sharply than nonresidential construction (-8.0 qoq/saar, from -7.8% in April). Likewise, investment in machinery & equipment decelerated to a still solid 11.3% qoq/saar in May (from 23.4% in April).

The weakening of gross fixed investment is consistent with the fading effect of reconstruction efforts, fiscal consolidation plan and uncertainties around the political scenario and trade relations with the U.S. 

On another note, in contrast with investment, private Consumption strengthened in May. The monthly proxy for private consumption grew 2.6% year-over-year (from 4.5% in April). According to calendar-adjusted data reported by the National Statistics Institute (INEGI), growth was 2.5% year-over-year in May (from 1.5% in April), increasing the three month moving average growth rate to 2.9% year-over-year in May (from 2.6% in April).

At the margin, consumption also accelerated. The seasonally-adjusted private consumption indicator increased 0.9% month-over-month in May (from -0.8% in April), with a quarter-over-quarter annualized growth of 2.3% (from 1.6% in April). 

We expect economic activity to accelerate in 2018 to 2.3%, as manufacturing exports remain dynamic (supported by growth in the U.S.), benefiting the labor market (which coupled with lower inflation) supports consumption growth. However, until there is more clarity over trade relations with the U.S. and domestic policy direction, investment growth will likely be curbed.

Julio Ruiz


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