Itaú BBA - MEXICO – Monthly GDP decelerated in February

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MEXICO – Monthly GDP decelerated in February

April 26, 2019

Industrial and services sectors slowed down

Monthly GDP decelerated in the quarter ended in February, with industrial and services sectors slowing down. Mexico’s monthly GDP proxy (IGAE) expanded 1.1% year-over-year in February (from 1.25% in January), slightly above our forecast (0.9%) and market expectations (0.98% as per Bloomberg) – taking the three month moving average (3mma) growth rate to 0.8% (from 1.1% in January). Using calendar adjusted figures, published by the statistics institute (INEGI), the 3mma growth rate was similar. Looking at the breakdown, the industrial sector was the main drag to economic activity, falling by 1.5% year-over-year in the quarter ended in February (practically unchanged from January), with the mining sector decreasing (-8.4%, from -8.8%) due to the fall in oil output and the manufacturing sector decelerating slightly (0.9%, from 1.1%). In turn, primary sector accelerated to 5.6% year-over-year in the quarter ended in February (from 4.7% in January), while services sector grew at a softer pace (1.6%, from 2.1%). GDP excluding primary sector and mining output decelerated to 0.7% year-over-year in the quarter ended in February (from 1.0% in January), also adjusted by calendar effects.

At the margin, GDP momentum remained weak, dragged by industrial and services sectors. Using seasonally-adjusted figures, monthly GDP grew 0.4% month-over-month in February (from 0.2% in January), taking the quarter-over-quarter annualized growth (qoq/saar) rate to -0.1% (from 0.1% in January). Looking at the breakdown, also with qoq/saar figures, primary sector expanded 13.4% (from 18.4%), while services sector contracted (-0.2%, from 0.7%). In turn, industrial sector remained weak (-3.7% qoq/saar; from -5.5%), with mining decreasing 8.6% (from -14.4% in January), while manufacturing sector kept contracting (-3.1%, from -3.0%). Likewise, GDP excluding primary and mining sectors fell by 0.6% qoq/saar (from -0.5% in January).

We expect economic activity to slow to 1.4% in 2019, from 2.0% in 2018. While we note that one-off factors could be behind part of economic weakness in early 2019, uncertainty over the direction of domestic policy and the approval of the USMCA by the U.S. Congress will continue to weigh on investment. Deceleration in the U.S. economy will also curb growth. In this context, employment is already weakening. On the other hand, recent real wage increases are a buffer for activity, sustaining the real wage bill and smoothing the consumption slowdown. 

Julio Ruiz

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