Itaú BBA - MEXICO – Monthly GDP recovered further in July 

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MEXICO – Monthly GDP recovered further in July 

September 25, 2020

The recovery was driven mainly by the manufacturing sector

Monthly GDP was above market expectations in July. The monthly GDP proxy (IGAE) fell by 9.8% year-over-year in July (from -13.3% in June), better than our forecast of -11.3% and market expectations of -10.1% (as per Bloomberg). According to calendar adjusted figures, monthly GDP contracted at a similar pace (9.8%), taking the annual quarterly rate to -15.4% in July (from -18.7% in June). Looking at the breakdown, also using calendar adjusted figures, the annual quarterly rate of the industrial sector improved to a contraction of 19.6% (from -25.7% in June), with construction (-28.7%, from -34.2%) and manufacturing (-21.0%, from -29.6%) output also contracting by less than last month. Likewise, the quarterly annual rate of services recovered to a contraction of -14.3% (from -16.3%). 

At the margin, monthly GDP recovery was driven by the manufacturing sector. Using seasonally adjusted figures, monthly GDP registered its second positive monthly expansion (5.7% in July, from 8.8% in June and from -2.4% in May), taking the quarter-over-quarter annualized (qoq/saar) rate to -28.6% in July (-53.2% in June). The recovery in July was driven mainly by the industrial sector (6.9% month-over-month), supported by the manufacturing sector (11.0%). Meanwhile, services sector expanded 4.6% month-over-month in July (from 6.0% in June), taking the qoq/saar to -29.5% in July (from -48.3% in June). We note monthly GDP is still 8.5% below pre-outbreak levels (February).

We expect GDP of -10.7% for 2020. We expect a recovery over the rest of the year, supported mainly by the manufacturing sector and driven by a recovery in the U.S. economy and a weaker MXN. However, a modest fiscal stimulus and prevailing uncertainties over the domestic policy direction are likely to curb growth in internal demand. A more gradual than-expected reopening of the economy is also a downside risk to the recovery, given high covid contagion.

Julio Ruiz


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