Itaú BBA - MEXICO – No activity recovery as of May

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MEXICO – No activity recovery as of May

July 24, 2020

Monthly GDP in May surprised to the downside

Monthly GDP was below market expectations in May. The monthly GDP proxy (IGAE) fell by 22.7% year-over-year (from -19.8% in April), weaker than our forecast of -20.2% and market expectations of -22.3% (as per Bloomberg). According to calendar adjusted figures, monthly GDP contracted at a similar pace (21.6%), taking the annual quarterly rate to -14.7% in May (from -8.0% in April). Looking at the breakdown, also using calendar adjusted figures, the annual quarterly rate of the industrial sector deteriorated to a contraction of 21.4% (from -12.6%), with construction and manufacturing output falling by 27.1% and 25.8%, respectively. Likewise, the quarterly annual rate of services sector deteriorated to -12.4% in May (from -6.2% in April).

At the margin, monthly GDP deteriorated further but at a slower pace than April. Using seasonally adjusted figures, monthly GDP  fell by 2.6% month-over-month (from -17.3% in April), taking the quarter-over-quarter annualized (qoq/saar) rate to -44.5% in May (from -25.6% in April). Looking at the breakdown, industrial sector fell by 59.3% qoq/saar in May (from -36.2% in April), dragged by manufacturing (-67.3% qoq/saar) and construction (-66.3% qoq/saar). Likewise, services sector deteriorated to -39.4% qoq/saar in May.

The May figure put a downside bias to our 9.0% GDP contraction forecast for 2020. While we expect a recovery during the second half of the year as social distancing measures are lifted, a modest fiscal stimulus and prevailing uncertainties over the direction of domestic policy will curb the growth pace. 

Julio Ruiz

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