Itaú BBA - MEXICO – Private consumption weakened in 4Q17

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MEXICO – Private consumption weakened in 4Q17

March 7, 2018

Consumption slows to a moderate pace

Private consumption weakened in 4Q17, moderating over the course of 2017 as the negative effects of falling real wages (due to the spike of inflation) and less dynamic consumer credit were only partly offset by a solid labor market. The monthly proxy for private consumption grew 1% year-over-year in December, which implies an expansion of 2.2% year-over-year in 4Q17 and an annual growth rate of 3% in 2017 (from 4.2% in 2016). According to calendar-adjusted data reported by the statistics institute (INEGI), the monthly proxy for private consumption grew 2% year-over-year in December and 2.4% year-over-year in 4Q17 (from 3.2% in 3Q17). 

At the margin, momentum also lost strength in 4Q17. Even though the seasonally-adjusted index advanced 1.3% month-over-month in December, quarter-over-quarter annualized growth slowed down to 2.1% in 4Q17 (from 2.7% in 3Q17). Notably, this contrasts with retail sales data which showed a sequential rebound (2.1% qoq/saar in 4Q17, from -2.6 in 3Q17). In fact, the natural hazards that battered the economy in 3Q17 likely had a more detrimental effect on retail sales than on total private consumption, as the sequential payback was much larger in the former than in the latter. We note that the latter is a broader indicator, better correlated to consumption in GDP.

We do not expect much further slowdown of private consumption in 2018, so growth will likely remain moderate. On the positive side, the real wage bill is improving sequentially driven by lower inflation and stable employment growth. In fact, the growth of the real wage bill stood at 4.3% qoq/saar in January (from an average of 2.9% qoq/saar in 2017). We see inflation decreasing to 3.7% by the end of 2018 (from 6.8% in 2017). However, the uncertainties associated to NAFTA renegotiation and the presidential elections are affecting consumer confidence. Finally, tight monetary policy curbs consumer credit growth.

Alexander Müller

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