Itaú BBA - MEXICO - Retail sales heading to slowdown

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MEXICO - Retail sales heading to slowdown

February 24, 2017

Higher inflation, depressed consumer confidence, and tighter macro policies are the main headwinds

Mexico’s retail sales grew at a robust pace in December relatively to one year before. Retail sales expanded 9% year-over-year in December – higher than our forecast (6.8%), but below market expectations (9.4%) – leaving the growth rate of 4Q16 at 9.8% year-over-year (up from 8.3% in 3Q16). Notably, Mexico’s consumer spending was underpinned by solid labor market conditions, dynamic consumer credit and strong remittances (especially when converted into pesos) in 4Q16. In fact, remittances in USD grew at the whopping pace of 25% year-over-year (51% year-over-year in MXN), the highest growth rate in a decade, amid a weaker currency and concerns that the incoming U.S. administration would restrict the flow of remittances into Mexico.

The momentum of retail sales remains strong, although seasonally-adjusted sales fell from November (by 1.4%). The quarter-over-quarter annualized growth edged up to 7.3% (from 7.1% qoq/saar in 3Q16) due to strong performances in October and November.

Looking ahead, we expect a slowdown of retail sales that will become more visible in 1Q17. Inflation jumped to 4.7% in January, eroding real wage growth. Likewise, consumer confidence fell to a historic low in the same month. Moreover, tighter macroeconomic policies will likely hurt the labor market as well as curb the strong growth of consumer credit. 


Alexander Müller 



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