Itaú BBA - MEXICO – Retail sales recovered in June, but momentum is still weak

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MEXICO – Retail sales recovered in June, but momentum is still weak

August 21, 2020

Retail sales are still far below pre-covid levels in February

Retail sales was in line with market expectations in June, amid weak private consumption determinants. Retail sales fell by 16.6% year-over-year in June, somewhat better than our forecast of -17.8% and in line with market expectations (as per Bloomberg). According to figures adjusted by working days, reported by the statistics institute (INEGI), retail sales contracted at a similar pace (17.1%), taking the quarterly annual rate to -21.3% in 2Q20 (from 0.4% in 1Q20). While the weakness is mostly due to mobility restrictions, the main private consumption determinants were weak in 2Q20. The real wage bill slowed down to 1.5% year-over-year in 2Q20 (from 4.4% in 2Q20), with formal employment falling by 3.5% (from +1.3%). In turn, consumption credit from commercial banks in real terms contracted 4.2% year-over-year in 2Q20 (from 0.9% in 1Q20). In contrast, remittances in pesos grew at a solid pace in 2Q20 (26.5%, from 25.3% in 1Q20) due to the depreciation of the currency.

At the margin, retail sales recovered further in June, but it is still far below pre-covid levels. Using seasonally adjusted figures, retail sales expanded for the second consecutive month, by 7.8% month-over-month in June (from 0.8% in May), but it is still 16.5% below pre-covid levels in February. The quarter-over-quarter seasonally adjusted annualized rate (qoq/saar) remained weak, standing at -60.5% in 2Q20 (from -2.4% in 1Q20).

 We expect private consumption to recover during the rest of the year as distancing measures are lifted. However, the recovery will likely be curbed by a shy fiscal stimulus and prevailing uncertainties over economic policy direction. A more gradual than expected reopening of the economy is also a downside risk to the recovery.  

Julio Ruiz

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