Itaú BBA - MEXICO – Sharp improvement of external accounts in 3Q20

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MEXICO – Sharp improvement of external accounts in 3Q20

November 25, 2020

The improvement in the current account balance was supported by the trade balance of goods.

The large turnaround in the current account balance (CAB) in 3Q20 was supported by the trade balance of goods. The current account balance stood at a surplus of USD 17.5 billion in 3Q20, the largest surplus ever registered, taking the 4-quarter rolling balance to a surplus of USD 16.1 billion or 1.4% of GDP (from a deficit of 0.2% of GDP in 2Q20).  The 3Q20 CAB (also using 4-quarter-rolling figures) was the result of a large improvement in the trade balance of goods (a surplus of 2.0% of GDP in 3Q20, from a surplus of 0.4% of GDP in 2Q20), while the trade balance of services stood practically unchanged at a deficit of 0.9% of GDP in 3Q20 and the primary and secondary (mainly remittances from abroad) income balances stood at a deficit of 3.1% of GDP and a surplus of 3.5% of GDP, respectively. At the margin, our seasonally adjusted measure of the current account balance in 3Q20 improved sharply to a surplus of 6.6% of GDP (from a deficit of 1.4% of GDP in 2Q20).



The financial account deteriorated in 3Q20 amid lower foreign direct investment and net portfolio outflows. Using 4-quarter rolling figures, net direct investment stood at 1.7% of GDP in 3Q20 (from 1.8% of GDP in 2Q20). In turn, net portfolio outflows increased to 0.8% of GDP in 3Q20 (from 0.4% of GDP in 2Q20), which resulted from Mexicans investing 1.3% of GDP abroad (from 0.7% of GDP), while foreigners invested 0.4% of GDP (from 0.3% of GDP). In this context, foreigners divested from domestic government bonds 1.1% of GDP in 3Q20 (practically unchanged from last quarter), also on a 4-quarter rolling basis.



In all, the current account balance is improving sharply this year.  External sales are recovering at a much faster pace than imports due to a better performance of domestic demand in the U.S. relative to Mexico (domestic demand in Mexico will likely be curved by a modest fiscal stimulus and prevailing uncertainty over economic policy direction) and the weaker peso. 
  

Julio Ruiz



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