Itaú BBA - MEXICO – Sharp industrial production recovery in 3Q20

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MEXICO – Sharp industrial production recovery in 3Q20

November 11, 2020

Industrial production recovery is driven by the manufacturing output

Industrial production (IP) was in line with our forecast and market expectations (as per Bloomberg) in September, falling by 6.2% year-over-year. The figure is consistent with the breakdown of 3Q20 GDP flash estimate published by Mexico’s statistics institute two weeks ago. According to figures adjusted by working days, IP contracted at a faster pace (-7.3% year-over-year), taking the quarterly annual rate to -8.8% in 3Q20 (from -25.5% in 2Q20). Construction and manufacturing output fell by 17.8% year-over-year in 3Q20 (from -34.0% in 2Q20) and -7.2% (from -29.5%), respectively, while mining stood at -3.3% (from -4.4%).


At the margin, manufacturing output continues to be the main driver of industrial production. Using seasonally adjusted figures, IP monthly growth rate stood flat in September, with manufacturing output reaccelerating to 2.4% (from 0.8% in August), while construction output fell by 5.6%. Given the extremely weak base of comparison, the quarter-over-quarter annualized growth rate (qoq/saar) of IP stood at 119.3% in 3Q20, supported mainly by manufacturing output (199.5%), while construction output and mining stood at 103.1% and 10.1%, respectively.

We expect the economy to recover during the rest of the year, still helped by manufacturing output (supported by the U.S. recovery).  On the other hand, prevailing uncertainties over domestic micro policies and a modest fiscal stimulus will likely curb internal demand growth. A more gradual than-expected reopening of the economy, due to the resurgence of the outbreak, is also a downside risk to activity (recently two states returned to a maximum alert, restricting non-essential activities).

Julio Ruiz

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