Itaú BBA - MEXICO – Strong trade balance in July

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MEXICO – Strong trade balance in July

August 27, 2020

Manufacturing exports recovered at a faster pace than non-oil imports

The trade balance improved further in July. The monthly trade balance posted a surplus of USD 5.8 billion in July, above our forecast of a deficit of USD 2.4 billion and median market expectations (USD 0.4 billion surplus, as per Bloomberg) – taking the 12-month rolling trade balance to a surplus of USD 11.9 billion in July (from a surplus of USD 4.8 billion in June). The improvement in the trade balance was driven mainly by the non-energy balance (also using 12-month rolling figures), which posted a surplus of USD 29.3 billion in July (from USD 23.2 billion in June), while the energy trade deficit stood at USD 17.4 billion (from a deficit of 18.4 billion). At the margin, using 3-month annualized seasonally adjusted figures, the trade balance stood at a surplus of USD 28.7 billion (from a deficit of USD 15.3 billion in June), with the energy trade balance posting a deficit of USD 7.5 billion (from a deficit of USD 9.5 billion), while the non-energy trade balance stood at a surplus of USD 36.2 billion (from a deficit of USD 5.9 billion).

Manufacturing exports expanded at a solid pace in July. Using seasonally adjusted figures, manufacturing exports grew 11.9% month-over-month in July. Still the quarter-over-quarter annualized growth rate (qoq/saar) stood at -47.3% in July. Auto sales continued to recover at a fast pace in July (39.0% month-over-month) as distancing measures for that sector were lifted since June. Still manufacturing exports are 9% below February levels (pre-outbreak).

Non-oil imports expanded at a soft pace in July, reflecting a slow recovery of internal demand. Total imports grew 3.2% month-over-month in July, with oil imports expanding at a strong 26.3% (associated to gasoline imports due to an upturn in demand as distancing measures were lifted), while non-oil imports expanded at a softer pace (1.6%). The qoq/saar of non-oil imports remained weak in July (-58.9%), with consumption, intermediate and capital goods at -65.1%, -60.2% and -38.2%, respectively.

We expect external accounts to improve in 2020 relative to 2019. We expect manufacturing exports to continue recovering at a faster pace than non-oil imports due to a better performance of domestic demand in the U.S. relative to Mexico (domestic demand recovery will be curbed by a modest fiscal stimulus and prevailing uncertainties over economic policy direction) and the weaker peso.

Julio Ruiz

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