Itaú BBA - MEXICO – The economy lost pace in May dragged by industrial sectors

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MEXICO – The economy lost pace in May dragged by industrial sectors

July 23, 2018

GDP proxy grew 1% qoq/saar in May from 1.9% in April

The economy lost pace in May dragged by industrial sectors. The monthly GDP proxy (IGAE) expanded 2.2% year-over-year in May, below our forecast (2.8%) and in line with median market expectations (as per Bloomberg). Adjusted by calendar effects, IGAE increased at a similar pace in May (2.2% year-over-year), with the three-month moving average growth rate standing at 2.0% (barely unchanged from April). Within the index, also using 3mma calendar-adjusted figures, primary sector (6.0% year-over-year, from 6.4% in April) and services (2.8% year-over-year, remained unchanged from April) grew at a similar pace than last month, while industrial sectors decelerated (0.1% year-over-year, from 0.2% in April), dragged mainly by mining and construction. Also, we highlight that excluding supply-driven sectors (primary and mining output) the 3mma moving average of calendar-adjusted GDP growth decelerated to 1.4% year-over-year in May (from 2.1% in April).  

At the margin, the economy also lost momentum. Seasonally-adjusted monthly GDP grew 0.5% month-over-month in May (from -0.6% in April), with a quarter-over-quarter annualized growth rate of 1.0% from (1.9% qoq/saar in April). The primary (6.2% qoq/saar in May, from -2.5% in April) and services (2.8% qoq/saar in May, from 3.0% in April) sectors were the most resilient. In contrast, industrial sectors weakened to -0.9% qoq/saar (from 1.3% in April) dragged by mining, electricity and construction. Importantly, GDP growth excluding primary sectors and mining output also weakened in May (to 1.0% qoq/saar, from 2.5% in April).

We expect GDP growth of 2.3% in 2018 (from 2% last year), as manufacturing exports remain dynamic (benefited by growth in the U.S.) and the labor market (coupled with lower inflation) supports consumption growth. Nevertheless, tight macro policies and uncertainty over trade relations with the U.S. and domestic policy direction will likely curb investment growth. A persistence of the downward trend of oil output is also a downside risk. 

Julio Ruiz


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