Itaú BBA - MEXICO – Trade deficit narrows at the margin

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MEXICO – Trade deficit narrows at the margin

April 26, 2019

Manufacturing exports and non-oil imports improved at the margin, but grew at a soft pace

Trade deficit narrowed at the margin in the 1Q19. Monthly trade balance posted a USD 1.4 billion surplus in March, slightly below median market expectations (USD 1.6 billion surplus, as per Bloomberg) – taking the 12-month rolling deficit to USD 14.1 billion in March (from a deficit of USD 13.8 billion in February). Looking at the breakdown, also using 12-month rolling figures, energy deficit improved slightly (USD 23.2 billion in March, from USD 23.4 billion in February), while non-energy balance deteriorated somewhat, posting a surplus of USD 9.1 Billion (from USD 9.6 Billion). However, at the margin the trade deficit improved, to an annualized USD 5.6 billion in1Q19 (from USD 15.4 billion deficit in the 4Q18), with the energy deficit at USD 19.0 billion (from a deficit of USD 25.5 billion), while the non-energy surplus came in at USD 13.4 billion (from USD 10.1 billion).

At the margin, manufacturing exports improved in 1Q19, but still grew at a soft pace. Using seasonally adjusted figures, the quarter-over-quarter annualized growth rate of total exports improved to 4.6% (from -3.3% in the 4Q18). Looking at the breakdown, manufacturing exports improved to 2.8% in the 1Q19 (from -0.5% in the 4Q18), but still grew at a mild pace (compared to an annual growth of 8.9% in 2018). 

Imports also improved on a sequential basis in 1Q19, but grew at a below trend pace, reflecting some weakness in internal demand. Using seasonally adjusted figures, the quarter-over-quarter annualized growth rate of total imports was -3.9% in the 1Q19 (from -2.0% in the 4Q18). Looking at the breakdown, non-oil imports improved to 0.5% qoq/saar in the 1Q19 (from -1.1% in the 4Q18), with consumer (ex-oil) and capital goods improving to 3.6% (from -4.1%) and -2.1% (from -15.6%), respectively, while intermediate (ex-oil) goods decelerated to 0.5% (from 1.6%). We note that although non-oil imports improved in 1Q19, they also grew at a soft pace (compared to an annual growth of 8.2% in 2018).

We expect the trade deficit to remain broadly stable between 2018 and 2019. Oil production doesn’t seem to be stabilizing yet - so the improvement in energy balance is unlikely to last - and the deceleration of the U.S. economy will exert downward pressure on Mexico’s manufacturing export growth. However, uncertainty over domestic policies and over the USMCA approval in US Congress will likely curb internal demand.


Julio Ruiz



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