Itaú BBA - MEXICO – Weak industrial production in the 4Q18

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MEXICO – Weak industrial production in the 4Q18

February 11, 2019

Mining, construction and manufacturing sectors decelerated

Industrial production (IP) was below market expectations in December. IP decreased 2.5% year-over-year in December (from -1.2% in November), below our forecast (-1.2%) and median market expectations as per Bloomberg (-1.6%). Adjusted by calendar effects, IP growth rate was similar to the headline figure, taking the 4Q18 growth rate to -1.2% year-over-year (from 1.3% in the 3Q18) and the 2018 growth rate to 0.11% (from -0.13% in 2017). Looking at the breakdown, manufacturing sector decelerated to 1% year-over-year in the 4Q18 (from 2.6% in the 3Q18), in line with the recent weakness in manufacturing exports (reflecting some deceleration in the US manufacturing sector). In turn, mining activities contracted further (by 7.3%) in 4Q18 (from -3.1% in the 3Q18), associated to the fall in oil output, while construction contracted 2.1% in the 4Q18 (from 0.8% in the 3Q18). 

At the margin, all sectors weakened in the 4Q18. With seasonally adjusted figures, industrial production decreased 0.4% month-over-month in December (from -0.6% in November), taking the quarter-over-quarter annualized growth rate (qoq/saar) to -6.5% in the 4Q18 (from 1.4% in the 3Q18). Within industrial production, all sectors contracted: mining (-13.9% in the 4Q18, from -6.6% in the 3Q18), construction (-5.9%, from -1.4%) and manufacturing (-3.8%, from 5.4%) sector.

We expect economic activity to slow to 1.7% this year, with risks tilted to the downside, from a preliminary estimate of 2.0% in 2018. Uncertainty over the new administration’s policy direction and over the approval of the renegotiated NAFTA by the U.S. Congress will continue to weigh on investment. Deceleration in the U.S. economy will also curb growth. Moreover, fall in oil output is also a downside risk to economic activity.  

Julio Ruiz

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