Itaú BBA - MEXICO – Economy remained weak in April

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MEXICO – Economy remained weak in April

junio 24, 2019

Services sectors deteriorated further, while manufacturing sector improved somewhat.

GDP remained weak in April.  Mexico’s monthly GDP proxy (IGAE) contracted 1.4% year-over-year in April (from +1.3% in March), slightly better than our forecast (-1.5%) and below market expectations (-0.4%, as per Bloomberg). The figure was dragged by a negative calendar effect (Easter Holidays). Still, according to calendar adjusted figures, published by Mexico’s statistics institute (INEGI), monthly GDP grew a weak 0.2% year-over-year in April (from -0.5% in March), taking the quarterly growth rate to 0.2% in April (from 0.5% in March). Looking at the breakdown, also using calendar adjusted figures, the industrial sector fell by 1.3% in the quarter ended in April (from -1.5% in March), with mining and construction output contracting 7.2% (from -7.9%) and 2.7% (from -1.8%), respectively, while manufacturing sector improved somewhat (1.1%, from 0.5%). In turn, services sector decelerated to 0.7% in the quarter (from 1.3%). GDP excluding primary sector and mining output decelerated to 0.2% in the quarter (from 0.5% in March), also adjusted by calendar effects.

At the margin, monthly GDP was dragged by services sector, while manufacturing output improved somewhat. GDP fell by 0.5% qoq/saar in April (from -0.2% in March). Looking at the breakdown, industrial sector improved to 0.4% qoq/saar (from -0.7% in March), supported by manufacturing output (2.4%, from 1.6%), while mining (-2.8%, from -3.6%) and construction (-3.4%, from 4.4%) contracted. In contrast, services sector contracted further (-1.3%, from -0.7%). Importantly, GDP excluding primary sectors and mining output contracted 0.3% qoq/saar (from -0.1% in March).  

We expect economic activity to slow to 1.0% in 2019, from 2.0% in 2018. Uncertainty over the direction of domestic policy, trade relations with the US and weaker U.S. economic growth will likely keep growth below potential. In the short term, lower public spending is also playing against activity. 

Julio Ruiz

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