Itaú BBA - MEXICO – Industrial production deteriorated further in May

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MEXICO – Industrial production deteriorated further in May

julio 12, 2019

At the margin, oil and construction output dragged industrial production

Industrial production (IP) surprised sharply to the downside. IP fell by 3.3% year-over-year in May (from -2.9% in April), below our forecast of -0.6% and market expectations as per Bloomberg (-1.3%). According to figures adjusted by the number of working days, IP fell by a similar rate (3.4%), taking the quarterly annual growth rate to -2.1% in May (from -1.3% in April). Looking at the breakdown, also using quarterly annual growth rates adjusted by working days, mining (-8.0% in May, from -7.2% April) and construction (-5.7%, from -2.8%) deteriorated further. In turn, manufacturing output decelerated slightly to 1.0% (from 1.1%).

At the margin, industrial production also slowed, dragged by oil and construction output. Industrial production contracted 2.1% month-over-month in May (from 1.4% in April), taking the quarter-over-quarter annualized growth rate (qoq/saar) to -2.2% in May (from 0.1% in April). Within industrial production, mining output fell by 7.7% qoq/saar in May (from -3.1% in April), associated to a contraction in oil output (-2.2%), while construction output fell by 18.2% (from -6.7%), probably associated to a restrictive fiscal stance (government-transition effect and austerity measures). In contrast, manufacturing output improved to 3.3% qoq/saar in May (from 1.9% in April), although weakness in the U.S. industry means the improvement is unlikely to last. 

We expect economic activity to slow to 0.8% in 2019, from 2.0% in 2018. Weak economic activity in the U.S. is expected to drag down Mexico’s manufacturing sector. Uncertainties over the direction of domestic policy and trade relations with the U.S. are also expected to continue to weigh on investment. The government-transition effect and austerity measures pose another downside risk to economic activity. The labor market is already weakening in this environment, hurting the outlook for private consumption.  

Julio Ruiz

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