Itaú BBA - MEXICO – Industrial production fell further in 2Q19

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MEXICO – Industrial production fell further in 2Q19

agosto 9, 2019

Oil and construction output dragged industrial production

Industrial production (IP) contracted in 2Q19, dragged by mining and construction output. IP fell by 2.9% year-over-year in June (from -3.3% in May), below our forecast of -2.2% and market expectations as per Bloomberg (-2.6%), taking the 2Q19 rate to -3.0%. The quarterly rate was dragged by a negative calendar effect (Easter Holidays). In fact, according to figures adjusted by working days, IP fell by at a slower pace (1.9% year-over-year in 2Q19). Looking at the breakdown, also using calendar adjusted figures, mining contracted 7.6% in 2Q19 (from -7.9% in 1Q19), while construction output fell by 5.9% (from -1.8%). In turn, manufacturing sector grew 1.4% year-over-year in 2Q19 (from 0.5% in 1Q19).   

At the margin, industrial production momentum remained weak in 2Q19. Industrial production improved to 1.1% month-over-month in June (from -2.5% in May), but the quarter-over-quarter annualized growth rate (qoq/saar) stood at -1.8% in 2Q19 (from -0.6% in 1Q19). Within industrial production, mining output fell by 6.8% qoq/saar in 2Q19 (from -3.3% in 1Q19), associated to a contraction in oil output (-4.1%), while construction output fell by 18.1% (from 2.3%), partly associated to a restrictive fiscal stance (government-transition effect and austerity measures). In contrast, manufacturing output improved to 3.0% qoq/saar in 2Q19 (from 0.9% in 1Q19), although weakness in the U.S. economy means the improvement is unlikely to last. 

We expect GDP growth of 0.6% and 1.1%, for 2019 and 2020, respectively. 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 exert further downside pressure on economic activity (despite expansionary fiscal measures that have been recently announced).


Julio Ruiz



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