Itaú BBA - MEXICO – Industrial production remained weak in 1Q19

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MEXICO – Industrial production remained weak in 1Q19

mayo 10, 2019

Manufacturing output decelerated on an annual basis

On an annual basis, industrial production (IP) remained weak in 1Q19. IP fell by 0.1% year-over-year in March (from -1.0% in February), above our forecast of -0.6% and market expectations as per Bloomberg (-0.3%). Adjusted by calendar effects, IP decreased 2.7% year-over-year (from -1.0%) as March 2017 had less business days due to Easter holidays, taking the 1Q19 growth rate to -1.6% year-over-year (from -1.2% in 4Q18). Looking at the breakdown, also using calendar adjusted figures, mining sector kept contracting (-7.9%, from -7.3%), mainly due to a fall in oil output (-10.2%, from -8.2%). In turn, manufacturing sector decelerated to 0.4% in 1Q19 (from 1% in the 4Q18), while construction sector fell by 2.0% (from -2.1%).  

At the margin, industrial production improved somewhat, but momentum remained weak in 1Q19. With seasonally adjusted figures, industrial production fell by 1.3% month-over-month in March (from 0.4% in February), taking the quarter-over-quarter annualized growth rate (qoq/saar) to -1.0% in the 1Q19 (from -6.7% in 4Q18). Within industrial production, mining output (-3.3%, from -14.0%) kept contracting, while manufacturing (0.6% qoq/saar, from -3.9%) improved. We note that manufacturing sector wasn’t affected significantly by the strikes in the northern state of Tamaulipas and railway blockade in the state of Michoacan during the 1Q19. In turn, construction sector improved to 4.3% qoq/saar in 1Q19 (from -6.0% in 4Q18), supported mainly by construction works, while engineering construction contracted. 

We expect economic activity to slow to 1.4% in 2019, from 2.0% in 2018. Uncertainty over the direction of domestic policy and the approval of the USMCA by the U.S. Congress will continue to weigh on investment. In this context, employment is already weakening. On the other hand, recent real wage increases are a buffer for activity, sustaining the real wage bill and smoothing the consumption slowdown.

Julio Ruiz

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