Itaú BBA - MEXICO – Trade balance improved in 2Q19 supported by weak import growth

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MEXICO – Trade balance improved in 2Q19 supported by weak import growth

julio 26, 2019

At the margin, non-oil imports deteriorated, reflecting weakness in internal demand.

Trade balance narrowed in 2Q19. Monthly trade balance posted a USD 2.6 billion surplus in June, above our forecast of USD 0.3 billion surplus and median market expectations (USD 0.4 billion surplus, as per Bloomberg) – taking the 12-month rolling deficit to USD 6.0 billion (from a deficit of USD 9.5 billion in May). Looking at the breakdown, also using 12-month rolling figures, energy deficit remained broadly unchanged at USD 23.6 billion (compared to May), while non-energy balance improved, posting a surplus of USD 17.6 Billion (from USD 14.5 Billion). At the margin, using 3-month annualized seasonally adjusted figures, trade balance improved to a surplus of USD 11.2 Billion in 2Q19 (from USD 4.0 billion deficit in 1Q19), with the energy deficit deteriorating to USD 24.9 billion (from a deficit of USD 19.7 billion), while the non-energy surplus improved to USD 36.1 billion (from USD 15.7 billion).

At the margin, manufacturing exports improved. Using seasonally adjusted figures, the quarter-over-quarter annualized growth rate of total exports improved to 9.8% in 2Q19 (from 4.8% in 1Q19), supported mainly by manufacturing exports (12.0%, from 3.3%), while oil exports deteriorated (-17.7%, from 16.11%). The improvement in manufacturing exports (despite the deceleration in the US economy) could be associated to a low base effect in 1Q19, after the strikes in the state of Tamaulipas and Michoacán disrupted manufacturing production in 1Q19.

In contrast, non-oil imports deteriorated at the margin, reflecting weakness in internal demand.  Using seasonally adjusted figures, the quarter-over-quarter annualized growth rate of total imports was -3.7% in 2Q19 (from -5.0% in 1Q19). Looking at the breakdown, non-oil imports contracted 7.7% qoq/saar in 2Q19 (from -0.8% in 1Q19), with consumer ex-oil (-2.7%, from 4.2%), intermediate ex-oil (-6.1%, from -0.6%) and capital goods (-23.1%, from -6.6%) weakening. 

We expect the trade deficit to remain broadly stable between 2018 and 2019. Oil production doesn’t seem to be stabilizing yet and the deceleration of the U.S. economy will exert downward pressure on Mexico’s manufacturing export growth. However, uncertainty over domestic policies and trade relations with the US will likely curb internal demand.


Julio Ruiz



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