Itaú BBA - MEXICO – Trade balance improved in May, amid weak import growth

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MEXICO – Trade balance improved in May, amid weak import growth

junio 27, 2019

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

Trade balance narrowed and surprised to the upside in May. Monthly trade balance posted a USD 1.0 billion surplus in May, above our forecast of USD 0.5 billion deficit and median market expectations (USD 1.0 billion deficit, as per Bloomberg) – taking the 12-month rolling deficit to USD 9.5 billion in May (from a deficit of USD 12.1 billion in April). Looking at the breakdown, also using 12-month rolling figures, energy deficit deteriorated slightly (USD 23.9 billion in May, from USD 23.6 billion in April), while non-energy balance improved, posting a surplus of USD 14.5 Billion (from USD 11.6 Billion). At the margin, using 3-month annualized seasonally adjusted figures, trade balance improved to a surplus of USD 3.3 Billion in May (from USD 1.3 billion deficit in April), with the energy deficit deteriorating to USD 23.3 billion (from a deficit of USD 20.6 billion), while the non-energy surplus improved to USD 26.5 billion (from USD 19.2 billion).

At the margin, manufacturing exports improved, but momentum remained soft. Using seasonally adjusted figures, the quarter-over-quarter annualized growth rate of total exports improved to 4.8% in May (from 2.3% in April), supported by manufacturing exports, which improved to 3.7% (from -0.4%). 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 -0.02% in May (from -6.20% in April). Looking at the breakdown, non-oil imports contracted 4.9% qoq/saar in May (from -5.9% in April), with consumer ex-oil (-6.7%, from -0.3%), intermediate ex-oil (-4.9%, from -6.3%) and capital goods (-3.1%, from -7.5%) 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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