Itaú BBA - MEXICO – Weak economic activity in May

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MEXICO – Weak economic activity in May

julio 26, 2019

Monthly GDP was dragged by construction and mining

Monthly GDP remained weak in May. Mexico’s monthly GDP proxy (IGAE) contracted 0.4% year-over-year in May (from -1.4% in April), above our forecast (-0.9%) and market expectations (-0.8%, as per Bloomberg). According to calendar adjusted figures, published by Mexico’s statistics institute (INEGI), monthly GDP grew at a similar rate, taking the quarterly growth rate to -0.2% in May (from 0.2% in April). Looking at the breakdown, also using calendar adjusted figures, the industrial sector fell by 2.1% in the quarter (from -1.3% in April), with mining and construction output contracting 7.9% (from -7.1%) and 5.7% (from -2.8%), respectively, while manufacturing sector grew 1.0% (from 1.1%). In turn, services sector remained soft at 0.6% in the quarter (from 0.7%). GDP excluding primary sector and mining output fell by 0.1% in the quarter (from 0.2% in April), also adjusted by calendar effects.

At the margin, monthly GDP was dragged by construction and mining, while manufacturing and services sectors improved. GDP fell by 1.3% qoq/saar in May (from -0.7% in April). Looking at the breakdown, industrial sector deteriorated to -2.2% qoq/saar (from 0.1% in April), dragged by mining (-7.7%, from -3.1%) and construction (-18.2%, from -6.7%), while manufacturing output (3.3%, from 1.9%) improved. In turn, services sector also improved (0.0%, from -0.7%), but remained soft. GDP excluding primary sectors and mining output contracted 0.8% qoq/saar (from -0.4% in April).  

We expect GDP forecast of 0.8% for 2019 (from 1.0%), but with a downside bias given recent weak economic activity figures. 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 downside risk to economic activity, with employment weakening. On the other hand, recent inflation-adjusted wage increases are a buffer for activity, sustaining the real wage bill and smoothing the consumption slowdown.


Julio Ruiz



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