Itaú BBA - MEXICO – Weak GDP flash estimate in 2Q19

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MEXICO – Weak GDP flash estimate in 2Q19

julio 31, 2019

Although sequential GDP improved, economic activity remained soft in 2Q19

Mexico’s GDP flash estimate was below market expectations (on a year-over-year basis), partly dragged by a negative calendar effect. The flash estimate of GDP growth for 2Q19 came in at -0.7% year-over-year, below our forecast (-0.4%) and market expectations (-0.3%, as per Bloomberg). The 2Q19 figure was partly dragged by a negative calendar effect (Easter Holidays). In fact, according to calendar & seasonally-adjusted data reported by the statistics institute (INEGI) GDP in the 2Q19 grew at a faster (although still weak) pace (0.4% in 2Q19, from 0.2% in 1Q19). Looking at the breakdown, also using calendar & seasonally-adjusted data, industrial sector contracted 1.6% year-over-year in 2Q19 (from -2.0% in 1Q19), while services sector remained practically unchanged at 1.0%. In turn, primary sector grew 1.7% in the 2Q19 (from 5.9% in the 1Q19).

At the margin, GDP improved in 2Q19, but momentum remained soft. Using seasonally adjusted figures, the economy expanded 0.1% quarter-over-quarter in 2Q19 (from -0.2% in 1Q19). Looking at the breakdown, industrial output remained flat (from -0.6% in 1Q19), while services sector expanded 0.2% quarter-over-quarter in 2Q19 (from -0.2% in 1Q19).  Meanwhile, primary sector fell by 3.4% quarter-over-quarter in 2Q19 (from 2.6% in the 1Q19).

We revised our GDP growth forecast for 2019 to 0.6% (from 0.8%) given soft economic activity in 2Q19. 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 further downside pressure on economic activity. However, 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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