Itaú BBA - MEXICO – Weak GDP flash estimate in the 1Q19

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MEXICO – Weak GDP flash estimate in the 1Q19

abril 30, 2019

On an annual basis, Industrial sector contracted, while services sectors moderated its pace

Mexico’s GDP flash estimate was broadly in line with market expectations in the 1Q19, dragged by the industrial sector, while services sector also moderated. The flash estimate of GDP growth for the 1Q19 came in at 1.3% year-over-year, above our forecast (1.1%) and slightly below market expectations (1.4%, as per Bloomberg). According to calendar & seasonally-adjusted data reported by the statistics institute (INEGI) GDP in the 1Q19 grew at a slower pace (0.2% in the 1Q19, from 1.7% in 4Q18). Looking at the breakdown, also using calendar & seasonally-adjusted data, industrial sector deteriorated to -2.1% year-over-year in the 1Q19 (from -0.9% in the 4Q18), while services sector slowed to 1.0% (from 2.7%). In turn, primary sector accelerated to 5.6% in the 1Q19 (from 3.0% in the 4Q18).

GDP also weakened at the margin. The economy decreased 0.2% quarter-over-quarter in 1Q19 (from 0.3% in the 4Q18). Looking at the breakdown, industrial and services sectors contracted 0.6% quarter-over-quarter in the 1Q19 (from -1.2% in the 4Q18) and 0.2% (from 0.7%), respectively. Meanwhile, primary sector accelerated somewhat to 2.6% quarter-over-quarter in the 1Q19 (from 2.2% in the 4Q18).

We expect economic activity to slow to 1.4% in 2019, from 2.0% in 2018. While we note that one-off factors could be behind part of economic weakness in early 2019, 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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