Itaú BBA - MEXICO – Weak gross fixed investment in March

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MEXICO – Weak gross fixed investment in March

junio 6, 2019

A recovery of GFI is unlikely to be lasting due to a high uncertainty environment

Gross fixed investment (GFI) came in below market expectations in March. The monthly GFI decreased by 2.4% year-over-year in March, above our forecast of -3.1%, but below market expectations (-1.7%, as per Bloomberg). According to calendar adjusted figures, GFI fell more sharply, by -6.2% year-over-year (from -2.0% in February), taking the contraction in 1Q19 to 2.3% year-over-year (from -2.5% in 4Q18). Looking at the breakdown, also with calendar adjusted figures, construction investment decreased by 0.9% in 1Q19 (from -2.6% in 4Q18), mainly dragged by non-residential investment. In turn, Machinery & Equipment (M&E) investment fell by 4.3% in 1Q19 (from –2.8% in 4Q18).

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At the margin gross fixed investment fell sharply from February, although growth for the full quarter was solid (after a very weak 4Q18). With seasonally adjusted figures, the quarter-over-quarter annualized rate (qoq/saar) improved to 7.0% in 1Q19 (from -11.0% in 4Q18). Within GFI, construction improved substantially to 4.9% qoq/saar in 1Q19 (from -5.8% in 4Q18), mainly supported by residential construction. Meanwhile, Machinery & Equipment spending improved to 12.9% in 1Q19 (from -20.5%).

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The recovery of GFI is unlikely to be lasting. Uncertainty over the direction of domestic policy and over trade relations with the US (approval of the USMCA by the U.S. Congress and a potential increase in tariffs) will continue to weigh on investment in the short-term. Moreover, weak public investment (associated to a transition effect between administrations) will probably weigh in construction investment in the short-term.

 

Julio Ruiz



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