MEXICO – Internal demand indicators deteriorated in June

Internal demand indicators are still below pre-pandemic levels

Julio Ruiz


Gross fixed investment (GFI) annual growth slowed down in June as the favorable base effect fades away (strict social distancing measures a year ago). GFI grew 17.1% year-over-year in June (down from 46.5% in May), broadly in line with our forecast and market expectations of 17.7% (as per Bloomberg). Using figures adjusted by working days, GFI grew at a slower pace (16.2%), taking the quarterly annual growth rate to 33.7% in 2Q21 (from -4.0% in 1Q21). Looking at the breakdown, also with calendar adjusted figures, construction and machinery & equipment investment quarterly annual growth rate stood at 27.7% in 2Q21 (from -8.2% in 1Q21) and 30.0% (from 7.1%), respectively.  

GFI is still bellow pre-pandemic levels (4.4% below February 2020). Using seasonally adjusted figures, GFI fell by 1.8% month over month in June, taking the quarter-over-quarter annualized growth rate (qoq/saar) to 1.8% in 2Q21 (from 27.4% in 1Q21). Looking at the breakdown, the qoq/saar of construction investment stood at -3.8%, while machinery & equipment investment stood at 3.6%.

On another note, private consumption deteriorated in June, but momentum in 2Q21 remained positive. The monthly proxy for private consumption expanded 19.1% year-over-year in June (down from 28.9% in May), also reflecting the fading away of a favorable base effect.  At the margin, using seasonally adjusted figures, private consumption fell by 0.8% month over month in June, taking the qoq/saar to 13.7% in 2Q21 (from 8.9% in 1Q21). We note private consumption indicator is 2.7% below pre-outbreak levels.

We expect GDP growth at 6.5% for 2021, supported mainly by the U.S. expansion.  However, risks are biased to the downside as we expect a slowdown in the 3Q21 dragged by vehicle production due to the global microchip supply disruption and a mild negative effect from the tightening of social distancing measures in August amid the third COVID-19 wave.

Julio Ruiz