MEXICO – Solid expansion of internal demand in May

The third COVID-19 wave is a downside risk to internal demand recovery

Julio Ruiz


Large gross fixed investment (GFI) annual growth in May reflects mainly a favorable base effect (sharp fall in activity a year ago due to strict social distancing measures). Gross Fixed Investment grew 46.5% year-over-year in May (from 43.0% in April), below our forecast of 52.3% and above market expectations of 45.4% (as per Bloomberg). Using figures adjusted by working days, GFI grew at a similar pace (46.9%), taking the quarterly annual growth rate to 26.2% in May (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 18.9% in May (from -8.2% in 1Q21) and 35.9% (from 3.4%), respectively.  

Using seasonally adjusted figures, GFI grew 0.7% month over month (2.0% below February 2020, pre-outbreak levels), supported by a solid growth in construction investment (2.1%). As a result, the quarter-over-quarter annualized growth rate (qoq/saar) stood at a strong 20.4% in May, with construction investment at 10.8%, while machinery & equipment investment stood at 22.3%.

On another note, private consumption recovered further reflecting relaxed social distancing measures in May. The monthly proxy for private consumption expanded 28.8% year-over-year in May (from 25.5% in April), also reflecting a favorable base effect.  At the margin, using seasonally adjusted figures, private consumption posted monthly growth of 0.9%, taking the qoq/saar to 17.8% in May (up from 10.3% in April). We note private consumption indicator is now 1.7% below pre-outbreak levels.

 We expect GDP growth of 6.5% for 2021. Manufacturing output (US strong growth) is likely to be one of the main drivers of activity recovery as the microchip global supply disruption fades away during the rest of the year. However, the recent resurgence of the outbreak is a downside risk to the internal demand. While the newly announced social distancing traffic-light system seems less restrictive, a further acceleration of new deaths and increase in hospitalization utilization can lead to tighter mobility restrictions.

Julio Ruiz