MEXICO – Upside surprise in May’s monthly GDP

Sequential GDP expansion was driven by services sector

Julio Ruiz


The monthly GDP proxy annual growth in May is still reflecting a favorable base effect after a sharp fall in activity a year ago due to tight social distancing measures. Mexico’s monthly GDP proxy (IGAE) increased 25.1% year over year in May (from 22.3% in April), slightly below our forecast of 25.6% and above market expectations of 23.9% (as per Bloomberg).  Using calendar adjusted figures (published by the Statistics Institute), GDP increased at a similar pace (25.3% year over year), taking the quarterly annual rate to 14.7% in May (from -2.5% in 1Q21).  Looking at the breakdown (using calendar adjusted figures), the quarterly annual rate of industrial output was 22.0% year over year in May (from -1.8% in 1Q21), while activity in the services sector grew 12.2% (from -3.2%).

At the margin, the monthly GDP was driven mainly by services sector amid the easing of social distancing measures. Using seasonally adjusted figures, monthly GDP increased at a solid 0.6% month over month (from 0.2% in April which was revised up from -0.2%) supported by a growth in services sector of 0.8% (reflecting the easing of mobility restrictions), while industrial production registered a soft expansion (0.1%) dragged by manufacturing output (-0.7%) which seems to be still affected by the microchip global supply disruption. As a result, the quarter over quarter seasonally adjusted annualized growth rate (qoq/saar) of the monthly GDP stood at 11.2% in May, supported by both services (14.5%) and industrial production (3.6%). Within industrial production, the qoq/saar in May of manufacturing and construction output stood at 2.6% and 14.3%, respectively.

We expect GDP growth of 6.5% for 2021. The 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 services sector. While the newly announced social distancing measure traffic-light system seems less restrictive, an increase in new deaths and hospitalization capacity, which for now are relative contained, can lead to tighter mobility restrictions.  

Julio Ruiz