Industrial production (IP) grew 3.7% YoY in June, above our 2.8% forecast and market expectations of 2.9% (as per Bloomberg). The calendar adjusted quarterly annual rate of industrial production rose to 2.7% in 2Q23 (from 2.3% in 1Q23). At the margin, IP expanded 0.6% mom/sa, driven once again by strong growth in the construction sector (2.2%), while manufacturing output expanded 0.2%. Engineering construction (8.1% mom/sa in June, from 20.3% in May) was responsible for the solid expansion in construction output, likely associated to one of AMLO’s priority projects with edifications. Industrial production momentum improved, with the qoq/saar at 4.2% in 2Q23 (from 2.4% in 1Q23) supported mainly by construction output (15.3% in 2Q23), while manufacturing production stood at 2.3% in 2Q23.
Our take: Strong growth in the construction sector is unlikely to persist in the 2H23 as it was likely driven by the one-off effects of government construction, while manufacturing output should soften given our view of an expected deceleration in the U.S. economy. We recently increased our GDP growth forecast to 3.0% (previously at 2.7%) due to better-than-expected activity in 1H23.