Itaú BBA - MEXICO – 1Q20 GDP deteriorated, but surprised to the upside

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MEXICO – 1Q20 GDP deteriorated, but surprised to the upside

Maio 26, 2020

Industrial and services sector started showing the negative effects from the outbreak

GDP in 1Q20 was revised to the upside (compared to the flash GDP). Mexico’s monthly GDP proxy (IGAE) contracted 2.3% year-over-year in March (from -0.6% in February), better than our forecast of -3.1% and market expectations of -3.5% (as per Bloomberg) – which implied a GDP contraction of 1.4% year-over-year in 1Q20 (revised up from the flash estimate of -1.6%, announced by the Statistics Institute four weeks ago and from -0.7% in 4Q19). The revision came mainly from the industrial (-2.9%, previously: -3.2%) and services (-0.7%, previously: -0.9%) sectors. 

On an annual basis, industrial and services sectors started showing the negative effects from COVID-19.  Using calendar adjusted figures (published by the Statistics Institute), GDP contracted at a sharper pace in 1Q20 (-2.3% year-over-year, from -0.7% in 4Q19). Looking at the breakdown, the industrial sector fell by 3.5% year-over-year in 1Q20 (from -2.0% in 4Q19), mainly dragged by construction (-8.2%, from -5.7%) and manufacturing (-4.1%, from -1.5%) sectors, activities which started to be affected in March due to distancing measures implemented amid the coronavirus. Meanwhile, mining recovered to 4.2% year-over-year in 1Q20 (from -0.3% in 4Q19), associated to oil production.  In turn, services sector, the largest sector of the economy, deteriorated to -1.3% year-over-year in 1Q20 (from -0.2% in 4Q19), also affected by the COVID-19.  GDP excluding primary sector and mining output fell 2.7% year-over-year in 1Q20 (from -0.8% in the 4Q19), also adjusted by calendar effects.

At the margin, GDP fell sharply in 1Q20. Seasonally-adjusted GDP contracted 1.2% quarter-over-quarter in 1Q20 (from -0.6% in 4Q19). Looking at the breakdown, industrial sector remained weak (-1.2%, from -1.5% in 4Q19), with manufacturing and construction falling by 1.9% (from -2.6%) and 0.3% (from -1.8%), respectively. We note that the lower contraction in the manufacturing sector (and also industrial production) is explained by a favorable base effect from a strike in some auto production factories in the U.S. in October 2019. In turn, services sector contracted 0.9% (from -0.3%).  

We expect GDP to contract 8.1% in 2020 dragged down by a deep negative shock in 1H20 and some recovery in 2H20 amid a modest fiscal stimulus. Prevailing uncertainties over the administration’s policy direction is also a drag to the economic outlook.


Julio Ruiz



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