Itaú BBA - MEXICO – Domestic demand remained weak in 3Q19

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MEXICO – Domestic demand remained weak in 3Q19

Dezembro 6, 2019

Uncertainties facing the economy are weighing on investment

Gross fixed investment (GFI) contracted further in 3Q19. The monthly GFI fell by 6.8% year-over-year in September, although better than our forecast of -7.4% and broadly in line with market expectations (-6.9%, as per Bloomberg). Using figures adjusted by working days, GFI contracted at a similar rate (compared to the non-calendar adjusted figure), taking the 3Q19 growth rate to -6.8% (from -6.3% in 2Q19). Looking at the breakdown, also with calendar adjusted figures, construction investment fell by 4.8% year-over-year in 3Q19 (from -4.9% in 2Q19), dragged by both residential and non-residential construction investment, while machinery & equipment investment decreased by 9.5% (from -7.7% in 2Q19).

At the margin, gross fixed investment remained weak. Using seasonally adjusted figures, the quarter-over-quarter annualized rate (qoq/saar) was -7.6% in 3Q19 (from -16.9% in 2Q19). Within GFI, construction investment was -6.0% qoq/saar in 3Q19 (from -15.9% in 2Q19). In turn, machinery & equipment spending contracted 9.4% qoq/saar in 3Q19 (from 15.7% in 2Q19). 

On another note, private consumption recovered in September, but moderated its pace in 3Q19. The monthly proxy for private consumption grew 1.6% year-over-year in September (from -0.2% in August). Adjusting by working days, private consumption grew at a slower rate (1.2%, from 0.4%), taking the 3Q19 growth rate to 0.8% (from 1.0% in 2Q19).  

At the margin, private consumption momentum is moderate. Using seasonally-adjusted figures, private consumption increased 0.8% month-over-month in September (from -0.1% in August), taking the quarter-over-quarter annualized growth rate to 2.3% in 3Q19 (from 3.1% in 2Q19).

The numbers highlight downside risk to our GDP growth forecast of 0.1% for 2019. Uncertainties over the direction of domestic policy and trade relations with the U.S. are weighing on investment, while the slowdown of the U.S. economy is curbing exports. The government-transition effect on fiscal spending is expected to fade, which should support some recovery in 2020. 

Julio Ruiz

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