Itaú BBA - MEXICO – Domestic demand remained weak in 4Q19

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MEXICO – Domestic demand remained weak in 4Q19

Março 20, 2020

Public gross fixed investment deteriorated further.

Domestic demand grew at a weak pace in 4Q19. Aggregate supply contracted 1.6% year-over-year, below our forecast of -0.6% and median market expectations of -0.9% (as per Bloomberg) and down from 3Q19 growth rate of -0.2%. Aggregate supply grew at a similar pace using calendar adjusted figures (-1.6%), with both imports of goods and services (-4.5%, from -0.1%) and GDP (-0.5%, from -0.3%) deteriorating. In turn, domestic demand fell by 0.5% year-over-year in 4Q19 (from -1.1% in 3Q19), while exports of goods and services contracted sharply (-2.8%, from +2.8%). Within domestic demand, final public demand kept contracting (-2.8%, from -3.6%), with government’s consumption (-0.2%, from -2.0%) improving, but public gross fixed investment deteriorating further (-12.8%, fro m -9.9%) . On the private side, final demand improved, but expanded at a soft pace (0.0%, from -0.6%), with private consumption and private gross fixed investment growth rates at 0.9% (from 0.8%) and -3.8% (from 5.9%), respectively.

At the margin, domestic demand also remained weak. Using seasonally-adjusted figures, final domestic demand contracted 0.2% quarter-over-quarter in 4Q19 (practically unchanged from 3Q19). Within domestic demand, government demand improved, but remained weak (-0.3%, from -0.8%), supported by a recovery in government consumption (0.9%, from -0.8%), offsetting a further deterioration in gross fixed public capital investment (-5.7%, form -0.9%). Meanwhile, private demand remained weak (-0.1%, practically unchanged from 3Q19), with private consumption slowing down (0.0%, from 0.5%), while gross fixed private investment contracted 0.6% (from -2.5%).  Finally, exports of goods and services contracted sharply  4.6% quarter-over-quarter in 4Q19 (from -0.7% in 3Q19).

We expect GDP to contract 2.5% in 2020. The sharp contraction of economic activity in 2020 is associated to a transitory demand and supply negative shock due to the coronavirus outbreak. Looking forward, we expect economic activity to recover to 4.3% in 2021 as the negative shock fades away.

Julio Ruiz


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