Itaú BBA - MEXICO – Further trade balance improvement in March

Macro Latam

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MEXICO – Further trade balance improvement in March

Abril 28, 2020

Manufacturing exports deteriorated in March amid disruption in global supply chains

Non-oil trade balance improved further in March. Monthly trade balance posted a surplus of USD 3.4 billion in March, above our forecast of USD 0.9 billion surplus and median market expectations (USD 2.7 billion surplus, as per Bloomberg) – taking the 12-month rolling trade balance to a surplus of USD 11.5 billion in March (from a surplus of USD 9.6 billion in February). Looking at the breakdown, also using 12-month rolling figures, the energy trade deficit remained broadly stable at USD 21.7 billion in March (compared to a deficit of USD 21.4 billion in February), while non-energy balance improved to a surplus of USD 33.2 billion (from a surplus of USD 31.1 billion). At the margin, using 3-month annualized seasonally adjusted figures, trade balance stood at a surplus of USD 21.3 billion in 1Q20 (from a surplus of USD 9.9 billion in 4Q19), with the energy trade balance posting a deficit of USD 21.5 billion (from a deficit of USD 20.5 billion), while the non-energy trade surplus improved to USD 42.9 billion (from a surplus of USD 30.4 billion).  

Manufacturing exports deteriorated on a monthly basis amid disruptions in global supply chains. While manufacturing exports posted a positive seasonally-adjusted quarter-over-quarter annualized growth rate (qoq/saar) of 5.6% in 1Q20 (from -11.6% in 4Q19), this reflects a positive base effect from lower manufacturing exports in 4Q19 due to a strike in some auto production factories in the U.S. in October 2019. On a monthly basis, manufacturing exports contracted 3.8% month-over-month (from -1.5%), reflecting, in part, the negative effects from COVID-19 in global supply chains.  

Weak non-oil consumption and capital goods imports show a soft internal demand in 1Q20. Total imports fell by 5.6% qoq/saar in 1Q20 (from -11.7% in 4Q19), with non-oil imports posting a contraction of 6.3% qoq/saar in 1Q20 (from -11.6% in 4Q19). Within non-oil imports, consumption (-26.0% qoq/saar in 1Q20, from 2.8% in 4Q19) and capital (-29.6%, from 4.5%) goods contracted sharply, reflecting a weak internal demand, while intermediate goods stood at 0.3% (from -15.3%).

We now expect the trade balance for 2020 to remain broadly stable relative to 2019 (USD 5.8 billion).  We expect weak non-oil imports, associated to a soft internal demand and weak MXN, to offset the downward pressure in the trade balance from a deterioration in manufacturing exports due to the disruption in global supply chains amid the coronavirus. 

Julio Ruiz

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