Itaú BBA - MEXICO – Industrial production deteriorated amid COVID-19

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MEXICO – Industrial production deteriorated amid COVID-19

Maio 12, 2020

Manufacturing output is the most affected sector by the outbreak

Industrial production (IP) in March shows the negative effects from COVID-19, but was better than market expectations. IP fell by 5.0% year-over-year in March, above our forecast of -6.0% and market expectations as per Bloomberg (-6.3%). According to figures adjusted by working days, IP contracted at a similar annual pace in March (-5.1%, from -3.4% in February), taking the 1Q20 annual rate to -3.4% (from -2.0% in 4Q19). Looking at the breakdown, mining improved in 1Q20 (3.0% year-over-year, from -0.3% in 4Q19), while construction (-8.0%, from -6.0%) and manufacturing (-3.5%, from -1.4%) output weakened.

At the margin, IP momentum was weak, with the manufacturing sector affected the most by the outbreak. Using seasonally adjusted figures, IP contracted 3.4% month-over-month in March (from -0.5% in February). The quarter-over-quarter annualized growth rate (qoq/saar) of IP stood at -4.1% in 1Q20 (from -5.5% in 4Q19). Looking at the breakdown, manufacturing output shows a deeper negative effect from COVID-19 (reflecting the disruption in global supply chains), with a 4.8% monthly contraction in March and a qoq/saar of -6.1% in 1Q20. Meanwhile, construction and mining output qoq/saar in 1Q20 stood at 0.3% and 1.4%, respectively. 

We expect the economy to contract sharply in 2020 (-8.1%) dragged by a sharp negative shock in 1H20 due to COVID-19 and a slow recovery in 2H20. A modest fiscal stimulus amid prevailing uncertainties over domestic policy direction explains, in part, the slow recovery. 

Julio Ruiz

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