Itaú BBA - MEXICO – Industrial production deteriorated further in July

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MEXICO – Industrial production deteriorated further in July

Setembro 11, 2019

Weakness in the U.S. economy seems to be starting to weigh on Mexico’s manufacturing sector

Industrial production (IP) was broadly in line with market expectations. IP fell by 1.7% year-over-year in July, slightly above our forecast of -1.8% and market expectations as per Bloomberg. According to figures adjusted by working days, IP fell at a sharper pace (2.8% year-over-year in July, from 2.1% in June), taking the quarterly rate to -2.7% in July (from -1.9% in June).  Looking at the breakdown, also using calendar adjusted figures, mining contracted 7.3% in the quarter ended in July (from -7.5% in June),  while construction deteriorated further to -8.4% (from -5.9%). In turn, manufacturing sector quarterly rate was soft in July (0.8%, from 1.4% in June).

At the margin, industrial production was dragged by mining and construction output. Industrial production contracted 0.4% month-over-month in July (from 1.1% in June), taking the quarter-over-quarter annualized growth rate (qoq/saar) to -5.2% in July (from -2.1% in June). Within industrial production, mining output fell by 6.3% qoq/saar in July (from -6.1% in June), associated to a contraction in oil output (-10.6%), while construction activity fell by 18.7% (from -18.3%), partly associated to a restrictive fiscal stance (government-transition effect and austerity measures). In turn, manufacturing output decelerated to 2.3% qoq/saar in July (from 3.2% in June).  Weakness in the U.S. economy seems to be starting to weigh on Mexico’s manufacturing sector.  

The numbers highlight downside risk to our GDP growth forecast of 0.6% for 2019. Weak economic activity in the U.S. is dragging down Mexico’s manufacturing sector. Uncertainties over the direction of domestic policy and trade relations with the U.S. are also expected to continue to weigh on investment. The government-transition effect on fiscal spending should gradually fade in 2H19, but austerity measures continue to pressure economic activity downward. However, recent inflation-adjusted wage increases are a buffer for the economy, sustaining the real wage bill and smoothing the consumption slowdown.


Julio Ruiz



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