Itaú BBA - MEXICO – Industrial production remained weak in November

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MEXICO – Industrial production remained weak in November

Janeiro 10, 2020

Industrial production surprised on the downside

Industrial production (IP) was below market expectations in November. IP fell by 2.1% year-over-year in November, slightly above our forecast of -2.3% and below market expectations of -1.5% (as per Bloomberg). According to figures adjusted by working days, IP contracted at a slower pace (1.8% year-over-year in November, from -3.2% in October), taking the quarterly annual growth rate to -2.3% in November (from -2.0% in October). Looking at the breakdown, mining improved, but kept contracting in the quarter ended in November (-1.5% year-over-year, from -3.0% in October), while construction sector fell by 7.1% (from -6.9%). Meanwhile, the quarterly annual rate of manufacturing output deteriorated to -1.2% in November (from -0.2% in October).   

At the margin, IP improved on a monthly basis, but momentum remained weak. Using seasonally adjusted figures, IP recovered (0.8% month-over-month in November, from -1.5% in October), taking the quarter-over-quarter annualized growth rate (qoq/saar) to -4.2% in November (from -2.2% in October). Within IP, mining output decelerated (5.7% qoq/saar in November, from 9.9% in October), but with oil & gas output improving (6.2%, from 5.4%). Moreover, while construction (1.0% month-over-month in November, from -1.2% in October)  and manufacturing (0.2%, from -2.4%) output recovered in November on a monthly basis, momentum for both sectors remained weak as they posted qoq/saar rates of -9.0% (from -6.6%) and -5.3% (from -3.2%), respectively. 

We expect economic activity to contract 0.1% in 2019 and recover gradually to 1.1% in 2020. Uncertainties over the direction of domestic policy are weighing on investment, while the slowdown in the U.S. industry is curbing exports and manufacturing production. On the other hand, the fading effect of the government transition on fiscal spending and the potential approval of the USMCA in the U.S. Congress (reducing uncertainty) should support some recovery in 2020. Moreover, if the recent stabilization of oil output lasts, the mining sector would also contribute to a GDP growth improvement in 2020. 
 

Julio Ruiz



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