Itaú BBA - MEXICO – Monthly GDP surprised to the downside in January

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MEXICO – Monthly GDP surprised to the downside in January

Março 26, 2020

Economic activity to deteriorate sharply in 1H2020

Monthly GDP was below market expectations in January. Mexico’s monthly GDP proxy (IGAE) contracted 0.8% year-over-year in January (from +0.7% in December), below our forecast of -0.3% and market expectations (as per Bloomberg). According to calendar adjusted figures, monthly GDP contracted at a slightly softer pace (0.7% year-over-year in January, from 0.0% in December), taking the annual quarterly rate to -0.5% in January (practically unchanged from December). Looking at the breakdown, also using calendar adjusted figures, the annual quarterly rate of the industrial sector improved, but kept negative (-1.6% in January, from -2.1% in December), supported by an expansion of mining output (2.4%, from -0.4%), while manufacturing and construction sectors contracted 1.5% (from -1.6) and 5.7% (from -6.0%), respectively. In turn, services sector quarterly annual growth rate stood at 0% (from 0.1%). 

At the margin, monthly GDP momentum remained weak, with services moderating. Using seasonally adjusted figures, monthly GDP had a zero growth rate month-over-month in January (from 0.1% in December), taking the quarter-over-quarter annualized (qoq/saar) rate to -0.4% in January (from -1.2% in December). Looking at the breakdown, industrial sector improved, but momentum remained weak (-1.7% qoq/saar, from -5.0%), dragged by manufacturing (-4.1% qoq/saar), while mining and construction expanded 7.1% and 1.2%, respectively. Services sector surprised negatively, with a monthly contraction of 0.2% in January (from 0% in December), taking the quarterly annual rate to 0% (from 0.1%). 

We estimate a contraction of 2.5% in 2020 GDP.  We expect economic activity to deteriorate sharply in 1H2020, associated to the coronavirus outbreak, recovering at a fast pace during the second half of the year. Uncertainty from domestic policy direction is also a drag to Mexico’s economic outlook.

Julio Ruiz

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