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

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MEXICO – Monthly GDP surprised to the downside in November

Janeiro 24, 2020

Economic activity momentum remained weak

Monthly GDP was below market expectations in November. Mexico’s monthly GDP proxy (IGAE) contracted 1.2% year-over-year in November (from -0.7% in October), below our forecast of -0.6% and market expectations (as per Bloomberg). According to calendar adjusted figures, monthly GDP contracted at a softer pace (0.8% year-over-year in November, practically unchanged from October), taking the annual quarterly growth rate to -0.6% in November. Looking at the breakdown, also using calendar adjusted figures, the annual quarterly rate of the industrial sector kept contracting (2.3% in November, from -2.0% in October), with mining output improving to -1.5% (from -3.0%), while manufacturing and construction sectors deteriorated to -1.2% (from -0.2%) and -7.1% (from -6.9%), respectively.

At the margin, monthly GDP momentum remained weak. Using seasonally adjusted figures, GDP expanded 0.1% month-over-month in November (from -0.4% October), taking the quarter-over-quarter annualized (qoq/saar) growth rate to -0.9% in November (from -1.0% in October). Looking at the breakdown, industrial sector deteriorated (-4.2% qoq/saar in November, from -2.2% in October), dragged by construction (-9.0%, from -6.6%) and manufacturing (-5.3%, from -3.2%) output, while mining production expanded 5.7% (from 9.9%). In turn, services sector momentum remained weak (0.4% qoq/saar in November, from -0.5% in October). 

We expect economic activity to contract 0.1% in 2019 and recover gradually to 1.1% in 2020. The fading effect of the government transition on fiscal spending and the recent approval of the USMCA in the U.S. Congress (reducing uncertainty) should support some recovery this year. On the external front, easing trade tensions will likely support the U.S. economy and benefit Mexico’s exports. Finally, 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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