Itaú BBA - MEXICO – October’s industrial production deteriorated further

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MEXICO – October’s industrial production deteriorated further

Dezembro 12, 2019

The weakness in U.S. economic activity is reflected more clearly in Mexico’s manufacturing sector

Industrial production (IP) was below market expectations in October. IP fell by 3.0% year-over-year in October, below our forecast of -2.0% and market expectations of -1.9% (as per Bloomberg). According to figures adjusted by working days, IP contracted at a slightly faster pace (3.1% year-over-year in October, from -2.0% in September), taking the quarterly annual growth rate to -2.0% in October (from -1.7% in September). Looking at the breakdown, mining improved, but kept contracting in the quarter ended in October (2.9%year-over-year, from -4.2% in September), while construction sector fell by 6.9% (practically unchanged from September). Meanwhile, the quarterly annual rate of manufacturing sector deteriorated to -0.2% in October (from 0.8% in September).

At the margin, IP deteriorated on a monthly basis, dragged by the manufacturing sector. Using seasonally adjusted figures, IP deteriorated further on a monthly basis (-1.1% month-over-month in October, from -0.6% in September), taking the quarter-over-quarter annualized growth rate (qoq/saar) to -2.1% in October (from -2.2% in September). Within IP, mining output (9.7% qoq/saar in October, from 5.8% in September) improved, while construction sector remained weak (-7.6%, from -12.0%). In turn, manufacturing output deteriorated to -4.0% qoq/saar in October (from -0.5% in September), with a sharp monthly contraction of 2.1% in October. The weakness in U.S. economic activity is reflected more clearly in Mexico’s manufacturing sector.

The numbers do not show an economic recovery in 4Q19. Uncertainties over the direction of domestic policy are weighing on investment, while the slowdown in the U.S. economy is curbing 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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