Itaú BBA - MEXICO – Strong current account result in 1Q20

Macro Latam

< Voltar

MEXICO – Strong current account result in 1Q20

Maio 25, 2020

Net portfolio flows deteriorated amid uncertainty surrounding the outbreak.

Current account balance (CAB) improved further in 1Q20, supported by a larger trade balance surplus. The current account balance posted a deficit of USD 1 billion or 0.4% of GDP in 1Q20 – narrower than median market expectations (a deficit of USD 1.2 billion, as per Bloomberg) - taking the 4-quarter rolling deficit to a surplus of 0.5% of GDP (from a deficit of 0.3% of GDP in 2019). The 1Q20 CAB (also using 4-quarter-rolling figures) was the result of an improvement of the goods trade surplus (0.9% of GDP in 1Q20, from a 0.4% of GDP surplus in 2019) and secondary income (3.1% of GDP, from 2.8% of GDP) due to an increase in remittances. At the margin, our seasonally adjusted measure of the current account balance in 1Q20 improved markedly to a surplus of 1.9% of GDP, from a surplus of 0.2% of GDP in the previous quarter.

On the funding side, net foreign direct investment remained broadly unchanged, while net portfolio flows deteriorated amid uncertainty surrounding the coronavirus outbreak.  Using 4-quarter rolling figures, net direct investment stood at 1.8% of GDP (broadly unchanged from 2019). On the other hand, also using 4-quarter rolling figures, net portfolio flows deteriorated to 0.1% of GDP in 1Q20 (from 0.5% of GDP in 2019), which resulted from Mexicans investing 0.3% of GDP abroad (broadly unchanged from 2019), while foreigners invested 0.4% of GDP (down from 0.8% of GDP in 2019).  The deterioration in net portfolio flows reflect, in part, the preference of investors towards less risky assets amid the uncertainty due to the outbreak. In this context, foreigners divested from domestic government bond s 0.8% of GDP in 1Q20 (from an investment of 0.1% of GDP in 4Q19), also on a 4-quarter rolling basis.  

The 1Q20 figures pose risks of a better result than our 0.3% of GDP current account deficit for 2020 (from a deficit of 0.2% of GDP in 2020). We expect external sales to recover faster than imports due to a better performance of domestic demand in U.S. relative to Mexico and a weaker peso.

Julio Ruiz


< Voltar