Itaú BBA - MEXICO – Weak domestic demand in 4Q19

Macro Latam

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MEXICO – Weak domestic demand in 4Q19

Março 6, 2020

The figures show internal demand in Mexico was weak in 2019

Gross fixed investment (GFI) was soft in 4Q19. The monthly GFI fell by 3.0% year-over-year in December, below our forecast of -0.1% and broadly in line with market expectations (-2.9%, as per Bloomberg). Using figures adjusted by working days, GFI contracted 3.7% year-over-year (from -3.3% in November), taking the 4Q19 annual growth rate to -5.4% (from -6.8% in 3Q19). Looking at the breakdown, also with calendar adjusted figures, construction investment fell by 5.5% year-over-year in 4Q19 (from -4.8% in 3Q19), with both residential and non-residential construction investment contracting, while machinery & equipment investment decreased by 5.2% (from -9.5%).

At the margin, GFI improved in 4Q19, but momentum remained weak. With seasonally adjusted figures, the quarter-over-quarter annualized rate (qoq/saar) was -7.2% in 4Q19 (from -8.7% in 3Q19). Within GFI, construction investment contracted 12.2% qoq/saar in 4Q19 (from -7.8% in 3Q19), dragged by non-residential construction (-19.9% qoq/saar in 4Q19, from -13.6% in 3Q19), associated to weak public capital expenditure execution, while residential construction investment improved to 4.6% (from -4.1%). In turn, machinery & equipment spending contracted 1.2% qoq/saar in 4Q19 (from -9.3% in 3Q19).

On another note, private consumption moderated in 4Q19. The monthly proxy for private consumption grew at a soft pace in December (1.2% year-over-year, from 0.6% in November). The figure  adjusted by working days expanded at a slower pace (0.5% year-over-year in December, from 1.1% in November), taking the quarterly growth rate to 0.9% in 4Q19 (from 0.8% in 3Q19). At the margin, using seasonally adjusted figures, private consumption contracted 0.4% month-over-month (from 0.6% in November), taking the qoq/saar to -0.6% in 4Q19 (from 1.6% in 3Q19). 

We expect economic activity to expand 0.7% in 2020. The figures show internal demand in Mexico was weak in 2019. Looking forward, we expect internal demand to recover softly in 2020, supported by the fading effect of the government transition on fiscal spending and lower uncertainty after the approval of the USMCA in the U.S. Congress. Still, domestic uncertainties will likely act to curb growth.   

Julio Ruiz

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