Itaú BBA - MEXICO – Weak domestic demand in October

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MEXICO – Weak domestic demand in October

Janeiro 13, 2020

Uncertainties over the direction of domestic policy are weighing on investment

Gross fixed investment (GFI) was broadly in line with market expectations. The monthly GFI fell by 8.6% year-over-year in October, slightly below our forecast of -8.3% and market expectations of -8.0% (as per Bloomberg). Using figures adjusted by working days, the contraction was slightly stronger, at 8.9% year-over-year (from -6.8% in September), taking the annual quarterly growth rate to -6.6% in October (from -6.8% in September). Looking at the breakdown, also with calendar adjusted figures, construction investment fell by 5.1% year-over-year in the quarter ended in October (from -4.8% in September), dragged by both residential (-1.9%) and non-residential (-8.0%) construction investment, while machinery & equipment investment decreased by 8.5% (from -9.5%).

At the margin, GFI deteriorated further on a monthly basis, while momentum remained weak. Using seasonally adjusted figures, GFI contracted 1.5% month-over-month in October (from -1.1% in September), taking the quarter-over-quarter annualized rate (qoq/saar) to -5.5% in October (from -9.0% in September). Within GFI, construction investment improved to (but remained weak) -5.7% qoq/saar in October (from -7.1% in September), with non-residential construction contracting (-14.4%), while residential construction expanded 1.8%. In turn, machinery & equipment  contracted 2.4% qoq/saar in October (from -9.7% in September).

On another note, private consumption deteriorated at the margin.  The monthly proxy for private consumption grew at a soft pace in October (1.4% year-over-year, from 1.6% in September). The figure  adjusted by working days expanded at a similar rate (1.3% year-over-year in October, from 1.2% in September), taking the quarterly growth rate to 1.0% in October (from 0.8% in September). At the margin, private consumption contracted sharply (0.8% month-over-month in October, from +0.7% in September), taking the qoq/saar to 0.8% in October (from 1.8% in September). 

We expect economic activity to contract 0.1% in 2019. The figures show internal demand in Mexico is weak. Besides poor investment, lower employment growth is already having an effect on consumption.   

Julio Ruiz

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