Itaú BBA - MEXICO – Weak industrial production even before coronavirus outbreak

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MEXICO – Weak industrial production even before coronavirus outbreak

Abril 8, 2020

Coronavirus outbreak is set to deteriorate activity sharply

Industrial production  (IP) was below market expectations in February. IP fell by 1.9% year-over-year in February, above our forecast of -2.3% and below market expectations as per Bloomberg (-1.2%). According to figures adjusted by working days, IP contracted at a faster pace (3.4% year-over-year in February, from -1.7% in January), taking the quarterly annual growth rate to -2.1% in February (from -1.6% in January). Looking at the breakdown, mining sector expanded 2.8% year-over-year in the quarter ended in February (from 2.4% in January), while construction output deteriorated further (-7.4%, from -5.7%). In turn, the quarterly annual growth rate of the manufacturing sector contracted 1.5% (practically unchanged from last month).

At the margin, IP momentum remained weak. Using seasonally adjusted figures, IP contracted 0.6% month-over-month in February (from 0.3% in January), taking the quarter-over-quarter annualized growth rate (qoq/saar) to -1.1% in February (from -2.6% in January). Within IP, mining output expanded 7.4% qoq/saar in February (from 7.1% in January), reflecting some improvement of oil output. In turn, construction output qoq/saar stood at 3.9% (from 1.2%), while manufacturing output remained weak (-2.1%, from -4.6%) and will likely deteriorate in the coming months due to the impact of the coronavirus outbreak domestically and abroad.

We estimate a contraction of 3.7% in 2020 GDP.  We expect economic activity to deteriorate sharply in 1H2020, associated to the coronavirus outbreak, recovering during the second half of the year. Uncertainty from domestic policy direction is also a drag to Mexico’s economic outlook.


Julio Ruiz



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