Itaú BBA - MEXICO – Weak internal demand before COVID-19

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MEXICO – Weak internal demand before COVID-19

Maio 8, 2020

Uncertainties over domestic policy direction will also keep denting investment outlook.

Gross fixed investment (GFI) was broadly in line with market expectations. The monthly GFI fell by 8.6% year-over-year in February, above our forecast of -9.1% and slightly below market expectations (-8.3%, as per Bloomberg). Using figures adjusted by working days, GFI contracted at a sharper pace (-9.9%, from -8.5%), taking the annual quarterly growth rate to -7.4% in February (from -5.2% in January). Looking at the breakdown, also with calendar adjusted figures, construction investment fell by 6.8% year-over-year in the quarter ended in February (-5.1% in January), with both residential and non-residential construction investment contracting, while machinery & equipment investment decreased by 8.1% (from -5.3%).

At the margin, GFI momentum remained weak, with machinery & equipment investment deteriorating. With seasonally adjusted figures, GFI contracted 1.7% month-over-month, taking the quarter-over-quarter annualized rate (qoq/saar) to -4.1% in February (from -4.2% in January). Within GFI, construction investment improved to 5.4% qoq/saar (from -2.5%), supported by both non-residential construction output. In contrast, machinery & equipment spending deteriorated to -13.6% qoq/saar in February (from -4.7% in January).

On another note, private consumption weakened in February. The monthly proxy for private consumption grew at a soft pace in February (0.5% year-over-year, from 0.2% in January). The figure was boosted by positive calendar effect. According to figures adjusted by working days, private consumption contracted 0.6% year-over-year in February (from 0.2% in January), taking the annual quarterly growth rate to 0.1% in February (from 0.6% in January). At the margin, using seasonally adjusted figures, private consumption deteriorated, contracting 0.5% month-over-month (from 0.0%), with the qoq/saar at -2.2% in February (from -0.4% in January). 

We expect internal demand to deteriorate sharply in 2020 amid the coronavirus outbreak and a modest fiscal stimulus. In addition, prevailing uncertainties over domestic policy direction will also keep denting investment outlook. 


Julio Ruiz
 



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