Macro Analysis /
Global

Mexico: Ahead of Curve

  • INEGI’s Timely Indicator of Economic Activity to show an upward revision for June, with July more positive

  • June’s retail sales could post a 0.2% m/m contraction, with some headwinds in the period impacting dynamism

  • Light week in terms of economic reports, with the international reserves figure being the only remaining print

Juan Carlos Alderete Macal
Juan Carlos Alderete Macal

Director of Economic Research

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Francisco Jose Flores Serrano
Francisco Jose Flores Serrano

Senior Economist, Mexico

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Banorte
12 August 2022
Published byBanorte

Possible optimism at the start of 3Q22

  • Timely Indicator of Economic Activity (July). This release will include the first estimate for July, as well as revised figures for June. Regarding this latter month, the 2Q22 preliminary GDP surprised higher, with positive implied figures for the period. This was backed to some extent by industrial production. Considering what we know about services, despite the signal from GDP being positive, available data is somewhat mixed. Therefore, we believe the sequential print could stand close to 0.0%. For July, signals are relatively stronger, with the resumption of social programs payments and a moderation in COVID-19 contagions towards the end of the month. Nevertheless, inflationary pressures remained, once again centered in food

  • Retail Sales (June). We estimate +4.2% y/y, lower than the 5.2% of the previous month. Sequentially sales would break with ten consecutive months of increases, declining 0.2% m/m. Nevertheless, we believe this setback would be quite modest. Specifically, we think several adverse factors help explain the fall, including: (1) Distortions after the end of discount campaigns (mainly Hot Sale); (2) the acceleration in COVID-19 contagions towards the end of the month; and (3) the lack of social programs’ payments for a third consecutive month, resuming until July due to the electoral ban

Proceeding in chronological order...

Weekly international reserves report. Last week, net international reserves decreased by US$166 million, closing at US$199.3 billion. This was mainly explained by a negative valuation effect in institutional assets. Year-to-date, the central bank’s international reserves have fallen by US$3.1 billion.

The Timely Indicator of Economic Activity will likely suggest a rebound in July. This release will include the first estimate for July, as well as revised figures for June. We recall that May’s mid-point forecast stood at 1.5% y/y (using sa figures), higher than the 1.3% in the GDP-proxy (IGAE). Turning to June, the 2Q22 preliminary GDP surprised higher, with positive implied figures for the period. This was backed to some extent by industrial production, which was better than the previous estimate, but lower relative to the GDP report. Considering what we know about services, despite the signal from GDP being positive, available data is somewhat mixed. Therefore, we believe the sequential print could stand close to 0.0%. For July, signals are relatively stronger, with the resumption of social programs payments and a moderation in COVID-19 contagions towards the end of the month. Nevertheless, inflationary pressures remained, once again centered in food. As such, both IMEF indicators showed higher dynamism, seemingly bolstered by improvements in other figures, such as ANTAD sales.

Retail sales to post a minor setback in June. We estimate +4.2% y/y, lower than the 5.2% of the previous month. Sequentially sales would break with ten consecutive months of increases, declining 0.2% m/m. Nevertheless, we believe this setback would be quite modest. Specifically, we think several adverse factors help explain the fall, including: (1) Distortions after the end of discount campaigns (mainly Hot Sale); (2) the acceleration in COVID-19 contagions towards the end of the month; and (3) the lack of social programs’ payments for a third consecutive month, resuming until July due to the electoral ban

Available data so far is mixed, consistent with the deceleration. ANTAD sales moderated, standing at -0.1% y/y in real terms for same-stores (previous: 3.4%) and 2.1% for all-stores (previous: 5.5%). Similar to this, AMIA reported vehicle sales at 90.4 thousand units, which translated into a 2.6% m/m decline. On a positive note, gasoline sales accelerated sequentially to 721 kbpd from 709 in the previous month, which implies an annual expansion of 25.3%. Finally, non-oil consumption goods imports grew 1.8%, although moderating at the margin. Considering persistent price pressures, the signal is likely somewhat negative.

On fundamentals, news are more favorable. Remittances remained strong, given that, when measured in MXN, stood above $100 billion a month for a second consecutive period. Employment managed to rebound after losses in the previous month, with a total of 281.0 thousand new positions. Nevertheless, wages decelerated, which is even more negative considering persistent inflationary pressures. Finally, consumer loans kept improving, which might provide some stability to the figures.

Although the result would be negative, it will probably mark only a pause in the recovery, with more favorable signs for July. As such, we believe dynamism in consumption will continue through the second half of the year, driven by an additional progress in fundamentals and economic activity. However, risks are higher, so we will be looking into its evolution in coming months.