Macro Analysis /
Global

Mexico: Ahead of Curve

  • August’s Timely Indicator of Economic Activity likely to be revised higher, albeit with mixed signals for September

  • Retail sales could rise 0.4% m/m (+6.6% y/y) in August, boosted by stronger fundamentals but limited by price pressures

  • Attention on the approval of the Revenue Law by the Lower House, with the deadline for it to go through this Thursday

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
14 October 2022
Published byBanorte

Possible hints of lower dynamism in September

  • Timely Indicator of Economic Activity (September). This release will include the first estimate for September, as well as revised figures for August. In this latter month, industrial production was practically in line with the first estimate. Meanwhile, timely signals for services –including retail sales (see section below)– lead us to believe that the adjustment will be to the upside. Therefore, we think the monthly comparison could show a sequential increase. Going to September, signs are somewhat mixed, with positive trends from manufacturing, but with services showing a slowdown. As such, we could see a moderation in the pace of growth or even a slight contraction

  • Retail sales (August). We forecast them at +6.6% y/y, higher than the 5.0% of the previous month, partly boosted by a more favorable base effect. More importantly, sales would have grown 0.4% m/m, building up on the 0.9% expansion of the previous month, which we believe would be quite favorable. In our view, dynamism would be driven by: (1) The consolidation of fundamentals, including remittances and employment; (2) the continuation of disbursements of social programs after the pause in the electoral season; and (3) spending related to the tail-end of the holiday period and the start of school. However, we expect the figure to remain limited by additional price pressures

Proceeding in chronological order...

Weekly international reserves report. Last week, net international reserves increased by US$46 million, closing at US$197.0 billion. This was mainly explained by a positive valuation effect in institutional assets. Year-to-date, the central bank’s international reserves have fallen by US$5.4 billion.

The Timely Indicator of Economic Activity will likely show a deceleration in September. This release will include the first estimate for September, as well as revised figures for August. We recall that July’s mid-point forecast stood at 1.8% y/y (using sa figures), lower than the 2.2% in the GDP-proxy (IGAE). In August, industrial production was practically in line with the first estimate. Meanwhile, timely signals for services –including retail sales (see section below)– lead us to believe that the adjustment will be to the upside. Therefore, we think the monthly comparison could show a sequential increase. Going to September, signs are somewhat mixed. Inflationary pressures persisted, which is consistent with a more adverse situation for domestic sectors, as suggested by ANTAD sales. Nevertheless, we could see an acceleration in external sectors, with a better performance in the US, which we believe has already favorably impacted IMEF’s manufacturing PMI. As such, we could see a moderation in the pace of growth or even a slight contraction.

Additional progress in retail sales in August, helped by fundamentals. We forecast them at +6.6% y/y, higher than the 5.0% of the previous month, partly boosted by a more favorable base effect. More importantly, sales would have grown 0.4% m/m, building up on the 0.9% expansion of the previous month, which we believe would be quite favorable. In our view, dynamism would be driven by: (1) The consolidation of fundamentals, including remittances and employment; (2) the continuation of disbursements of social programs after the pause in the electoral season; and (3) spending related to the tail-end of the holiday period and the start of school. However, we expect the figure to remain limited by additional price pressures, with annual inflation accelerating to 8.70%.

So far, available data is somewhat mixed, but still suggesting progress. ANTAD sales lost a bit of momentum, with total stores up 4.9% y/y in real terms (previous: +5.6%) and same-stores at +2.5% (previous: +3.3%), both dragged by higher inflation. On a more positive note, auto sales jumped by 5.1% m/m to 91.1 thousand units. Gasoline sales moderated again –in line with the period’s seasonality–, standing at 681kbpd from 700kbpd in July. Lastly, non-oil consumption goods imports contracted 1.1%, adding two months lower. However, considering lower transportation costs and a moderation in overall supply-chain disruptions, we believe these figures are not as negative as they seem. On fundamentals, we believe conditions are more favorable. Remittances remained strong, topping US$5 billion (or $100 billion in MXN) for a fourth month in a row, despite decelerating sequentially. While employment kept improving –with +177.1 thousand new positions– wages decelerated, especially when measured in real terms. Nevertheless, the latter seems to be partly offset by additional leverage from families, with consumer loans still on the upside, situation which we think is helping smooth out consumption patterns.

We consider that the result would be consistent with our view of persistent dynamism in 3Q22, continuing with the favorable trend seen in the first half of the year. Nevertheless, additional risks seem to be materializing, likely limiting an acceleration towards the end of the year.