Macro Analysis /

Mexico: IMEF’s PMI surveys – Further signs of improvement in March

  • The manufacturing index rose to 52.3pts (+1.3pts), driven by ‘new orders’ and ‘employment’

  • Non-manufacturing was also better at 52.8pts (+1.7pts), with all items above or in line with the 50pts threshold

  • Performance has been better than expected, suggesting sequential growth for the economy in 1Q22

Juan Carlos Alderete Macal
Juan Carlos Alderete Macal

Director of Economic Research

Francisco Jose Flores Serrano
Francisco Jose Flores Serrano

Senior Economist, Mexico

1 April 2022
Published byBanorte
  • IMEF Manufacturing PMI (Mar, sa): 52.3pts; Banorte: 51.3pts; previous: 51.1pts 

  • IMEF Non-manufacturing PMI (Mar, sa): 52.8pts; Banorte: 49.9pts; previous: 51.1pts 

  • Both indicators reaffirmed its position in expansion territory. In our opinion, this is consistent with signs of further reactivation in activity and the resilience of some fundamentals. We highlight the strong performance in ‘new orders’ in both subsectors 

  • In manufacturing, ‘inventories’ was the only one lower by 1.9pts, maintaining a volatile trend. Remaining components rose, noting ‘employment’ and ‘deliveries’ 

  • In non-manufacturing, all sectors improved. ‘Production’ was quite strong, while ‘deliveries’ managed to climb to the 50pts threshold 

  • Results for the full quarter suggest that the economy grew in sequential terms. Nevertheless, global growth risks have increased again. In the short-term, the most relevant are the effect of the war in Ukraine and rising COVID-19 cases that could affect trade once again

IMEF's PMIs gathered pace in March. Manufacturing picked up to 52.3pts, with the previous month revised marginally to the upside to 51.1pts. Non-manufacturing also increased and even in a greater proportion, from 51.1pts (also revised up) to 52.8pts. We consider that the uptick stems from an additional improvement in virus conditions locally and in other regions, such as the US. Hence, mobility in both countries kept improving, even with signs in Mexico that it might be already reaching an upward limit. In the case of manufacturing, we believe foreign demand remains the key driver. Supporting this, although PMIs in the US were mixed between the ISM (decelerating) and S&P Global (increasing), both metrics remain firmly above 50pts, signaling that performance is quite strong. On non-manufacturing, other domestic factors may have played a bigger role, such as payments of social programs which were brought forward due to the electoral ban. However, we still consider that prevailing inflationary pressures might be dampening performance across both sectors.

Manufacturing mostly higher, with the move led by ‘new orders’. This component increased from 51.0pts to 53.8pts, which we consider quite positive as it also conveys that momentum might continue in coming months. Also favorable, ‘employment’ rose 1.7pts to 52.6pts, while ‘production’ was up 0.5pts to 51.4pts. The increase in these three core components leads us to believe that some of the gains might be more long lasting, and thus, more evident in hard data. Meanwhile, ‘deliveries’ expanded to 50.8pts (+1.1pts) while ‘inventories’ fell 1.9pts to 52.8pts after notable gains in the previous month. As such, we believe that volatility in the latter two components might continue as disruptions to supply chains keep representing challenges for firms.

Non-manufacturing also supported by ‘new orders’. This subcomponent went from 53.6pts to 56.4pts, highest since June 2021. In our view, this might correspond to higher mobility along expectations of better epidemiological conditions, or in its place, more modest shocks in case of new outbreaks. Also strong, and likely boosted by the same factors, ‘production’ climbed to 54.8pts (+2.3pts). Meanwhile, ‘deliveries’ and ‘employment’ were more modest, but still consolidating some gains. With this, now all components are above or at least in line with the 50pts expansion threshold and support other signals of an improvement in domestic demand.

IMEF indicators signal positive dynamics for GDP in 1Q22, but with mounting risks ahead. The manufacturing and non-manufacturing sector indicators averaged 50.6pts and 50.9pts in the quarter, signaling that the economy managed to grow sequentially. In this sense, performance has been better than initially expected, especially considering: (1) Some weakness in 2H21; (2) the Omicron wave that hit our country more clearly since January, affecting mostly the labor market; and (3) persistent price pressures impacting families’ real incomes. As such, we now believe that risks to our 0.5% q/q 1Q22 GDP forecast are skewed to the upside.

However, risks going forward have increased. Firstly, the continuation of the conflict in Ukraine –still with uncertainty over when it might get resolved– and subsequent sanctions will continue to weigh on commodities, especially energy. The latter might remain pressured despite the release of oil reserves by the US for the following six months. In addition, risks to the global supply of key items such as wheat and fertilizers might jeopardize some sectors in our country. Moreover, reports of rising contagions in China, triggering new lockdowns in large cities, such as Shanghai, will likely result in further disruptions to supply chains, limiting growth in the manufacturing sector.

Meanwhile, signs for non-manufacturing might be better at the margin, with anecdotal evidence of more people returning to in-person work. This could have a positive fallout on related services, as we have mentioned previously. In addition, data from prices suggests that the uptick in tourism due to the Easter holiday will also be substantial. Nevertheless, the gap left from social transfers in the next few months could impact some sectors, as some figures suggest that spending is usually front-loaded when payments arrive.

All in all, while observed performance was rather positive, we believe risks in coming months have increased. In particular, the overall impact of some of the latest shocks is still uncertain but is surely negative. As such, we believe that risks might be tilting to the downside for our full-year GDP forecast of 2.4%.