Macro Analysis /
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Mexico: Timely Indicator of Economic Activity – Modest recovery in 2Q22 GDP

  • May’s estimate was revised downwards to 0.0% m/m (1.5% y/y sa), with both services and industry moderating

  • June’s figure came in at -0.4% m/m (2.1% y/y sa), with declines in industry (-0.3%) and services (-0.5%)

  • The results suggest 2Q22 GDP at 0.8% q/q (+1.9% y/y nsa), underpinned by strong domestic demand

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
19 July 2022
Published byBanorte
  • Today, INEGI released its Timely Indicator of Economic Activity (IOAE, in Spanish) for June, as well as revised estimates for May 

  • May’s estimate was revised slightly downwards relative to the preliminary figure, now at 0.0% m/m, (1.5% y/y sa). This is explained by lower dynamism on both services and industry 

  • June is expected at -0.4% m/m (2.1% y/y sa). This is consistent with early data on economic activity, especially from industry. We believe this is a result of a more challenging backdrop, especially due to higher inflationary pressures 

  • These results suggest that GDP kept growing in 2Q22, with an expansion close to 0.8% q/q (1.9% a/a). While this would have been more modest than in the first quarter, it is slightly better than we originally expected, supported by domestic demand

This indicator is an effort by INEGI to forecast the monthly GDP-proxy IGAE five weeks in advance, which is very valuable. It is constructed through nowcasting methods, based on econometric models –which in turn rely on forward-looking high-frequency data to anticipate economic activity–. By construction, INEGI publishes confidence intervals for these estimates; nevertheless, we focus only in the midpoint of these ranges. 

GDP likely recovered further in 2Q22. INEGI released its Timely Indicator of Economic Activity (IOAE in Spanish). Using April’s known figures and today’s two estimates, activity would have grown about 0.8% q/q (+1.9% y/y nsa) in 2Q22w. While this represents a moderation relative to the first quarter, it would still be higher than we originally forecasted. Industry has remained resilient, especially manufacturing. Nevertheless, several headwinds were more prevalent in this period, including inflation and supply disruptions. Regarding services, while some momentum remains from an additional normalization in activities and strong fundamentals, we believe the sector could have been impacted more by price pressures, along the absence social programs’ payments (due to the electoral ban) and an increase in contagions towards the end of June.

Slightly negative revision in May... The revised figure came in at +1.5% y/y (range: 0.3% to 2.8%), with an adjustment of +50bp relative to the previous estimate (sa). However, in sequential terms it translates to 0.0% m/m (previous: +0.1%). According to the industrial production report, growth was limited but driven by manufacturing. Services were also lower, reaching 0.0% (previous: +0.1%). Therefore, –and based on our calculations– activity in the month would have grown 2.4% y/y (nsa).

…with a negative outlook for June. The estimate is +2.1% y/y (range: 0.2% to 4.1%), which implies a sequential decline of 0.4% m/m. Industry would fall 0.3%, with services lower at -0.5%. Hence, we estimate +1.8% y/y in the period (nsa).