Macro Analysis /

Mexico: Timely Indicator of Economic Activity – Slight setbacks in June and July

  • June’s estimate was revised upwards to -0.1% m/m (2.1% y/y sa), with adjustments higher in the two subsectors

  • July’s print also came in at -0.1% m/m (1.5% y/y sa), with industry at -0.2% and services falling -0.1%

  • These results suggest a slight downward revision to 2Q22 GDP, with an additional moderation in activity ahead

Juan Carlos Alderete Macal
Juan Carlos Alderete Macal

Director of Economic Research

Francisco Jose Flores Serrano
Francisco Jose Flores Serrano

Senior Economist, Mexico

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

  • June’s estimate was revised slightly upwards relative to the preliminary figure, now at -0.1% m/m, (2.1% y/y sa). This is due to a more modest slowdown in services and industry growth 

  • July is also expected at -0.1% m/m (1.5% y/y sa). This contrasts with timely data reflecting stronger dynamism for both industry and services 

  • These results suggest a slight downward revision to 2Q22 GDP. On the other hand, and as we have been anticipating, economic performance for 3Q22 it likely to keep moderating, albeit without this implying an outright contraction

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. 

Headwinds for economic growth ahead. INEGI released its Timely Indicator of Economic Activity (IOAE in Spanish), which confirms that activity managed to grow throughout the first half of the year. Nevertheless, June’s estimate would imply a downward revision to 2Q22 GDP final figures relative to the preliminary print, climbing around 0.9% q/q (+2.0% y/y, nsa). Going to July, figures remain down, but it is our take that results are not so worrisome considering a more challenging backdrop. Among the main risks, we highlight the persistence of high inflation and the possibility of lower demand from abroad –especially the US–, along globally tighter financial conditions. However, we believe some factors may help offset for the latter. On these, we highlight that domestic demand may be favored –in terms of disposable income– by the regularization of social programs’ payments, employment growth, and strength in remittances.

Slight contraction in June... The revised figure came in at +2.1% y/y (range: 0.9% to 3.3%), 3bps lower relative to the previous estimate (sa). In sequential terms this implies -0.1% m/m (previous: -0.3%). On one hand, the reasons behind the upturn in industry, according to its own report, were mining and construction. As for services, these declined -0.1% (previous: -0.5%). Therefore –and based on our calculations–, activity in the month would have grown 1.8% y/y (nsa).

…with an additional deceleration in July. The estimate is 1.5% y/y (range: -0.5% to 3.4%), which translates into a sequential decrease of -0.1% m/m. Inside, industry would come in at -0.2% m/m and services at -0.1%, both contrasting with timely data from other indicators. Therefore, we estimate +0.6% y/y in the period (nsa).