Macro Analysis /

Mexico: Timely Indicator of Economic Activity–Timid signs of a moderation ahead

  • July’s forecast improved to 0.4% m/m (1.8% y/y sa), with a better performance in industry and services

  • August’s estimate stands at 0.0% m/m (2.9% y/y sa), highlighting null growth in services

  • Despite the headwinds, we still expect some dynamism for activity in the short-term, driven by domestic demand

Juan Carlos Alderete Macal
Juan Carlos Alderete Macal

Director of Economic Research

Francisco Jose Flores Serrano
Francisco Jose Flores Serrano

Senior Economist, Mexico

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

  • July’s estimate was revised upwards relative to the preliminary figure, now at 0.4% m/m, (1.8% y/y sa). This was driven by additional strength in both industry and services 

  • August is expected at 0.0% m/m (2.9% y/y sa). This is consistent with timelier data suggesting a moderation, especially for industry, but also for services 

  • These results are in line with our call of a growth slowdown in 3Q22 GDP, with greater risks in the horizon. Nevertheless, some bright spots remain, especially for domestic consumption

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.

Likely deceleration in 3Q22 growth. INEGI released its Timely Indicator of Economic Activity (IOAE in Spanish), pointing to a slowdown in the recovery trend, in line with our view for GDP in the third quarter. This responds to an increasingly challenging backdrop, with inflationary pressures still rising –also resulting in more monetary tightening by global central banks– and persistent supply chain disruptions. On top of this, signs from the US suggest a decline in some sectors, including industry, which could have a negative spillover effect on Mexico. However, some positive factors remain present and will be key to support dynamism in the short-term. Most of them are related to fundamentals for consumption, highlighting remittances –with remarkable strength in the last couple of prints– and employment, to name a few.

Modest expansion in July... The revised figure came in at +1.8% y/y (range: 0.7% to 3.0%), 35bps higher relative to the previous estimate (sa). In sequential terms, this implies +0.4% m/m (previous: -0.1%). Industry surprised to the upside at +0.4% m/m, driven by manufacturing. Services are also expected higher, at 0.2%. Therefore –and based on our calculations–, activity in the month would have grown 1.1% y/y (nsa).

…with a moderation in August. The estimate stands at +2.9% y/y (range: 0.8% to 4.9%), which translates to 0.0% m/m. Inside, industry would be the weakest at -0.1% m/m, consistent with weak signals from manufacturing and housing in the US, while services would be slightly better at 0.0% –relatively in line with early data from other indicators. Therefore, we estimate +3.9% y/y in the period (nsa).