Economic Research
Mexico
Industrial Production – Lower manufacturing
output explained the 0.7% m/m contraction

Industrial production (April): 1.9% yoy; Banorte-Ixe:
consensus: 0.8% (range: -1.1% to 3.7%); previous: -1.9%

IP’s expansion in April was explained by a favorable calendar effect,
given that the Holy Week added working days to the annual comparison
3.1%;

With calendar adjusted figures, industrial production fell 0.9% yoy

Manufacturing production posted a 1.6% yoy reduction (calendar
adjusted figures)

Mining activity now adds two consecutive years in contraction.

In seasonally adjusted terms, industrial output fell 0.7% m/m

Moreover, IP posted a 1.2% 3m/3m saar contraction, while
manufacturing output edged-down to -1.3%

Looking ahead, we expect industrial production to show a marginal
recovery
June 10, 2016
www.banorte.com
www.ixe.com.mx
@analisis_fundam
Alejandro Cervantes
Senior Economist, Mexico
[email protected]
April’s expansion explained by a calendar effect. INEGI just published its IP
report for April, where the headline index posted a 1.9% yoy expansion
(consensus: 0.8% yoy; Banorte-Ixe: 3.1%). We highlight that IP’s performance
in April was explained by a favorable calendar effect, given that the Holy Week
added working days to the annual comparison. With calendar adjusted figures,
industrial production fell 0.9% yoy.
Taking a look at the breakdown, and using the calendar-adjusted figures,
manufacturing output posted a 1.6% yoy reduction derived from the following
factors: (1) A 8.8% yoy contraction in motor vehicles and auto-parts industry,
given the recent fall in vehicle exports to the U.S.; (2) a 3.8% decline in the
production of electrical equipment and appliances; (3) the contraction in the
fabrication of oil-based products and materials (-2.7% yoy); (4) a 3.1% increase
in the production of machinery and equipment; and (5) a 5.6% yoy expansion in
the fabrication of computer equipment.
Moreover, construction output posted a null growth, as a result of the 4.6%
growth in building projects, whereas public civil engineering construction
projects edged-down to -5.3% yoy. Moreover, mining activity declined 3.6% as
a result of the significant contraction in Mexico’s oil production. With today’s
figure, mining activity now adds two consecutive years in contraction. Finally,
utilities increased 3.1%, as shown in the table on the next page.
Document for distribution among
public
1
Industrial production: April 2016
%yoy
Apr-16
Apr-15
Jan-Apr, '16
Jan-Apr, '15
Total
1.9
1.7
0.8
1.7
Mining
-3.6
-8.4
-3.3
-6.3
Utilities
5.1
2.7
2.5
5.6
Construction
3.6
5.6
2.4
4.9
Manufacturing
3.0
4.3
1.5
3.4
Apr-16
Apr-15
Jan-Apr, '16
Jan-Apr, '15
-0.9
1.6
0.4
1.7
Mining
-3.6
-8.4
-4.1
-6.3
Utilities
3.1
2.7
2.5
5.6
Construction
0.0
6.1
2.3
5.0
3.6
%yoy calendar effect
Total
Manufacturing
Contribution to growth
Total
-1.6
4.5
1.1
Apr-16
Apr-15
Difference
1.9
1.7
0.3
Mining
-0.7
-1.9
1.2
Utilities
0.3
0.2
0.2
Construction
0.8
1.2
-0.4
Manufacturing
1.5
2.2
-0.7
Source: INEGI, Banorte-Ixe
In seasonally adjusted terms, IP fell 0.7% m/m. Taking a look at the
breakdown, manufacturing output edged-down 0.7% m/m. Moreover,
construction activity posted a 0.1% m/m contraction, while mining decreased
2% m/m. With these figures, industrial production is down by -1.2% 3m/3m
saar from 1.6% in 1Q16. Moreover, manufacturing production edged-down to
-1.3% 3m/3m saar from -0.4% in 1Q16, while construction output posted a
2.2% growth (refer to the charts on the next page).
Looking ahead, we expect a marginal recovery in industrial production.
Today’s report shows the significant deceleration in Mexico’s manufacturing
output as a result of the slow growth in the U.S. manufacturing sector, given that
both hold a strong correlation. Moreover, the manufacturing sub-sectors that
also hold a strong correlation with commodities prices has decelerated
significantly.
Nevertheless, we believe that Mexico’s manufacturing industry will show a
marginal recovery given: (1) Manufacturing exports of final goods will continue
to show a moderate expansion given the still depreciated Mexican currency; and
(2) the better growth prospects of the Mexican labor market, which will
continue to translate into a stronger domestic demand for manufactured goods.
However, this recovery will be bounded by the significant deceleration in
Mexico’s vehicle production and exports given the moderate growth in US
vehicles imports,
2
We also believe that private construction output will show a marginal recovery
in the second quarter of the year, given the upward trend in private consumption
and the higher supply of banking credit for households and firms. However, it is
likely that the fiscal cut announced by the Federal Government for 2016 will
subdue Mexico’s overall investment growth throughout the year.
Industrial production: April 2016
%m/m sa
Total
Apr-16
Mar-16
Difference
-0.7
-0.2
-0.5
Mining
-2.0
-1.0
-1.0
Utilities
0.6
-0.9
1.5
Construction
-0.1
0.6
-0.7
Manufacturing
-0.7
-0.4
-0.2
Source: INEGI, Banorte-Ixe
Industrial production
% 3m/3m saar
10
5
0
-1.2
-5
-10
-15
Apr-08
Apr-09
Apr-10
Apr-11
Apr-12
Apr-13
Apr-14
Apr-15
Apr-16
Source: Banorte-Ixe; INEGI
Manufacturing production
Construction output
% 3m/3m saar
20
% 3m/3m saar
15
15
10
10
5
5
0
-10
-5
-15
-10
-20
-25
Apr-08
2.2
0
-1.3
-5
Apr-10
Apr-12
Apr-14
-15
Apr-09
Apr-16
Source: Banorte-Ixe; INEGI
Apr-10
Apr-11
Apr-12
Apr-13
Apr-14
Source: Banorte-Ixe; INEGI
Disclaimer
The information contained in this document is illustrative and informative so it should not be considered as an advice and/or
recommendation of any kind. BANORTE is not part of any party or political trend.
3
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