Mexico economic activity slumps

Mexico's economic activity slowed 0.4% month-on-month in December in real terms, according to statistics agency Inegi's IGAE indicator, as a slump in industrial activity produced the lowest reading for the indicator in eight months.

The report showed that secondary activities, including industrial output, was down 2.5% from December 2017 in real terms, and all three sectors (primary, secondary and services) contracted on a quarterly basis, pulling back 2.8% quarter-on-quarter, 0.4% q-o-q and 0.6% q-o-q, respectively.

Analysts at local lender Banorte said in a research note that the IGAE result suggests December "was an unusually weak month" with all three sectors showing declines. The note added the drop in services is particularly surprising "given the healthy behavior seen in the retail sector with solid fundamentals for consumption."

"In this sense, this figure suggests a larger-than-expected deceleration that might be explained by greater uncertainty," said Banorte, adding that consumption may be worse off than strong consumer confidence data would suggest.

Inegi also provided its final economic estimate for 4Q18, showing annual growth unchanged from its preliminary estimate of 2.0% in real terms. The final figures for both industrial activity and services were marked lower and in line with the disappointing December IGAE result.

The agency also marked down its quarter-on-quarter estimate to 0.2% growth in real terms from an expansion of 0.3% in the earlier reading. The revised Q4 figures show industrial output fell 1.2% quarter-on-quarter in seasonally-adjusted terms, while services grew 0.7% q-o-q.

The table below details the variations between the preliminary and final GDP estimates from Inegi, using non-adjusted figures.

"Final figures released this afternoon confirmed that GDP growth slowed sharply, from 0.6% q/q in Q3 to 0.2% q-o-q in Q4," said Latin America economist Edward Glossop of Capital Economics. "The downturn was due entirely to a 1.2% q-o-q contraction in industry; growth in the agricultural and services sectors actually picked up."

The economist added that the recent weakness in Mexico's industrial production is moving with the softer economic and trade activity seen worldwide recently.

The latest Inegi data also coincided with a recent report from Goldman Sachs, which lowered 2019 GDP growth forecasts for Latin America's largest economies, reducing the estimate for Mexico to 1.5% from 1.7%.