Mexico IP continues in the red due to plunge in mining

Wednesday, October 12, 2016

A sharp drop in output from the Mexican mining sector in August weighed down overall industrial production (IP), which fell by a seasonally adjusted 0.4% month-on-month, according to statistics agency Inegi.

Looking at seasonally-adjusted figures, IP fell 0.8% year-on-year in August, dragged down by mining once again, which dipped 1.7% month-on-month and declined 8.0% year-on-year, while construction was down 0.8% month-on-month and 1.3% year-on-year.

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Mining was hit badly by a 30% slowdown in services related to the sector. The drop in construction was also the second consecutive monthly decrease.

The decrease in IP for August was "disappointing coming on the back of three consecutive increases," according to a research note from Capital Economics, which noted the poor performance in mining, as well as an uptick in manufacturing.

Adjusted for seasonal effects, manufacturing was up 0.2% month-on-month in August - its fourth consecutive monthly increase. In unadjusted terms, manufacturing saw 3.7% year-on-year growth and was up 1.4% year-to-date through August.

Within the manufacturing sector, production of computers, communication products and other electronics showed the highest growth, up 6.4% year-on-year.

Capital Economics noted that Mexico's manufacturing PMI and the US ISM indices for September both showed increases.

"While they don't point to a strong rebound in factory output, they are further evidence that the worst may be over for the manufacturing sector," read the report.

"All in all, though, with the mining sector still under severe pressure, the industrial sector as a whole is likely to remain the key weak spot in the Mexican economy," it concluded.

In the central bank's announcement for the 50-basis point hike in the benchmark rate to 4.75% in September, the policy board cited stagnant industrial production as a motivating factor. Today's result suggests that the trend continues.