Analysts see Mexican recovery happening in 1Q14, not 2H13

Analysts see Mexican recovery happening in 1Q14 instead of during 2H13 due to a combination of domestic and external factors.

International analysts now see the recovery of Mexico's economy as more likely to occur in the first quarter of 2014 than during this year's second half due to a combination of domestic and external factors.

After a very disappointing performance so far this year, Nomura Securities said that it still expects a "nice rebound" for Latin America's second largest economy. However due to the impact from the country's recent and massive hurricanes, it believes the recovery may be delayed until 1Q14 instead of during 2H13, which it had expected before the hurricanes.

Barclays Capitalnoted that although Mexico's August industrial production (IP) surprised on the upside, the uncertainties regarding the US fiscal situation and its effect on business confidence and activity make a strong recovery in the fourth quarter "very unlikely."

And Goldman Sachs (NYSE:GS) pointed out that the Mexican economy likely bottomed out during the second quarter, but is yet to show clear signs of recovery ahead.

Last week saw the IMF downgrade this year's GDP growth forecast for Mexico to 1.2% from its forecast of 2.9% in July due to the poor performance of the country's economy in the first half, when it barely grew at all.

IMF also trimmed Mexico's growth forecast for 2014 to 3% from 3.2%.

Nomura Securities is a more bullish on 2014 as it predicts the Mexican economy will expand at least 4% next year on the back of stronger construction and manufacturing activity, increased public spending and benefits kicking in from the approval and implementation of several structural reforms. Expected higher demand from the US will be an important growth factor and the hurricane-related reconstruction phase should also add fuel to the economic recovery next year, Nomura said.

IP SURPASSES FORECAST IN AUGUST

Mexican IP rose in August by 0.5% month-on-month in seasonally adjusted terms, which was above the market consensus forecast of 0.1%. The manufacturing sector rose for a fourth consecutive month in August with a monthly increase of 0.4%, Goldman Sachs noted.

However, IP was down 0.7% year-on-year due to the strong contraction of construction sector activity, which dropped 5.1% y-o-y in August.

The construction sector represents some 20% of total IP. Nomura pointed out that the government has made policy changes that could now help this sector to recover from its weakness of the past several months.