Mexican gross fixed investment drops for second consecutive month in February

Mexico’s gross fixed investment fell for the second straight month in February. The figure fell 0.8 percent after falling 1.8 percent in January. This was the second straight month-on-month drop for the index and the fourth in the last five months. On a year-on-year basis and not seasonally adjusted, the index fell 3.1 percent, the highest year-on-year drop since June 2016. Moreover, the index’s second worst performance was in March 2016, dropping 3.1 percent year-on-year.

At present, the Mexican economy is unlikely to go into recession; however, it is expected to record a low growth rate, lower than consensus expectations. Especially, gross fixed investment in construction was weak, with residential construction rising 0.9 percent and non-residential construction falling 3 percent in the month.

In the meantime, gross fixed investment in machinery and equipment remained flat in February. But the details indicated that gross fixed investment in transportation equipment was quite subdued. Gross fixed investment in transportation equipment from national origin fell 2 percent in February, while gross fixed investment in imported transportation equipment dropped 10.5 percent, both compared to the prior month and seasonally adjusted, stated Wells Fargo in a research report.

Mexico has already released the preliminary reports for the first quarter economic growth, which surprised the markets on the upside. But the softness in gross fixed investment in January and February is putting more significance in other components of GDP to justify such a solid performance in the first quarter GDP.

“Thus, our contention is that the Q1 GDP result is not a good gauge of the performance of the Mexican economy during the rest of the year”, added Wells Fargo.

This is especially true because Easter came in the first quarter in 2016 and in the second quarter this year. Therefore, results for the first and second quarter of 2017 would be very noisy, making it tough to interpret the true conditions of the Mexican economy. However, a very solid rebound in gross fixed investment is likely when the March figure is released; however, it will not mean much for the performance of the overall GDP for 2017, stated Wells Fargo.