Mexican industrial production likely to have grown just 0.1 pct in 2016

Outlook of Mexico’s industrial production has deteriorated in spite of the peso’s depreciation. Manufacturing had expanded at its most rapid rate in November in almost two years, resulting in the best industrial production growth since April. Manufacturing was probably driven by the falling peso and the rising demand from the U.S.

Both these factors might continue to determine production in the near term, unless a concrete decision is reached about the shape of NAFTA, noted Societe Generale in a research report. Moreover, the construction sector had also expanded in November at its most rapid rate since July 2015. The progress in labor market probably helped stimulate this sector as well.

“Based on the trade and other early indicators (including the US IP), we see Mexican IP growing 0.8 percent yoy in December, taking full-year growth to 0.1 percent as against 2015 growth of 1.0 percent and 2.7 percent in 2014”, added Societe Generale.

Industrial production growth continues to be weighed down by contraction in mining. It subtracted 1.3 percent off total industrial production. If oil prices stay around current levels, it would be challenging to expect the mining sector rebound significantly in the near-to-medium term. In the construction sector, the higher borrowing cost might result in a drop in activities in the future, whereas things would be uncertain in manufacturing in spite of the recent peso-depreciation-led surge.

“Put simply, Mexican IP growth faces severe challenges in 2017 and is unlikely to grow in our baseline view”, said Societe Generale.