December Industrial production in Mexico dropped 0.1% m/m in seasonally adjusted terms, mainly because of strong contraction in mining, along with the third continuous drop in construction. IP's print was partially countered by a moderate data in manufacturing. A considerable push from transport equipment production mainly drove manufacturing. On a yearly basis, industrial production grew only 0.3% in December.

The Mexican economy is likely to have shrunk 0.3% m/m in seasonally adjusted terms in December. The January data is also indicating towards a drop in car production that declined 4.4% m/m in seasonally adjusted terms, whereas oil production fell 0.2%. The US ISM is still lower than 50. Moreover, public investment is likely to remain weak in H1 2016, lowering the likelihood of a rebound in construction, whereas oil production is expected to be stable.

"We believe IP will decline 0.2% q/q sa in Q1 (after the 0.4% contraction in Q4 15), putting this sector into a technical recession", says Barclays.

Meanwhile, domestic demand and consumption are likely to be resilient to these headwinds. ANTAD same-store sales grew 1.4% m/m in sa in real terms in January, whereas IMSS employment grew 0.4% m/m sa in January.

"If the recession is temporary, the economy should maintain modest growth throughout the year, as our GDP forecast remains at 2.3% y/y for 2016 as a whole", says Barclays.