Today’s weak Mexico IP print unlikely to generate a dovish tone from Banxico

Mexico industrial production declined 0.4% m/m sa in January mainly driven by a contraction in construction (-1.5%) and mining (-0.5%) under a rather flat performance in manufacturing. 

In annual terms, IP increased 0.3%, way below market expectations (Consensus: 2.1%, Barclays: 0.5%).

Barclays Capital notes in a report on Friday:

• This report put downward pressure on our forecast for Q1 15, since it would imply that the economy contracted in January 0.1% m/m sa, setting the GDP tracker for that quarter at 0.7% q/q saar way below our forecast (3.3%).
  
  
• This is not good news for the Mexican economy since industrial production now accumulates two months of consecutive contraction and sets the table for additional downward growth revisions by the market. Moreover, the financial market volatility is pushing the government to contract both fiscal and monetary policies in the coming months, ruling out a strong expansion of GDP this year seems. 
  
  
• We believe that Banxico will focus its efforts on financial stability, and today's weak print should not generate a dovish tone from the board. All in, we believe that Banxico is waiting for the Fed in order to make a move in rates and should remain on hold next March 26.