Mexican industrial production rises in May; weakness still continues

The industrial sector in Mexico continued to be subdued in May. Though industrial output rose 0.3 percent on a sequential basis in the month, the year-on-year rate dropped to 0.4 percent from 1.9 percent in the 12 months ending April.

The construction and public utilities sectors were the best performing sectors within industrial production in May. Construction activity rebounded 0.2 percent month-on-month and 2.8 percent year-on-year. Meanwhile, public utilities sector rebounded strongly by 1.4 percent month-on-month in seasonally adjusted terms.

But the Mexican construction sector should be concerned about because of the Bank of Mexico’s decision to hike its rate further. For now, the latest rise in interest rates will have a restricted impact on the construction sector; however if the central bank decides to keep on raising rate, it might not be a good news for the sector in the future, noted Wells Fargo in a research report.

The mining sector was the worst performing sector again. The sector contracted 0.5 percent in May on sequential basis and 4.7 percent year-on-year. The petroleum and energy sector fell below 4.7 percent out of the overall mining sector. This is possibly one of the few good data points in the report, stated Wells Fargo.

On a month-on-month basis, petroleum and natural gas output fell 0.1 percent, whereas on year-on-year basis the output dropped 2.8 percent. But the year-on-year drop was larger in May than in April that does not augur well for the sector in the future.

Even if the manufacturing sector of Mexico rebounded 0.3 percent on sequential basis in May, it recovered by just 0.8 percent on a year-on-year basis and from a downwardly revised 2.9 percent rate recorded for the 12 months ending in April. The manufacturing sector, which is largely driven by automobile production, has dropped in this year as the US automobile demand has dropped significantly in the first half of 2016.

“However, our expectation, based on recent automobile production and by the 7.5 percent increase in automobile exports to the United States in June, is that manufacturing production is primed to improve in the coming months, helping the manufacturing sector and the industrial sector going forward,” added Wells Fargo.