Mexico: IMEF survey results reflect continued upbeat business sentiment

Florencia Vazquez,Gustavo Arruda,Marcelo Carvalho,Nader Nazmi - Market Economics
Daily Latam Spotlight | 04 Dec 2012 06:00 |

Mexico: IMEF survey results reflect continued upbeat business sentiment

MEXICO

PMIs continue well inside the expansion zone. At 53.8 each, the IMEF manufacturing and non-manufacturing indicators both remained in the expansion territory in November. Four of the five IMEF manufacturing components (new orders, production, employment and inventory) were decidedly in the expansion territory. The inventory segment was the only sub-50 component (47.1). The new orders and production components of the non-manufacturing IMEF showed continued strength, with readings of 57.6 and 56.7, respectively.

On a seasonally adjusted (sa) basis, manufacturing IMEF rose to 52.3 (sa) in November from 51.5 (sa) in October. It has remained in the expansion zone uninterruptedly since July 2009. Non-manufacturing IMEF (sa) was strong at 53.4 in November, following a 54.3 print in the prior month. Given the high correlation that exists between this indicator and consumption, domestic demand is likely to continue expanding at a robust pace.

Consensus expectations on growth and inflation declined in Banco de México’s (Banxico) November survey. Analysts participating in Banxico's monthly expectations survey lowered their 2012 growth projection to our long-standing 3.80% from 3.87% last month. For 2013, the consensus forecast for growth is 3.4%, down from 3.6% last month and below our 3.9% call.

The survey shows small changes on the inflation front. The market 2012 consensus forecast was revised down to 4.10% from 4.16%. For 2013, the average inflation forecast remained unchanged at 3.77%. According to the latest survey, expectations for 12-month-ahead inflation stood at 3.86%, still well above Banxico’s 3.0% target. Indeed, inflation expectations for all time horizons (2014, 2013-2016 and 2016-2020) remain above the 3.0% target.

Consensus expects the central bank to remain on hold until mid-2014. In contrast, we look for rate hikes in Q4 2013. Analysts now expect end-year 2012 and 2013 USDMXN rates of 12.89 and 12.69, respectively.

Remittances fell in October over a year ago. Banxico also reported that remittances reached USD 1.8bn in October, down 7.1% over a year ago. On a seasonally adjusted basis, remittances were down 1.7% m/m in October. The accumulated remittances in the first 10 months of the year reached USD 22.6bn, reflecting a 4.9% increase over the same period in 2011. The average monthly amount of remittances in the 12 months ending in October was USD 315, compared with an average of USD 325 a year ago. The moderate recovery in the US labour market is being reflected in a moderate recovery in remittances inflows to Mexico. A stronger MXN is likely a factor keeping remittances growth in check.