Modest February Industrial Growth, Reduces Recession Fears in Mexico

After a weak start in 2014, enthusiasm for Mexico, which passed a landmark energy reform and is undergoing anti-trust reforms in the communications industry, is fizzling out. Year-to-date, the iShares MSCI Mexico Capped Index (EWW) lost 6.9%, while the iShares MSCI Brazil Capped ETF (EWZ) rewarded investors with 5.3%.

Analysts have scaled back their growth estimates for 2014 after a weak start, fearing that Mexico is entering a recession. And the energy reform is going slowly, with the first wave of foreign investments not expected till 2016.

Industrial production in February grew 0.3% from January, lower than the consensus 0.5%. Construction sector was the main driver, expanding 1.2% from a month ago.

But this modest industrial production came as a relief, as it reduces the fear of a recession, commented Barclays:

We expect that manufacturing activities will accelerate in March and construction will likely stabilize and should stop reporting losses.

Growth for this year might be lower than 3.0% y/y, our current annual forecast, but we will wait for the March IP report (due to be released on May 12) to make an adjustment. On the positive side, we see a low probability of observing a negative performance of GDP in Q1 14, which reduces the fears of a recession.

This morning, the IPC Index is down 0.7%, Cemex (CX) fell 0.4%, America Movil (AMX) was down 0.2%, and Grupo Televisa (TV) fell 0.5%.

By Shuli Ren

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