The Day at a Glance | September 11 2023

*Mexico´s industrial sector remained strong at the beginning of the 3Q23, and exceeded market expectations.

*The Ministry of Finance and Public Credit (SHCP for its acronym in Spanish) presented the Economic Package 2024 to Congress. 

*Inflation in China remained low during August.

*During a post-G20 summit interview, Treasury Secretary Janet Yellen indicated that she “feels very good” about the outlook for a “soft landing” regarding the US economy.

Economic environment

Industrial production recorded 4.8% y/y growth in July. This figure significantly exceeded the consensus forecast, which expected 4.0% growth. When considering seasonally adjusted figures, there was a 4.9% y/y increase, which was supported by a 0.5% m/m uptick. Utilities logged the largest monthly increase (3.5%), followed by construction (2.0% m/m), and manufacturing (0.3% m/m), while mining declined by -2.6%. Therefore, the annual component´s readings highlight the strong performance seen in the construction sector, with a 24.7% y/y expansion, accompanied by positive figures in services (4.6% y/y) and manufacturing (1.1% y/y). However, mining contracted by -0.5% in its annual reading. Overall, industrial production maintained its trend; robust readings were logged in its aggregate figures but heterogeneous growth was recorded within its components.

The Ministry of Finance and Public Credit (SHCP) presented the 2024 Economic Package, with an economic growth range of 2.5% to 3.5% and a 3.8% inflation rate. These figures differ from the forecasts made known by the Central Bank of Mexico. Additionally, the forecasted exchange rate is 17.6 pesos per dollar, while the average price of oil is set at $56.7 per barrel. It´s important to highlight that the SHCP’s report does not address trade risks, which some consider to be significant. Furthermore, although this budget is in line with policies carried out in recent years and does not include significant tax increases, it poses significant challenges and questions about fiscal sustainability as we move towards the next administration.

August´s inflationary figures in China logged an “increase” compared to the previous month but still remained low. The consumer price index recorded an annual 0.1% figure, in line with consensus estimates and recorded an improvement from the first negative reading in over two years reported in July, which set at -0.3%. There was a 0.5% y/y increase in non-food items, such as clothing (1.1% y/y), health (1.2% y/y), and education (2.5% y/y), while transportation prices logged a smaller decrease (-2.7% y/y, compared to the previous -4.7%). These figures offset the 1.7% y/y decline in food prices, which was the same as the previous month. In this regard, core inflation, which excludes food and energy prices, increased by 0.8% y/y, matching July´s reading and maintained the fastest pace for this category since January. On the other hand, producer inflation reported a -3.0% decline, which, although it recorded moderation from July’s 4.4%, was marginally higher than the -2.9% expected by the consensus and remained in negative territory for the eleventh consecutive month. Specifically, the declines in production materials (-3.7% y/y), consumer goods (-0.2% y/y), food (-0.2% y/y), and durable goods (-1.2% y/y) moderated. However, some categories that maintained positive readings also slowed down, such as daily use goods (0.6% y/y) and clothing (1.0% y/y). August´s figures logged relative improvement with lower deflationary pressures, especially in core inflation in the consumer price index and the smallest contraction in producer inflation in five months, which points to stabilization in China´s economy. However, more actions are needed on behalf of authorities in order to encourage China´s domestic market and boost economic activity.