Industrial production (IP) increased 1.0% broadly in line with market expectations of 1.1% (as per Bloomberg) and slightly above our forecast of 0.8%. Using calendar adjusted figures, IP stood at a soft 0.7% YoY in May, taking the quarterly annual rate to 1.0% (from 1.7% in 1Q24). At the margin, IP rebounded to 0.7% MoM/SA in May (after falling -0.4% in April) supported by a strong expansion in the construction sector (2.5%) and mining output (2.0%), while manufacturing production was soft (0.0%). Industrial production momentum improved in May, with the qoq/saar at 1.8% (from -2.5% in 1Q24), but with manufacturing production still soft (qoq/saar of -0.7%) and construction's qoq/saar at a positive 11.3%.
Our take: The positive momentum in the construction sector is unlikely to persist in the 2H24 as several of the current administration's large infrastructure projects are likely to be culminated, while the recent depreciation of the currency could bring some support to manufacturing output which has been soft since the beginning of the year amid a strong currency. We recently revised our 2024 GDP growth forecast down to 1.6% (previously at 2.3%) considering a likely weaker 2Q24. We note that most Banxico board members have emphasized weaker activity poses downside risks to inflation, increasing the odds for rate cuts, in our view.
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