Mexico GDP growth beats forecasts as services sector lends boost

Nacha Cattan | Bloomberg January 29, 2016

Mexico’s economy expanded more than forecast for the fourth consecutive quarter in the final three months of the year as domestic consumption rebounded amid record low inflation.

Gross domestic product rose 2.5 percent in the fourth quarter from a year earlier, according to preliminary figures released by the national statistics institute Friday. That compared with the 2.3 percent median forecast of 21 economists surveyed by Bloomberg. From the previous quarter, GDP advanced 0.6 percent, and increased 2.5 percent for the full year of 2015. The institute will release final GDP figures Feb. 23.

Mexicans have more money in their pockets after inflation slowed to record lows last year and the subsequent rise in purchasing power is supporting economic growth, Finance Minister Luis Videgaray said Wednesday. The country has been a bright spot for growth compared to some Latin American economies. GDP is forecast to expand 2.8 percent this year, according to analysts polled by Bloomberg, compared to the analysts’ regional estimate for a 0.5 percent contraction.

“Mexico performed better than anyone would have imagined given the steep decline in oil prices and spending cuts,” Alonso Cervera, chief Latin America economist at Credit Suisse Group, said in Mexico City before the report was released. “Services have been expanding nicely and more than compensate for the very sluggish performance in industrial GDP.”

The peso extended its advance after the GDP report, rising 0.7 percent to 18.2064 per U.S. dollar at 8:07 a.m. in Mexico City. The currency has slumped 6.1 percent this year through Thursday after the United States raised interest rates and plunging oil prices increased risks to government spending.

The pace of expansion weakened from 2.6 percent in the third quarter, the statistics institute said. The agency had originally reported third quarter growth of 2.3 percent as a preliminary figure, the first time it had released an initial number. Today was the second time.

While weak growth and low inflation point to leaving interest rates on hold, policy makers raised borrowing costs last month for the first time since 2008 and said they’ll focus on Mexico’s monetary posture relative to the U.S. Banco de Mexico Governor Agustín Carstens said last week it was “essential” that Mexico match the Federal Reserve’s monetary policy.