Bloomberg News

Mexico’s Quarterly GDP Growth May Keep Central Bank on Hold

November 23, 2011

(Updates with economists comments, starting in fourth paragraph.)

Nov. 22 (Bloomberg) -- Mexico’s economy expanded more than economists forecast in the third quarter, led by growth in agriculture, dimming the prospect for a central bank interest- rate cut next month.

Gross domestic product expanded 4.5 percent from a year earlier, the national statistics agency said today on its website. Analysts forecast 3.9 percent growth, according to the median estimate of 17 economists surveyed by Bloomberg.

While a rebound in Latin America’s second-biggest economy was losing steam as a result of lower sales to the U.S., third- quarter GDP grew at a faster pace than the previous quarter’s 3.2 percent. Signs of strong domestic growth may deter the Bank of Mexico from cutting the 4.50 percent overnight rate at its next meeting, said Rafael Camarena, an economist at Banco Santander SA in Mexico City.

“This makes it much more difficult for the central bank to cut rates in December, because up until now the data has been positive,” Camarena said in a telephone interview. “The domestic market keeps strengthening. There have been gains in employment, inflation is low and credit is reactivating. This is good news given the international situation.”

The economy expanded at the same rate as the first quarter as agriculture output rose 8.3 percent and the service sector grew 4.8 percent, the statistics agency said.

Beating Expectations

Mexico’s economic indicators have been beating analysts’ expectations recently, including higher-than-expected industrial output of 3.6 percent in September and lower-than-forecast unemployment of 5.68 percent in the same month.

Additionally, consumer confidence rose to 90.6 in October while the IMEF manufacturing index climbed to 51.4, both beating analysts’ predictions. At the same time, consumer prices rose 3.2 percent from a year earlier, less than economists expected.

“The industrial sector did well as the expected headwinds from the U.S. (slowdown) did not arrive,” Nader Nazmi, a Latin America economist at BNP Paribas, wrote in a research note today.

U.S. growth in the third quarter missed economists’ estimates by 0.5 percentage point, climbing at a 2 percent annual rate, the Commerce Department announced today in Washington.

Like Mexico, Chile’s economic indicators have been beating forecasts. Industrial output in Chile expanded 1.7 percent in August and 5.2 percent in September, while the central bank’s IMACEC economic activity index rose 5.7 percent in September from a year ago.

Interest Rate

Mexico’s central bank said in the minutes to its last monetary policy meeting held Oct. 14 that it is willing to cut interest rates, although a sustained depreciation by the peso may fuel inflation and require a more restrictive stance.

The peso has declined 16 percent since Aug. 1, the worst performance of any major Latin American currency tracked by Bloomberg.

According to a survey by Citigroup Inc.’s Banamex unit published Nov. 17, five of 20 economists predict policy makers will lower benchmark borrowing costs from a record low 4.5 percent next month, That’s down from nine economists in a survey two weeks ago.

Policy makers meet Dec. 2 to decide on rates.

Media, Financial Services

Third-quarter growth in agriculture was driven by higher corn and sorghum production, while the service sector expansion was led by media and financial services, the statistics agency said today. Secondary activities expanded the least, by 3.4 percent, led by the construction and manufacturing sectors, the report showed.

The third-quarter data shows manufacturing “lost momentum” and this may affect other sectors in upcoming quarters, Alberto Ramos, a senior Latin America economist at Goldman Sachs Group Inc. said in a research note. “We do not expect the agricultural sector to maintain this level of performance going forward.”

Growth in the second quarter was revised to 3.2 percent from 3.3 percent, while first quarter expansion was lowered to 4.5 percent from 4.6 percent, the statistics agency said.

The peso rose 0.4 percent to 13.9654 per dollar at 3:20 p.m. New York time from 14.0165 yesterday.

--With assistance by Jose Enrique Arrioja and Jonathan Roeder in Mexico City. Editors: Bill Faries, Robert Jameson

To contact the reporter on this story: Nacha Cattan in Mexico City at ncattan@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net


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