Aug. 16 (Bloomberg) -- Mexico's economic growth probably picked up speed in the second quarter after a recovery in U.S. industrial production spurred demand for exports including automobiles.

Gross domestic product, the broadest measure of a country's output in goods and services, grew 2.9 percent annually in the quarter, according to the median estimate of 18 economists surveyed by Bloomberg, after 2.6 percent growth in the first quarter. The government is scheduled to release quarterly figures today at 3:30 p.m. New York time.

A growth rate of about 3 percent would mark the end of four consecutive quarters of deceleration in Latin America's second- largest economy. Faster growth, coupled with pressure from higher food prices that has fueled inflation, will put pressure on the central bank to raise interest rates this year.

``Weakness in the economy has helped to prevent high commodity prices from passing through to the consumer and fueling inflation,'' Guillermo Aboumrad, a senior economist at UBS's unit in Mexico City, said in a telephone interview. ``Now that the economy is no longer decelerating it will cease to provide a cushion for the central bank.''

Substantial Increase

The economy will continue to accelerate in the third and fourth quarter, raising growth for the year to 3.3 percent, Miguel Messmacher, the Finance Ministry's chief economist, told reporters last month.

``We are already seeing a very substantial increase in the quarterly growth rates,'' Messmacher said. ``The national economy has performed better than what we saw in the first three months of the year as a consequence of external demand, greater manufacturing growth in the U.S. and a recovery in the automotive sector.''

Mexico's auto production rose 3.5 percent in the second quarter to 515,543 vehicles after falling 12.4 percent in the previous period. In July production rose 26 percent to 148,937 vehicles, the biggest increase since June of 2006.

``This sector is going to be showing a recovery,'' Bank of Mexico economist Manuel Ramos Francia said in Mexico City last month. Mexico's ``economic cycle is synchronized with industrial production in the United States.''

Inflation

Mexico's central bank raised its benchmark lending rate to 7.25 percent in April as a ``preventive'' measure to offset rising food costs.

Unexpected ``supply shocks'' caused by events ranging from hurricanes that damaged tomato crops to rising international corn and grain prices have caused the central bank to miss its 2 percent to 4 percent target band for seven of the past 11 months.

Mexican consumer prices had their biggest increase in six months in July, rising to 4.14 percent on rising prices for tomatoes, milk, avocadoes, and electricity. Even as prices rise the central bank has become more aggressive, setting a target of 3 percent by the end of 2008.

As growth quickens, any additional unforeseen rises in food costs will trigger a rate increase, said Gray Newman, a senior Latin America economist at Morgan Stanley in New York.

``Two months in a row the central bank has said the risks to its inflation target rising,'' he said. ``Mexico doesn't have an inflation problem as much as it has an inflation target problem.''

Production

Construction output, which rose 1.2 percent in the quarter after rising 6.9 percent last year, is expected to pick up in the second half of this year.

``Growth in this sector will be supported by strong government finances and continued fiscal discipline,'' Cemex SAB finance and planning chief Hector Medina said in the conference call last month.

Mexico's industrial output recovered in June, rising 0.9 percent on a seasonally adjusted basis from the previous month compared with a 0.1 percent decline in May.

``The low point of the Mexican economy was in the first quarter, following the same pattern as the U.S. economy,'' Bertrand Delgado, a Latin America economist in New York at IDEAglobal Inc., said in a telephone interview.

To contact the reporter on this story: Patrick Harrington in Mexico City at pharrington8@bloomberg.net

Last Updated: August 16, 2007 08:12 EDT