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Mexico First-Quarter GDP Grows Less Than Calderon Forecast

Mexico's President Felipe Calderon. Photographer: Scott Eells/Bloomberg
Mexico's President Felipe Calderon. Photographer: Scott Eells/Bloomberg

May 19 (Bloomberg) -- Mexico’s economy expanded less than analysts and President Felipe Calderon forecast in the first quarter, as the mining industry and agriculture underperformed.

Gross domestic product, the broadest measure of a country’s output of goods and services, grew 4.6 percent in the first quarter from the same period a year earlier, the national statistics agency said today on its website. Economists expected GDP to rise 5 percent, according to the median of 17 forecasts in a Bloomberg survey. GDP expanded a revised 4.4 percent in the fourth quarter from a year earlier.

Calderon, in a May 10 interview, said Latin America’s second-biggest economy likely expanded 5 percent in the January-March period as a recovery in the U.S. gains momentum. The U.S economy, the destination for 80 percent of Mexico’s exports, rose at a 1.8 percent annual rate from January through March after a 3.1 percent pace in the last three months of 2010.

“Mining seemed to under-perform, but the sector has been growing well in previous quarters,” said Mario Correa, chief economist at Grupo Financiero Scotiabank Mexico, in Mexico City. “Agriculture grew very little but this sector tends to under-perform in the first quarter due to seasonal factors.” Correa had forecast 4.3 percent first quarter growth.

Mining activity fell 2.5 percent in the quarter from a year ago, while non-oil mining production declined 8 percent and oil-related output fell 1.2 percent, the statistics agency said. The service sector grew 4.4 percent, as trade expanded 9.5 percent. Financial services and the insurance sector rose 2.65 percent.

February Frosts

Agricultural output, which expanded 1.2 percent, “was not what we had expected” and was limited by frosts in February, said Finance Minister Ernesto Cordero during an event in Mexico City today, according to a transcript of his remarks sent by the ministry via e-mail.

“Industrial production continues looking good, the service sector is looking very good, agriculture output should improve and show a good pace of growth once weather conditions improve,” Cordero said.

Record-low interest rates are helping fuel growth, Correa said. Central bank Governor Agustin Carstens signaled last week that he will keep the benchmark lending rate at 4.5 percent as expectations for rising prices are “well-behaved.” Policy makers have kept the benchmark rate on hold since July 2009.

Inflation Forecast

The central bank last week maintained its 2011 inflation forecast of between 3 percent and 4 percent after prices rose 3.36 percent in April from a year ago. In Brazil, Latin America’s biggest economy, inflation quickened to 6.51 percent last month, breaching the upper limit of the government’s target range for the first time since 2005.

Scotiabank Mexico expects the central bank to start increasing the benchmark rate in January ending in December 2012 at 6 percent. The bank forecast Mexico’s GDP will grow 4.3 percent this year.

Mexican production of cars and light trucks, the bulk of which is exported to the U.S., rose 21 percent in the first quarter to 632,914 units, according to the nation’s Automobile Industry Association. Remittances reached $5.1 billion in the January-March period, a 5.6 percent increase compared with a year earlier.

Same-store sales at Wal-Mart de Mexico, Latin America’s biggest retailer, rose 4.3 percent in January and 1.8 percent in February before declining 1.1 percent in March.

The peso rose 0.6 percent to 11.6332 per U.S. dollar at 3:20 p.m. New York time.

‘Very Comfortable’

Calderon said May 10 in an interview at Bloomberg’s headquarters in New York that he’s “very comfortable” with the strength of the peso, which has appreciated 5.6 percent this year, more than all other major Latin American currencies tracked by Bloomberg.

Mexico’s economy may grow 4.2 percent in the second quarter, with a risk of slowing even more, due to uncertainty over Europe’s debt crisis, the strength of the U.S. economy and the behavior of commodity prices, said Alejandro Cuadrado, chief Latin America economist at Societe Generale SA, in a telephone interview from New York.

The effect of the March 11 earthquake in Japan may also affect output in the second quarter, he said.

“In the coming month we probably will see weaker support from industrial production, manufacturing and auto production,” Cuadrado said.

To contact the reporter on this story: Jose Enrique Arrioja at jarrioja@bloomberg.net

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

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