Mexico GDP Grows Most Since 2010 on Exports as U.S. Recovers

Mexico’s economy grew at the fastest pace in more than a year in the first quarter as U.S. demand picked up, the latest sign that the nation is surpassing Brazil after trailing Latin America’s biggest economy for most of the past decade.

Gross domestic product expanded 4.6 percent from the year-earlier period, up from a revised 3.9 percent in the previous three months and the most since the third quarter of 2010, the national statistics office said on its website today. The median forecast of 17 analysts surveyed by Bloomberg was for growth of 4.5 percent. From the previous three months, the economy grew 1.3 percent.

Mexico’s expansion exceeded Brazil’s last year as domestic consumption and exports picked up on the heels of a U.S. recovery. The lowest inflation rate in Latin America and a benchmark interest rate that has remained at a record low for 34 months are helping improve the outlook for growth in the region’s second-largest economy, said Italo Lombardi, an economist at Standard Chartered Bank.

“Brazil is growing less than Mexico, while it used to be the other way around,” Lombardi said. “Mexico is becoming more diversified than before since we’ve seen a more solid performance of internal demand.”

Mexico’s central bank yesterday raised its growth forecast for this year to between 3.25 percent and 4.25 percent from 3 percent to 4 percent. Brazil’s economy will expand 3.2 percent this year, according to economists surveyed by the central bank.

Leading Growth

Mexico’s agriculture industry led first-quarter growth, expanding 6.8 percent from a year earlier, the most since at least 2008. Manufacturing industries grew 5.5 percent and services expanded 5 percent.

Manufacturing exports are growing at a “very accelerated” pace, bank Governor Agustin Carstens told reporters yesterday.

Exports rose 3.4 percent to a record $32.4 billion in March from a year ago, with the trade surplus reaching $1.6 billion, the highest monthly figure since at least 1985. In Brazil, exports peaked at $26.1 billion in August, before falling to $20.9 billion in March as a slowdown in China, Asia’s biggest economy, damped demand for its raw materials.

Mexico’s growth is driven by expansion in the U.S., which accounts for 80 percent of exports from its southern neighbor.

The U.S. economy expanded at a 2.2 percent annual rate in the first quarter as consumer spending, which accounts for about 70 percent of the economy, contributed 2 percentage points to growth, the most since the final three months of 2010.

Car Industry

Mexico is poised to become the fourth-largest global exporter of automobiles this year, President Felipe Calderon said on May 14. It currently ranks fifth.

Among the biggest investors in Mexico’s car industry are Detroit-based General Motors Co. and Dearborn, Michigan-based Ford Motor Co.

“The Mexican economy is highly dependent on what happens in economic terms in the U.S.,” said Alfredo Coutino, Latin America director at Moody’s Analytics. “If the U.S. recovery continues to advance, that’s going to be positive for the Mexican economy.”

U.S. housing starts and industrial production exceeded analyst forecasts in April. Starts rose 2.6 percent to a 717,000 annual rate from March’s 699,000 pace, Commerce Department figures showed yesterday. Industrial production climbed 1.1 percent, the most since December 2010, the Federal Reserve said.

Mexico’s economy grew 3.9 percent last year, compared with expansion of 2.7 percent in Brazil, where GDP is twice the size.

Consumer Confidence

As exports pick up, consumer confidence soared to a four-year high in Mexico in April, while economic growth accelerated to 6.24 percent in February. Growth eased to 3.6 percent in March, the statistics institute reported today.

The approach of July’s presidential election has failed to damp consumer sentiment.

Mexico’s presidential race on July 1 is unlikely to derail the economic stability of the country and should be neutral for the country’s creditworthiness in the near term, Fitch Ratings said in a May 15 report.

The peso this year has avoided the declines that preceded Mexico’s last two presidential votes. In 2012 to date, the peso has gained 1 percent, the fourth-best performance against the dollar among the 16 most-traded currencies.

The peso plunged in the first half of 2006 on concern Andres Manuel Lopez Obrador, who said he would renegotiate the North American Free Trade Agreement with the U.S. and Canada, would win the presidency.

In 2000, concern the ruling Institutional Revolutionary Party, or PRI, would contest a victory by Vicente Fox, whose election ended 71 years of single-party rule, helped push the peso down 3.3 percent.

Credit Default Swaps

The cost of protecting Mexican debt against non-payment for five years with credit default swaps was 11 basis points less than that for Brazil on May 9, the biggest gap since April 20, 2010, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

Yields on Mexico’s peso bonds dropped to the lowest in a week today following the economic growth report. The yield on local-currency bonds due in December 2014 fell three basis points, or 0.03 percentage point, to 4.79 percent at 8:50 a.m. in Mexico City, according to data compiled by Bloomberg.

The peso depreciated 0.1 percent to 13.7766 per dollar today.

While Mexico’s economic growth accelerates, inflation remains under control. Consumer prices rose 3.41 percent in April from the year earlier, compared with 5.1 percent in Brazil.

Subdued inflation has enabled the central bank to keep its key rate on hold since July 2009.

“The outlook on inflation in Mexico is pretty steady, pretty stable, pretty predictable.” said Enrique Alvarez, an emerging-market analyst at IdeaGlobal in New York. “You get a more favorable outlook and panorama in Mexico. In Brazil you don’t.”

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