Mexico Economy Weakened Less Than Forecast in Second Quarter

Mexico’s economic growth slowed less than analysts forecast in the second quarter as auto exports climbed to a record, helping offset a downturn in shipments of some manufactured goods and oil.

Gross domestic product expanded 0.9 percent from the first quarter, an annualized rate of 3.5 percent and down from a revised 1.2 percent in the first three months, the statistics agency said today on its website. That beat the 0.7 percent median estimate of seven economists surveyed by Bloomberg.

Economic growth in the U.S., the buyer of 80 percent of Mexico’s exports, slowed to a 1.5 percent annual rate in the second quarter amid unemployment that has held above 8 percent for more than three years. While Mexico’s expansion slowed from the fastest annual pace since 2010 on the weaker U.S. expansion, growth has topped Brazil’s for the past year. The central bank said last month that monetary policy is adequate with the economy on a positive trajectory.

“We see less growth in the manufacturing sector due to lower growth in the U.S. economy, but we believe this is a good figure overall,” Rafael Camarena, an economist at Banco Santander SA, said by phone from Mexico City. “If the U.S. economy grows at least two percent this year and a similar figure for 2013, the Mexican economy could see a good performance probably close to four percent this year.”

Mexico’s annual growth will slow to 2.9 percent in the third quarter before rising to 3.1 percent in the final three months of the year, according to the median estimates in a Bloomberg survey.

June Growth

The statistics agency, known as Inegi, also said today that the economy expanded 3.79 percent in June from a year earlier as measured by the global economic indicator, less than the 3.9 percent median estimate of 15 economists surveyed by Bloomberg.

Annual growth in GDP eased to 4.1 percent in the second quarter from a revised 4.5 percent in the first quarter, missing the 4.3 percent average analyst estimate, Inegi said.

Mexico’s peso erased its advance after the release of the economic reports, remaining little changed at 13.1366 per dollar at 10:34 a.m. in Mexico City.

Earnings for Mexican companies such as Coca-Cola Femsa SAB and Desarrolladora Homex SAB reflected the slowdown in demand. Homex, Mexico’s largest homebuilder by sales, has cut its 2012 revenue projection, while Femsa, Latin America’s biggest Coke bottler, reported second-quarter profit that trailed analysts’ estimates.

Interest Rates

The central bank may be limited in its ability to cut interest rates to boost growth after annual inflation breached its 2 percent to 4 percent target range in June and reached a 28-month high of 4.42 percent in July as a bird flu outbreak and drought drove up farm prices.

Mexico’s central bank has kept the nation’s benchmark rate at 4.5 percent since July 2009, the lowest level among major rate-setting banks in Latin America after Peru.

Central bank Governor Agustin Carstens said in a July 26 interview that the effects of higher food prices will be temporary and isolated, and that Mexico’s stability will enable the economy to outpace Brazil’s expansion in coming years.

The chances of a “severe weakening” in the global economy have caused medium-term inflation risks to abate and the growth outlook to worsen, according to the central bank’s last rate decision on July 20.

Export Growth

Mexican exports grew 3.8 percent in the second quarter from the same period a year earlier, down from 11.6 percent in the first three months of 2012, according to the statistics institute. Oil exports fell 14 percent from a year earlier as crude prices dropped from a nine-month high in February to an eight-month low in June, according to calculations based on statistics institute data. Growth in shipments of non-auto manufactured goods slowed to 7.1 percent in the second quarter from 7.4 percent in the first, data from the agency showed.

Still, auto exports rose to a record during the first half of the year, the Mexican Automobile Industry Association said on July 10.

Signs of slowing growth haven’t fazed investors in Latin America’s second-largest economy. Mexico’s peso has rallied 6.1 percent this year, the most among 16 major currencies tracked by Bloomberg.

Stock Market High

The extra yield investors demand to own Mexican government dollar bonds instead of U.S. Treasuries dropped 63 basis points to 159 this year through yesterday, according to JPMorgan Chase & Co.’s EMBI Global Index. The yield on Mexican local-currency bonds due in 2024 fell to a record low on July 20 and slid 113 basis points, or 1.13 percentage points, this year through yesterday. The nation’s IPC stock index has climbed 9.5 percent this year, reaching an all-time high on July 27.

Mexico’s economy probably will feel the impact of a global economic slowdown more in coming months as spending projects that were ramped up before the nation’s July 1 presidential election came to an end, said Sergio Martin of HSBC Mexico SA.

“We’re seeing a slight downturn in external demand,” Martin, HSBC’s chief Mexico economist, said in a telephone interview from Mexico City. “We expect this slowdown to become more drastic in the third and fourth quarter.”

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