Mexico’s economy expanded more than forecast in the second quarter as a rebound in U.S. demand boosted exports, helping Latin America’s second-largest economy recover from six months of disappointing growth.
Gross domestic product climbed 1 percent from the previous three months, faster than first-quarter growth that was revised up to 0.4 percent, the national statistics institute said today. The median forecast of 14 economists surveyed by Bloomberg was for growth of 0.8 percent. GDP grew 1.6 percent from a year earlier, down from 1.9 percent in the first quarter, as Easter fell in April this year instead of March.
Increased exports and a recovery in the services sector bolstered the second-quarter expansion, Deputy Finance Minister Fernando Aportela told reporters today. Growth is forecast to accelerate in the second half after the government boosted public spending and the central bank cut its key rate to a record-low 3 percent.
“We should rotate from an externally-driven recovery towards a services-led expansion in the second half of the year,” Gabriel Lozano, chief Mexico economist at JPMorgan Chase & Co., said in an e-mailed response to questions. “The data published today should confirm that there is no further space for Banxico to cut rates.”
The peso strengthened 0.3 percent to 13.0908 per U.S. dollar at 12:24 p.m. in Mexico City. The yield on government fixed-rate peso-denominated bonds due 2024 increased 0.03 percentage point to 5.76 percent.
Mexico’s central bank will probably leave interest rates on hold until the third quarter of next year, when policy makers will increase borrowing costs by a quarter point, according to the median forecast of economists surveyed by Bloomberg.
The government today reaffirmed its forecast for growth of 2.7 percent this year, with Aportela saying that increased auto production and steady U.S. growth is helping bolster the economy.
The U.S., the buyer of about 80 percent of Mexico’s exports, grew at a 4 percent annualized rate from April through June after shrinking 2.1 percent in the first quarter, when harsh winter weather undercut demand. After declining from a year earlier in January, Mexico’s exports have increased at least 4 percent monthly, with the pace of growth accelerating to 7.7 percent in June.
The government forecasts economic growth will continue to accelerate after President Enrique Pena Nieto ended the state oil production monopoly and opened the telecommunications industry to more competition, moves that his administration expects to help lift growth to almost 5 percent by the time he leaves office in 2018.
Mexico’s economy grew 1.1 percent last year, the least since the 2009 recession, amid debt defaults by the nation’s largest homebuilders and a lag in public spending due to the presidential transition. The government increased expenditure 9.7 percent in real terms in the first half of this year, the central bank unexpectedly cut borrowing costs in June and the construction industry expanded for the first time in 19 months.
Agriculture expanded 2.6 percent in the second quarter from a year earlier, services grew 1.8 percent and industrial activity rose 1 percent, according to today’s report.
“Mexico’s second quarter acceleration reflects the end of its two post-election slumps: the real estate slump following changes in government incentives for homebuilders, and the public spending slump,” Bill Adams, senior international economist at PNC Financial Services Group in Pittsburgh, wrote in a note to clients today.
Empresas ICA SAB, Mexico’s largest construction company, saw sales rise 16 percent to 9.06 billion pesos in the second quarter, beating analyst estimates.
Auto production has been another bright spot in the economy. Industrial growth accelerated in the second quarter as vehicle output rose 8.2 percent from the same period a year earlier, compared with a 6.5 percent first-quarter increase. General Motors Co. boosted its Mexico output 17 percent during the first half of the year, while new plants built by Nissan Motor Co., Honda Motor Co. and Mazda Motor Corp. added to the nation’s production.
Still, economists have cut their 2014 growth and inflation estimates since the start of the year after consumer spending proved weaker than expected following tax increases.
Policy makers lowered their 2014 growth forecast for the third time last week, saying GDP will rise 2 percent to 2.8 percent, down from the previous estimate of 2.3 percent to 3.3 percent. The government projects a 2.7 percent expansion after reducing its estimate in May from 3.9 percent.
The Mexican economy strengthened in the second quarter and has a “good outlook” for the rest of 2014, Carstens said last week.