Mexico Lowers 2015 Growth Forecast After Oil Production Decline

Mexico’s government cut its forecast for growth this year, two days after a similar reduction by the central bank, as the economy posted its biggest month-on-month decline in almost two years.

Gross domestic product will expand 2.2 percent to 3.2 percent this year, down from a previous forecast of 3.2 percent to 4.2 percent, Deputy Finance Minister Fernando Aportela said at a news conference Thursday in Mexico City.

Mexico’s economy shrank 0.64 percent in March from the previous month after growing in January and February, according to the IGAE indicator released Thursday by the national statistics institute. A separate report showed GDP rose 2.5 percent from a year earlier in the first quarter, compared with the 2.4 percent median forecast of 24 economists surveyed by Bloomberg.

The government’s forecast reduction is “realistic and probably overdue,” Rafael de la Fuente, chief Latin America economist at UBS AG, said by phone from New York. “There are clear downside risks to growth in Mexico. The first-quarter numbers were overall soft numbers.”

The central bank has left interest rates at a record low 3 percent since June to jump start an economy that has missed analysts’ growth forecasts in eight of the past 12 quarters.

Retail sales gains and consumer credit expansion helped fuel “moderate growth” in the first quarter, Banco de Mexico Governor Agustin Carstens said at a presentation Tuesday. GDP forecasts have been falling on a drop in oil output, and growth going forward will depend on the U.S., the buyer of 80 percent of Mexico’s exports, said Alonso Cervera, the chief Latin America economist at Credit Suisse Group AG.

Growth Outlook

GDP will probably expand 2.8 percent this year, according to analyst estimates compiled by Bloomberg. That would be the fastest rate since 2012.

The peso weakened 0.2 percent to 15.2260 per U.S. dollar at 12:36 p.m. in Mexico City.

The first-quarter expansion followed 2.6 percent growth in the fourth quarter. Rising remittances from Mexicans abroad and an increase in consumer spending are bolstering the economy, Carstens said this week. The economy grew 0.4 percent in the first quarter from the previous three-month period.

Sales at retail stores open at least a year climbed more than 5 percent in each of the first three months of 2015 from their year-ago level, according to the Antad trade group, which represents chain stores including Organizacion Soriana SAB and Grupo Sanborns SAB.

Wal-Mart de Mexico SAB, the nation’s largest retailer, has posted the second-biggest gain on the benchmark IPC index of 35 Mexican stocks this year after two straight years of declines.

Key Rate

The central bank cut its 2015 growth estimate to 2 percent to 3 percent on Tuesday, from the previous forecast of 2.5 percent to 3.5 percent.

Economists expect the central bank to leave rates unchanged until the third quarter, when they’ll raise them along with the U.S., according to the median forecast in a Bloomberg survey. Mexico’s central bank is concerned a smaller rate advantage versus the U.S. could prompt investors to pull money out of Latin America’s second-largest economy.

The first-quarter growth report is “good, but it could be better,” Marco Oviedo, the chief Mexico economist at Barclays Plc, said in an e-mailed response to questions. “The economy is probably getting weaker. However, if exports improved in April, this might be temporary.”

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