Mexico Growth Meets Forecasts on Domestic Spending Strength

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Mexico’s economy expanded in line with analysts’ forecasts in the first quarter as domestic consumption rebounded.

Gross domestic product rose 2.5 percent from a year earlier, the national statistics institute said Thursday, compared with the 2.4 percent median forecast of 24 economists surveyed by Bloomberg. While Mexico grew 0.4 percent from the previous three-month period, the gains came in January and February. The economy contracted in March, according to the IGAE economic indicator also released Thursday, signaling weakness heading into the second quarter.

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 prices and 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.

“It’s not a great number, but not it’s bad relative to some of the more dire views that some people in the market may have had,” Rafael de la Fuente, chief Latin America economist at UBS AG, said in a telephone interview. “The services component looked good, which suggests that consumption at the domestic level is doing well. There are major drags to growth here, especially the oil sector, which clearly is weighing on the economy.”

Mexico’s 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. Estimates for first-quarter growth from the previous three-month period ranged from a 0.5 percent expansion to a 0.1 percent contraction forecast by Bank of America Corp., Standard Chartered Plc and Societe Generale SA.

The service economy grew 2.9 percent from a year earlier, matching the fastest expansion since the middle of 2013. Mexico is likely to expand 2.8 percent this year, according to analyst estimates compiled by Bloomberg. That would be the fastest rate since 2012.

The peso weakened 0.3 percent to 15.2316 per U.S. dollar at 10:02 a.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.

Sales at retail stores open at least a year climbed at least 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.

Still, with some economic weakness from the drop in oil production, the central bank cut its 2015 growth estimate to 2 percent to 3 percent on Tuesday, down from the previous forecast for an expansion of 2.5 percent to 3.5 percent.

Economists forecast the central bank to leave rates unchanged until the third quarter, when they’ll raise them for the first time since 2008 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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