Mexico Cuts Growth Forecast on Oil, U.S. Industrial Output

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CHART: Mexico's GDP breakdown

Mexico cut its growth forecast for this year, a week after a similar move by the central bank, citing declines in oil output and U.S. industrial production.

Gross domestic product will expand 2 percent to 2.8 percent this year, down from a May forecast of 2.2 percent to 3.2 percent, Deputy Finance Minister Fernando Aportela said at a news conference Thursday in Mexico City.

The economy grew 2.2 percent in the second quarter from a year earlier, the national statistics institute said Thursday. While that beat the 2.1 percent median forecast of 24 economists surveyed by Bloomberg, it’s down from 2.6 percent in the previous quarter and at the low end of the full-year range the government projected three months ago.

“There are several factors that have limited growth,” Aportela told reporters at a Mexico City event on Thursday. “One of them is what we saw in the U.S., which had negative growth in industrial production in the second quarter. We also have the effect of lower oil production.”

Mexico’s growth despite industrial weakness in the U.S., which buys 80 percent of the Latin American nation’s exports, shows a capacity to “resist this complex international environment,” Aportela said. GDP advanced 0.5 percent from the previous quarter in April through June, up from 0.4 percent in the first three months of the year, as stronger domestic demand bolstered services.

Manufacturing exports excluding autos fell 1.9 percent in the second quarter from a year earlier, according to data compiled by the statistics institute. International shipments of and cars and light trucks rose.

Lower oil output is also hurting economic growth, Aportela said. Crude production has continued to slide this year amid budget cuts and a series of accidents at Petroleos Mexicanos, defying a government forecast for the state-owned oil company to reverse a 10-year slide in output.

While weak growth and low inflation point to leaving interest rates on hold, the central bank has said rate decisions will depend on how markets and the peso, which hit a record low Thursday, react as the Federal Reserve prepares an eventual increase in U.S. borrowing costs.

The peso dropped 0.6 percent to 16.7167 per dollar at 12:50 p.m. in Mexico City.

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