Mexico GDP Beats Forecasts on Consumer Spending; Peso Rises

  • Consumption driving economic expansion amid weak export demand
  • Economic data is preliminary and for first quarter 2016

Mexico’s economy expanded more than analysts forecast for the third time in four quarters as strength in domestic consumption offset weak exports and a drop in oil output. The peso extended its gain, rallying to the strongest level in more than four months.

Gross domestic product rose 2.7 percent in the first quarter from a year earlier, according to preliminary figures released by the national statistics institute Friday. That compared with the 2.4 percent median forecast of 19 economists surveyed by Bloomberg. From the previous quarter, GDP expanded 0.8 percent. The institute will release final GDP figures May 20.

Mexican consumers are spending more as inflation holds near a record low and remittances rise amid weakness in the peso. The country has been a bright spot for growth compared with some Latin American economies such as Brazil, and in an interview last week, central bank Governor Agustin Carstens said it may get even better as factors that have held back the expansion, such as weak exports, begin supporting growth.

"The positive news on growth is helping the peso," Juan Carlos Alderete, a strategist at Grupo Financiero Banorte SAB in Mexico City, said in a phone interview. "The most recent economic data for Mexico has been very positive, and we’re seeing good behavior from the consumer."

The peso extended its gain after the report, climbing as much as 1.3 percent. The currency strengthened 0.9 percent to 17.1205 per U.S. dollar at 9:05 a.m. in Mexico City, bringing its gain from a record low on Feb. 11 to 14 percent after oil prices recovered and the central bank raised interest rates between scheduled decisions in a bid to preempt a rise in inflation expectations.

Growth was led by the services sector, which expanded 3.7 percent from a year earlier, while industrial activity increased 0.7 percent, according to the statistics institute. The overall pace of expansion strengthened from 2.5 percent in the fourth quarter, the statistics institute said.

The U.S., historically the buyer of 80 percent of Mexico’s exports, expanded at the slowest pace in two years in the first quarter as American consumers scaled back spending and companies tightened their belts in response to weak global financial conditions.

Given that Mexico’s key interest rate, now at 3.75 percent, remains near an all-time low, Banco de Mexico can increase borrowing costs gradually and in line with the the U.S. Federal Reserve without hurting the economy, Carstens said in an interview in his Mexico City office last week.

Wal-Mart de Mexico SAB is one company that has benefited from resurgent consumer demand. Shares in the nation’s biggest retailer rallied 8 percent on Thursday after the company reported first-quarter results that beat analysts’ estimates, fueled by a 9.3 percent increase in same-store sales.

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