Mexico GDP Rose More Than Forecast Amid Rate Reductions

Mexico’s gross domestic product expanded more than analysts forecast in the third quarter as manufacturing rebounded, supporting the central bank’s view that the economy can recover without additional interest-rate cuts.

GDP rose 1.3 percent from the year earlier, the national statistics institute said on its website today. The median estimate of 20 economists surveyed by Bloomberg was for growth of 1 percent. Latin America’s second-biggest economy grew 0.8 percent from the previous quarter, or an annualized 3.4 percent.

While policy makers cut the key interest rate three times this year to a record-low 3.5 percent on Oct. 25, they signaled that the final cut would be the last for the foreseeable future. They said the economy showed signs of recovery in the third quarter after a 0.6 percent contraction in the April to June period, and most agreed that downside risks to growth have eased. A rebound in public spending, spurred by the fiscal stimulus approved by Congress, should help spur an economic recovery, they said.

“The economy seems to have stabilized during the third quarter and initiated a gradual recovery, anchored by the recovery of manufacturing production,” Alberto Ramos, the chief Latin America economist for Goldman Sachs Group Inc. in New York, said in an e-mailed response to questions. “There is no need to add more monetary stimulus to the economy in the short run.”

The peso fell 0.1 percent to 13.0811 at of 9:44 a.m. in Mexico City.

Manufacturing Expansion

Manufacturing expanded 2.9 percent in the quarter from a year earlier, helping offset a 6.9 percent drop in construction and a 0.6 percent decline in industrial activity. Agricultural activity increased 1 percent, and service industry activity grew 2.3 percent.

Mexico’s finance ministry today cut its forecast for growth this year to 1.3 percent from a 1.7 percent outlook in September, saying the projection incorporates an expectation the economy will grow 1.7 percent in the fourth quarter. The reduction is the fourth for the ministry this year after it began the year forecasting 3.5 percent growth.

“This rate, while it reflects less force, continues to reflect positive growth and favorable expectations for the final quarter of the year,” Deputy Finance Minister Fernando Aportela told reporters at a news conference.

Mexico’s economic activity in September, as measured by the IGAE indicator, increased 0.79 percent from a year earlier, more than the 0.3 percent median estimate of 19 economists surveyed by Bloomberg. Growth will accelerate in the first half of next year as spending picks up and the U.S. recovery strengthens, central bank policy makers said last month.

Spending Increase

The bank also lowered its 2013 growth estimate to between 0.9 percent and 1.4 percent on Nov. 6 from the 2 percent to 3 percent projected in August. It reduced its forecast for 2014 to 3 percent to 4 percent from a previous estimate of 3.2 percent to 4.2 percent.

Mexico’s Congress last week authorized the widest budget deficit in four years as President Enrique Pena Nieto seeks to boost growth. The 2014 budget calls for 4.47 trillion pesos ($344 billion) in outlays and forecasts a deficit of 1.5 percent of gross domestic product, compared with a 0.4 percent deficit planned by the government for this year.

Pena Nieto, who took office on Dec. 1, has spent his first year pushing an agenda to spur growth, including opening the state-controlled energy industry to more private investment.

The economic changes could boost Mexico’s potential annual growth to more than 5 percent within two or three years, central bank Governor Agustin Carstens said in an Aug. 23 interview.

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