Mexico GDP Growth Beats Forecasts as Services Lend a Boost

  • Economic data is preliminary and for fourth quarter 2015
  • Banxico lifted key rate last month for first time since 2008

Mexico’s economy expanded more than forecast for the fourth consecutive quarter in the final three months of the year as domestic consumption rebounded amid record low inflation.

Gross domestic product rose 2.5 percent from a year earlier, according to preliminary figures released by the national statistics institute Friday. That compared with the 2.3 percent median forecast of 21 economists surveyed by Bloomberg. From the previous quarter, GDP advanced 0.6 percent, and increased 2.5 percent for the full year of 2015. The institute will release final GDP figures Feb. 23.

Mexicans have more money in their pockets after inflation slowed to record lows last year and the subsequent rise in purchasing power is supporting economic growth, Finance Minister Luis Videgaray said Wednesday. The country has been a bright spot for growth compared with much of Latin America. GDP is forecast to expand 2.8 percent this year, according to analysts polled by Bloomberg, compared to the analysts’ regional estimate for a 0.5 percent contraction.

"The services sector remains strong," Marco Oviedo, chief Mexico economist at Barclays Plc said in an e-mailed response to questions. This is "likely driven by the still positive sentiment in the private sector."

The peso extended its advance after the GDP report, rising 0.8 percent to 18.1831 per U.S. dollar at 8:37 a.m. in Mexico City. The currency has slumped 6.1 percent this year through Thursday after the U.S. raised interest rates and plunging oil prices increased risks to government spending.

The services sector grew the fastest in the fourth quarter, rising 3.5 percent from a year earlier, while industrial activity increased the least, only 0.6 percent, according to the statistics institute.

Mexico’s industrial performance has been hurt by stagnant manufacturing in the U.S., which buys 80 percent of Mexico’s exports, said Carlos Capistran, chief Mexico economist at Bank of America Corp. The pace of GDP expansion weakened from 2.6 percent in the third quarter, the statistics institute said. The agency had originally reported third quarter growth of 2.3 percent as a preliminary figure, the first time it had released an initial number. Today was the second time.

The sector is "already showing signs of contamination from weak industrial production in the U.S.,” Capistran said in an e-mailed response to questions. "We expect that to continue into 2016, lowering GDP growth to 2.25 percent."

While weak growth and low inflation point to leaving interest rates on hold, policy makers raised borrowing costs last month for the first time since 2008 and said they’ll focus on Mexico’s monetary posture relative to the U.S. Banco de Mexico Governor Agustin Carstens said last week it was “essential” that Mexico match the Federal Reserve’s monetary policy.

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