Mexico Economy Expanded 2.5% in Fourth Quarter on Consumption

  • Growth boosted by lowest inflation in almost half a century
  • Banxico lifted key rate last week after peso slumped to record

Mexico’s economy in the fourth quarter expanded in line with a preliminary report published last month as domestic consumption rebounded amid record-low inflation.

Gross domestic product rose 2.5 percent from a year earlier, according to final figures released by the national statistics institute Tuesday. From the previous quarter, GDP advanced 0.5 percent. Full year growth accelerated to 2.5 percent from 2.3 percent in 2014.

Mexicans had more money in their pockets last year after the inflation rate fell to the lowest in almost half a century. As a result, consumer spending remained resilient amid falling oil prices and stagnant manufacturing expansion in the U.S., the nation’s main trade partner. Mexico has been a bright spot for growth compared with much of Latin America, with GDP forecast to expand 2.6 percent this year, according to analysts polled by Bloomberg, compared with an estimate for a 0.6 percent contraction in the region.

The peso weakened 0.3 percent to 18.1352 per U.S. dollar at 8:09 a.m. in Mexico City. Mexico last week jolted investors with a pair of surprise moves aimed at stemming the rout in the peso and preventing a steep rebound in inflation in Latin America’s second-largest economy.

In a rare coordinated announcement, central bank Governor Agustin Carstens announced a half-point interest rate increase to 3.75 percent, citing the risk that the peso’s depreciation would fuel inflation, and Finance Minister Luis Videgaray announced spending cuts.

The central bank also replaced its daily dollar-auction program with a plan to sell greenbacks directly to banks whenever needed to support the currency. The government said it plans to cut spending this year by 132.3 billion pesos ($7.3 billion), or 0.7 percent of gross domestic product, from the level approved by lawmakers in November. Crude’s drop has forced the country to cut spending for two straight years.

The pace of expansion in the fourth quarter slowed from a revised 2.8 percent in the previous three months, the statistics institute said.

Consumer prices rose at the slowest pace since 1968 last year after the government eliminated long distance phone fees and monthly gasoline price increases.