Reuters/Mexico City
Mexico’s growth picked up in the final months of last year as strength in consumer spending buoyed Latin America’s no. 2 economy but a fall in industrial activity backed bets on lower interest rates ahead.
Mexico’s economy grew 0.8% in the fourth quarter compared to the third, double the previous quarter’s downwardly revised 0.38% rate, the national statistics agency said yesterday.
Economists in a Reuters poll had projected a 0.6% expansion in the fourth quarter.
Spending on services and solid US demand for Mexican exports has helped support Latin America’s second-biggest economy amid weak global growth, but fears that US tax hikes and spending cuts would sap demand weighed on manufacturing output.
Growth was driven by strength in services, which makes up two-thirds of economic output, and farming, and came despite manufacturing, mining, and construction notching their first quarterly contraction since early 2009, in the midst of a deep recession.
Although full-year growth of 3.9% matched 2011’s rate, fourth-quarter growth compared to a year earlier missed expectations at 3.2% and the economy is seen losing steam in the first half of 2013.
Mexico’s central bank said in January that it could lower its benchmark interest rate from 4.50% if inflation continues to cool and economic growth slows. Some analysts said the report boosted the likelihood of a cut.
“We’re seeing a slower economic expansion rate and low inflation, which creates a window of opportunity for the central bank to make this cut,” said Rafael Camarena, an economist at Banco Santander in Mexico city, who expects a 50-basis-point cut at the bank’s March meeting. Markets are pricing in a 64% chance of a 25-basis-point cut in March, but have fully priced in such a cut by April.
The figures showed industry contracted by 0.21% in the fourth quarter, compared with a 0.44% expansion notched in the third quarter. The services sector expanded 0.68% while agricultural activity grew 2.09%. Industrial production posted its biggest monthly drop since 2009 in December as Mexican factory managers burned through inventories amid uncertainty about US budget tightening that was due to start at the start of 2013.
US lawmakers managed to avert across-the-board tax hikes, but they could still fail to reach an agreement on spending cuts that could drag on growth and that uncertainty may cast a pall over manufacturing during the first part of this year.