Mexican Economy Grows More Than Forecast as Exports Pick Up

bloomberg.com

By Eric Martin and Brendan Case 

Aug 21, 2014 8:07 AM GMT-0600  

 

Mexico’s economy expanded more than forecast in the second quarter as a rebound in the U.S. boosted demand for exports, after growth in Latin America’s second-largest economy disappointed in the previous six months.

Gross domestic product climbed 1 percent from the previous quarter, when it expanded a revised 0.4 percent, the national statistics institute said today. The median estimate of 14 economists surveyed by Bloomberg was for growth of 0.8 percent. From a year earlier, GDP grew 1.6 percent, compared with 1.9 percent in the first quarter, as Easter fell in April this year and March in 2013. First-quarter growth was revised up.

Exports are bolstering the economy as indicators of domestic demand such as consumer confidence remain weak, central bank Governor Agustin Carstens said last week. Growth is forecast to accelerate in the second half of the year after the government boosted public spending and Banco de Mexico cut interest rates to a record-low 3 percent.

“This print will put an end to the series of forecast downgrades for GDP growth in Mexico,” Carlos Capistran, the chief economist for Mexico at Bank of America Corp., said in an e-mailed response to questions. “This is good news and is consistent with our view that the economy is in recovery mode.”

The peso strengthened 0.3 percent to 13.0969 per U.S. dollar at 8:30 a.m. in Mexico City. The yield on government fixed-rate peso-denominated bonds due 2024 increased 0.02 percentage point to 5.75 percent.

Export Boost

The U.S., the buyer of about 80 percent of Mexico’s exports, grew at a 4 percent annualized rate from April through June after shrinking 2.1 percent in the first quarter, when harsh winter weather undercut demand.

The government forecasts growth will continue to accelerate after President Enrique Pena Nieto ended the state oil monopoly and overhauled the telecommunications industry, moves that his administration expects to help lift GDP growth to close to 5 percent by the time he leaves office in 2018.

Mexico’s economy grew 1.1 percent last year, the least since the 2009 recession, amid debt defaults by the nation’s largest homebuilders and a lag in public spending due to the presidential transition. The government increased expenditure 9.7 percent in real terms in the first half of this year, the central bank unexpectedly cut borrowing costs in June and the construction industry expanded for the first time in 19 months.

Industry Growth

Agriculture expanded 2.6 percent in the second quarter from a year earlier, services grew 1.8 percent and industrial activity rose 1 percent, according to today’s report.

“Mexico’s second quarter acceleration reflects the end of its two post-election slumps: the real estate slump following changes in government incentives for homebuilders, and the public spending slump,” Bill Adams, senior international economist at PNC Financial Services Group in Pittsburgh, wrote in a note to clients today.

Empresas ICA SAB, Mexico’s largest construction company, saw sales rise 16 percent to 9.06 billion pesos in the second quarter, beating analyst estimates.

Auto production has been another bright spot in the economy. Industrial growth accelerated in the second quarter as vehicle output rose 8.2 percent from the same period a year earlier, compared with a 6.5 percent first-quarter increase. General Motors Co. (GM)boosted its Mexico output 17 percent during the first half of the year, while new plants built by Nissan Motor Co. (7201), Honda Motor Co. and Mazda Motor Corp. added to the nation’s production.

Still, economists have cut their 2014 growth and inflation estimates since the start of the year after consumer spending proved weaker than expected following tax increases.

Policy makers lowered their 2014 growth forecast for the third time last week, saying GDP will rise 2 percent to 2.8 percent, down from the previous estimate of 2.3 percent to 3.3 percent. The government projects a 2.7 percent expansion after reducing its estimate in May from 3.9 percent.

The Mexican economy strengthened in the second quarter and has a “good outlook” for the rest of 2014, Carstens said last week.