Mexico economy grows faster than expected in Q3

Tue Nov 22, 2011 3:57pm EST

* Economy grows 1.3 pct in 3rd qtr; poll saw 0.8 pct
    * Growth 4.5 pct yr/yr; poll forecast 3.7 pct

    By Patrick Rucker and Michael O'Boyle

    MEXICO CITY, Nov 22 (Reuters) - Mexico's economic growth
quickened in the third quarter, beating estimates as services
grew at the fastest pace in two years even as waning factory
activity could herald slower growth ahead.
    The national statistics agency on Tuesday said gross
domestic product rose 1.3 percent in the third
quarter from the second on a seasonally adjusted basis.
    Manufacturing grew 0.54 percent, less than half the pace
seen in the second quarter, while the services sector expanded
at a 1.63 percent clip, the fastest since the third quarter in
2009.
    Analysts saw the slower manufacturing growth as a
reflection of weaker global growth. Economists think Mexico's
central bank could soon cut interest rates if Europe's debt
crisis deepens a global economic slowdown.
    "In the services sector we see that once manufacturing
improves, employment eventually picks up and helps domestic
growth," said Gabriel Casillas, an economist at JPMorgan in
Mexico City.
    "The problem is going to be next year. With the global
deceleration, Mexico will grow only a little."
    The government expects growth to slow to 3.5 percent in
2012 from 4.0 percent this year, which President Felipe
Calderon said the economy was still on track to reach.
    "Until now the Mexican economy, even with everything that's
been happening globally, is growing at an annual rate of 4
percent and we expect to end (this year) at at least that
rate," Calderon said.The pace of quarterly growth in the third quarter beat
analysts' expectations, according to the median forecast in a
Reuters poll.Inflation in Mexico is muted, hovering near the central
bank's 3-percent target rate, while the economic picture is
uncertain -- two conditions that often prompt central banks to
cut borrowing rates.
    But the Mexican peso has slipped against the U.S. dollar as
the European debt crisis worsened. Mexico's peso slumped the
most since the 2008 financial crisis during the third quarter,
and it now trades near a low of more than two years.
    A weak peso could feed into higher import costs and push up
consumer prices. The recent weakness in the peso has pushed
investors to cut back bets on an interest rate cut next week by
Mexican policymakers. 
    "The longer the exchange rate is pressured, the more likely
there is a pass-through to inflation," Casillas said. "The
central bank is not going to act while there is such
uncertainty."
    Mexico's central bank has kept its benchmark interest rate
frozen for more than two years. Brazil moved this summer to cut
interest rates, while other Latin American economies such as
Chile and Peru have taken a "wait-and-see" approach.
    Mexico's economy in the third quarter was 4.5 percent
larger than a year ago, picking up its pace from a downwardly
revised 3.2 percent in the second quarter.
    The median forecast in a Reuters poll was for a 3.7 percent
expansion in the third quarter versus a year earlier.