Mexico economy rebounds to fastest growth in over a year

By Michael O'Boyle

MEXICO CITY Thu Nov 21, 2013 

MEXICO CITY (Reuters) - Mexico's economy rebounded in the third quarter, growing at its fastest pace in more than a year, data showed on Thursday, while the government said rising exports pointed to a solid recovery after a sharp slowdown.
Gross domestic product grew 0.84 percent in the third quarter compared with the second quarter, when it shrank by a revised 0.55 percent in its first contraction since 2009, according to a statement from the national statistics institute.

Latin America's second-biggest economy flagged this year on weaker U.S. demand for its exports and a slump in local construction as well as a drop in government spending by a new administration, but growth is seen picking up next year.

Second quarter GDP was originally reported to have shrunk by 0.74 percent. The economy grew at its fastest pace in the third quarter since the second quarter of 2012.

The data beat expectations for a 0.7 percent expansion in a Reuters poll of 18 analysts. The services sector grew 1.3 percent compared to the previous quarter while industry expanded by 0.89 percent, the institute said.

"The recovery is still weak and tentative, but given the outlook for firmer U.S. activity, things should improve for Mexico," said Alberto Ramos, an economist at Goldman Sachs in New York, who said the data would back expectations for steady borrowing costs ahead after recent cuts.

Devastating floods swept through many states during September, but rebuilding will help lift spending in the fourth quarter and during next year while the government is planning to boost infrastructure projects with a bigger deficit in 2014.

The country's GDP grew 1.3 percent in the third quarter from the year-ago period, versus expectations for a 1.0 percent expansion, and after growing at an upwardly revised 1.6 percent annual rate in the second quarter.

Mexico's central bank has said it had finished lowering borrowing costs to help counter weak growth after cutting its benchmark rate in October for the second month in a row to an all-time low of 3.50 percent.

The finance ministry said Thursday in a statement that the economy will likely grow 1.7 percent in the fourth quarter.

"There are indications of solid sources of growth for the Mexican economy," Deputy Finance Minister Fernando Aportela said separately at a media conference, pointing to stronger manufacturing and rising exports.

Mexico's economy is closely tied to the United States, destination for nearly 80 percent of local factory exports. Most of Mexico's exports are manufactured goods.

For calendar year 2013, Mexico's economy is likely to grow 1.3 percent, the finance ministry statement said, cutting its estimate from a 1.7 percent expansion forecast in late September after the floods hit Mexico.

Officials have repeatedly cut back estimates this year as growth flagged from the 3.8 percent rate recorded in 2012.

However government downward revisions to growth have lagged those of the private sector, which expects a 1.2 percent expansion this year according to a Reuters poll last week.

A separate report showed Mexico's monthly economic activity index shrank by 0.42 percent in September compared with the prior month while activity rose 0.79 percent in the 12 months through September.

Lawmakers this month approved a 2014 budget that will boost spending on construction projects during President Enrique Pena Nieto's second year in office and widen the deficit to 1.5 percent of GDP, excluding debt from state-run energy firms, from a 0.4 percent deficit this year.

Pena Nieto has been pushing a reform agenda to jump-start growth in Mexico, where the economy had lagged growth in other more dynamic emerging markets in the last decade.

Lawmakers are currently preparing to debate a major overhaul of energy legislation that could open up the state-run oil and electricity sectors to more private investment. The energy overhaul is a cornerstone of a wider reform drive that spans telecoms to taxes.

Preliminary data released late Thursday showed foreign direct investment (FDI) fell by nearly a third in the third quarter to nearly $3.4 billion compared to the same period last year.