Mexican Economy Shrinks as Global Slowdown Bites Reuters
go to original July 25, 2012

Mexico's economy slipped in May from April as a global slowdown weighed on factory output and the services sector shrank, but solid yearly growth figures bode for stable interest rates in the coming months.

The economy contracted 0.36 percent in May from April, the national statistics agency said on Wednesday, compared with a 0.3 percent dip forecast in a Reuters poll. April's growth rate was revised up slightly to 0.35 percent.

The slide in May was the first since a 1.2 percent drop in February.

The services sector in Mexico, Latin America's second-biggest economy, fell 0.32 percent in May from the previous month, industry shrank 0.93 percent, and agricultural activity rose 1.01 percent.

Slowing job growth in the United States may be crimping demand for Mexican exports, and the market has made tentative bets that the central bank could lower its benchmark rate next year.

For the time being, interest rates are seen holding steady as policymakers eye a spike in inflation to a 1-1/2-year high in early July while the economy's annual growth rate still shows a healthy rate of expansion.

The central bank "will stay neutral from now until there is a radical change in economic activity as well as inflation," said Marco Oviedo, an analyst at Barclays in Mexico City.

The central bank last Friday left its benchmark interest rate unchanged at 4.50 percent.

The economy in May expanded 4.10 percent from the year-ago month, faster than the 3.95 percent rate expected by analysts. The annual growth rate for April was revised up to 4.78 percent, from an initially reported 4.68 percent.

Last week, President Felipe Calderon said Mexico's economy could grow by 4 percent this year, higher than the Finance Ministry's 3.5 percent growth forecast.

Solid U.S. demand for Mexican exports has so far shielded Mexico from a global slowdown that has pushed Brazil to slash interest rates.

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