Mexico 3Q GDP Rises at Slowest Pace in Over Year Jose Enrique Arrioja and Eric Martin - Bloomberg News
go to original November 16, 2012

Mexico’s economy expanded at the slowest pace in more than a year in the third quarter as the nation’s manufacturing expansion slowed on lower demand from the U.S., its dominant export market.

Gross domestic product rose 0.45 percent from the second quarter, an annualized rate of 1.82 percent, Mexico’s national statistics agency said today. That missed the forecast of all six analysts surveyed by Bloomberg whose median estimate was for 0.7 percent growth in the quarter. GDP expanded 3.3 percent from the same quarter a year earlier, less than the 3.6 percent median estimate of 19 economists surveyed by Bloomberg.

Mexico’s growth slowed amid cooling investment by businesses in the U.S. on concern Congress will fail to act in time to avoid the so-called fiscal cliff of $600 billion in automatic spending cuts and tax increases.

Mexico’s manufacturing index fell to 49.9 in September, the lowest since 2009, in non-seasonally adjusted terms. The pace of expansion has slowed in the past two quarters from the first three months of the year, when it was the fastest since 2010.

U.S. demand for business equipment such as machinery dropped in July by the most in eight months, signaling lower sales for manufacturers, including those that produce in Mexico. While demand grew in August and September, the increases were the least since July 2009.

Agriculture Slumping

Today’s report showed the Mexican economy grew lower than expected as agriculture and forestry activity declined 0.55 percent in the quarter. From a year ago, the so-called primary sector expanded 1.7 percent, the slowest pace this year.

Manufacturing continues to be the motor of Mexico’s economy, expanding 3.6 percent in the quarter from a year ago, though the pace of growth has slowed from 4.8 percent in the first three months of the year. The service sector expanded 3.3 percent from a year ago, its worst performance in more than a year.

U.S. President Barack Obama plans to hold talks today on an agreement to reduce long-term budget deficits with House Speaker John Boehner and Senate Minority Leader Mitch McConnell, both Republicans, as well as Democrats Nancy Pelosi, the House Minority Leader, and Harry Reid, the Senate Majority Leader.

Deutsche Bank AG economists calculate action by Congress to avoid the fiscal cliff could boost U.S. expansion by as much as two percentage points.

“The elements are in place for a U.S. recovery,” Guillermo Ortiz, chairman of Grupo Financiero Banorte SAB and Mexico’s former central bank governor, said in a Nov. 7 interview in Mexico City. “Hopefully this time around some bi- partisan agreement can be achieved in order to instill that confidence.”

Inflation

Mexico’s central bank may be limited in its ability to cut interest rates to boost growth because inflation has remained above the 2 percent to 4 percent target range since June after a bird flu outbreak and drought drove up farm prices.

The annual inflation rate fell in October for the first month since April, to 4.6 percent, and most policy makers at the central bank’s last meeting on Oct. 26 said consumer price increases probably peaked in September.

The central bank board, led by Governor Agustin Carstens, has kept the nation’s benchmark rate at 4.5 percent since July 2009, the lowest level among major rate-setting banks in Latin America after Peru. The bank said at its last meeting in October that it stands ready to tighten monetary policy “soon” should the price pressures persist.

To contact the reporters on this story: Jose Enrique Arrioja in Mexico City at jarrioja@bloomberg.net; Eric Martin in Mexico City at emartin21@bloomberg.net;

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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