Mexico’s economy bounced back more than expected in the fourth quarter, according to preliminary data, but signs of slowing growth could feed discontent ahead of the presidential election in July.
Gross domestic product in Latin America’s second-biggest economy grew around 1% in seasonally adjusted terms in the October-December period, compared with the previous quarter, the national statistics agency said.
“The Mexican economy is surviving rather than thriving,” says Neil Shearing, an economist at Capital Economics, reflecting concerns about what may lie ahead.
A Reuters poll had forecast an expansion of 0.6%. The economy rebounded after shrinking 0.3% in the third quarter as the country recovered from two devastating earthquakes that dented activity in the July-September period.
Higher interest rates and persistent inflation could weigh on consumer demand that helped support the Mexican economy last year amid uncertainty around US President Donald Trump’s threats to pull out of a free-trade deal with Mexico.
It is still unclear if Mexico, Canada and the United States will be able to renegotiate the North American Free Trade Agreement, adding to concerns about the outcome of Mexico’s presidential race, which a leftist candidate leads in the polls.
“Important investment decisions may potentially be postponed, scaled down or even canceled,” Goldman Sachs economist Alberto Ramos wrote in a note to clients.
Data showed that the industrial sector edged up 0.1% in the fourth quarter compared with the prior quarter, crimped by a decline in oil production. Agriculture grew 3.1% on a quarter-on-quarter basis while services grew 1.2%.
Mexico’s central bank is expected to hike interest rates again in February to contain a surge in inflation. Higher prices and more expensive loans could weigh on consumer demand, analysts said.
Mexico’s economy grew 1.8% in unadjusted terms compared with the same quarter a year earlier, the agency said.
For full-year 2017, the economy expanded at an unadjusted 2.1% rate, down from 2.9% in 2016. That is the lowest annual rate of expansion since 2013, President Enrique Pena Nieto’s first full year in office.
Pena Nieto promised to boost Mexico’s anemic growth rates by passing major economic reforms, such as opening the energy sector to private investment. But an oil price slump sabotaged hopes to supercharge growth, as Pena Nieto had promised.
