By Anthony Harrup
MEXICO CITY — A pickup in industrial output and buoyant growth in services and agricultural production kept Mexico’s economy turning over in the first quarter, growing at its fastest pace in a year and a half.
Gross domestic product, a measure of output in goods and services, expanded a seasonally adjusted 1.1% from the fourth quarter of 2017, the National Statistics Institute said Wednesday. The increase, equivalent to an annualized rate of 4.6%, was the biggest since the third quarter of 2016.
Industrial production grew 0.9% from the previous quarter, the most in more than two years, thanks to a rebound in construction and gains in manufacturing. Oil and gas production fell 0.9%.
Services remained the main driver of growth, expanding 1.1% from the previous quarter, supported by increased employment and a slowdown in inflation that has contributed to wage gains in real terms for the first time in more than a year. Agricultural production rose 0.9%.
The economy has been more resilient than expected considering negotiations with the U.S. and Canada to rewrite the North American Free Trade Agreement, and the possibility of economic policy shifts after Mexico’s July elections in which the leftist presidential candidate leads in polls, said Goldman Sachs Latin America economist Alberto Ramos.
The uncertainty could make both producers and consumers more defensive in their investment and spending decisions in quarters ahead.
“We expect the engines of growth to rebalance — with higher contributions from manufacturing and net exports and less thrust from services and private consumption,” Mr. Ramos said in a report.
Relatively high interest rates in Mexico have likely held back some investment, and while the Bank of Mexico could find room to lower borrowing costs after the elections, it may be constrained by further peso weakness or higher U.S. interest rates, said Bill Adams, senior economist at PNC Financial Services Group.
The slowdown in the North American automotive sector, where demand for new cars has peaked, also poses a risk for Mexico’s industrial production given the sector’s large role in overall manufacturing, Mr. Adams added.
GDP growth from the first quarter of 2017 was revised up to 1.3% from the preliminary 1.2% reported previously. The comparison with the year-earlier period was skewed by the shift in the Easter holiday week, which fell mostly in March instead of April, giving the first quarter fewer working days than in 2017.
After slowing sharply to 2% in 2017, Mexico’s economy is expected to grow around 2.3% this year, according to the central bank’s most recent survey of economists.
Write to Anthony Harrup at email@example.com
(END) Dow Jones Newswires
May 23, 2018 14:13 ET (18:13 GMT)
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