Mexican Economy Expands Less Than Expected in First Quarter

Mexico’s economy grew less than expected in the first quarter because of weak domestic demand and anemic expansion of industrial activity, and the figures suggest the government could significantly cut back its 2014 growth estimate later on Friday.

Latin America’s No. 2 economy grew 0.3 per cent in the first quarter from the last three months of 2013, when it expanded by a downwardly revised 0.13 per cent, the national statistics institute said on Friday.

A Reuters poll had forecast growth of 0.46 per cent.

More government spending on infrastructure this year has helped pull the construction sector back from a sharp contraction in 2013, but exports stagnated, and factory output dipped in March.

“This confirms that the economic slowdown that began last year spread into this year,” said Delia Paredes, an economist at Banorte in Mexico City.

“Still, we are now starting to see some signs that the economy is rebounding,” she said, pointing to a recent pick up in consumer confidence and stronger exports.

Industrial output grew less than 0.1 per cent in the first quarter compared with the previous period, the data showed.

A separate report from the statistics institute showed economic activity in March fell 0.8 per cent from February , contracting at the fastest monthly pace since December 2012.

Mexico exports mostly manufactured goods, and nearly 80 per cent of exports go to the United States, where a harsh winter hurt the economy in the first quarter.

Domestic demand has also been weak as new taxes weighed on growth in the first quarter. Mexican unemployment rose to its highest level in more than a year in March, and retail sales slipped during the first two months of the year.

Mexico’s central bank held its main interest rate steady last month at 3.5 per cent as inflation eased back from a January spike. Lower price pressures give policy makers room to leave interest rates low to support the economy.

At an annual pace, the economy expanded 1.8 per cent in the first quarter from a year earlier, below expectations for 2 per cent growth but up from a 0.7 per cent rise in the fourth quarter of last year.

At a media conference set for 10 a.m. (1500 GMT), Mexico’s finance ministry is expected to cut its growth forecast of 3.9 per cent for 2014. Private sector economists have already revised down their outlook to around 3 per cent for 2014.

Mexico’s central bank on Wednesday slashed its 2014 growth forecast to between 2.3 per cent and 3.3 per cent from a previous estimate of 3 per cent to 4 per cent.