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Mexico’s economy slows as industry sputters

A view of Mexico's national oil company Pemex's refinery in Cadereyta, Nuevo Leon state, Mexico, January 17, 2016. REUTERS/Daniel Becerril

Mexican growth slowed more than expected in the fourth quarter as industry contracted by the most in over two years despite steady services expansion, data showed on Tuesday.

The economy MXGDPQ=ECI grew by about 0.5 percent from the prior quarter, below the 0.8 percent rate in the third quarter and expectations of 0.6 percent from analysts in a Reuters poll.

The industrial sector, which has been hit by sinking oil prices and production at state oil giant Pemex [PEMX.UL], fell 0.4 percent compared to the third quarter, its biggest drop since the second quarter of 2013.

Services, which buoyed growth last year, grew by 0.9 percent, slightly below the 1 percent pace of expansion in the third quarter.

Latin America’s No. 2 economy suffered last year from uneven U.S. demand for its exports and recent weakness in U.S. factory output could further drag on Mexico.

Still, improving domestic demand has supported growth despite a dramatic slump in the peso.

Earlier this month, Mexico’s finance ministry and central bank announced 2016 budget cuts and a surprise interest rate hike to shield the peso from a deeper slide and boost investor confidence in Latin America’s No. 2 economy.

But in a client note on Tuesday, Barclays said the moves could create further headwinds for Mexican growth, which it expects will reach 2.3 percent this year.

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Compared with a year earlier, the economy MXGDPY=ECI grew by 2.5 percent, on par with analysts’ expectations.

A separate report showed economic activity MXIGAE=ECI was flat in December on a monthly basis and expanded by 2.6 percent in the month compared to December 2014 MXIGDP=ECI.

(Reporting by Alexandra Alper; Editing by Andrea Ricci)