UPDATE 2-Mexican economy rebounds in January after December dip

Mon Mar 25, 2013 11:46am EDT

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* Mexico Jan economic growth 3.24 pct year/year

* Jan month/month growth at 0.2 pct

* Strength was broad-based, in industry and services

By Alexandra Alper

MEXICO CITY, March 25 (Reuters) - Mexico's economic activity revived in January, on strength in the industrial and service sectors, easing fears that the global slowdown is dragging on Latin America's second biggest economy.

Official data on Monday showed economic activity expanded by 0.20 percent in January compared with the prior month. The expansion came after December's contraction of a revised 0.97 percent, a nearly three-year low. December's contraction was earlier reported as a 0.99 percent drop.

"It's a welcome rebound after December's plunge which ... sparked fears that something was wrong with the economy," said Luis Arcentales, a Morgan Stanley economist based in New York.

The monthly expansion was bolstered by a 1.1 percent expansion in industry and 0.44 percent growth in services.

On an annual basis, economic activity grew 3.24 percent in the 12 months through January, its fastest pace since November, outstripping the 1.42 percent expansion in the prior month against a year earlier.

Healthy consumer spending and unexpectedly resilient demand for Mexican manufactured goods north of the border has helped shelter Mexico's economy from weaker global growth.

"What is encouraging is that industry, which tends to move in tandem with the US, should see better figures ahead, because the US industrial output has bounced sharply," Arcentales added.

U.S. manufacturing output rose in February in the latest signal of strength in an economy that is showing clear momentum despite the headwind from government austerity.

Mexican industrial production rebounded more than expected in January on a strong bounce in construction after slowing the most in almost four years at the end of 2012.

Strength in the services sector, which represents about 65 percent of Mexico's economy, could support growth if U.S. demand flags, according to Barclays economist Marco Oviedo.

"We believe that this report is pointing to a good start of the year for the sector, which could be able to support activity amid the weakness from external demand," he said in a note to clients.

Still, the government has projected Mexico's economy will expand 3.5 percent in 2013, down from 3.9 percent in 2012.

The central bank cut interest rates to a record low of 4 percent earlier this month, citing concerns about weakening economic growth.

In minutes released on Friday, most policymakers saw a weak global environment and expressed concern about a slow recovery north of the border, the destination for almost 80 percent of Mexico's exports. U.S. demand for manufactured goods supported growth last year.

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