February 21, 2013 / 5:06 PM / 5 years ago

UPDATE 2-Mexico retail sales slump, bets rise for rate cut

* Retail sales fall 3.6 pct m/m in Dec, most since Feb 2001
    * Misses Reuters poll expectations for 1.1 pct fall
    * Backs bets for interest rate cut


    MEXICO CITY, Feb 21 (Reuters) - Mexican retail sales fell by
the most in over a decade in December, reinforcing bets the
country's central bank could soon cut interest rates to support
growth in Latin America's no. 2 economy.
   Retail sales fell 3.6 percent from the prior
month, missing expectations in a Reuters poll for a 1.1 percent
contraction, on a drop in sales of electronic goods, computers
and cars. 
    It was the steepest decline since February, 2001 and came in
well below the downwardly revised 0.73 percent expansion notched
in November.
    "It is a surprising fall," said Pedro Tuesta, an economist
at 4Cast in Washington DC.      
    Healthy consumer spending helped Mexican output heat up in
the fourth quarter last year, picking up the slack from a dip in
manufacturing that had previously sheltered the country from the
worst of the global slowdown. 
    Yields on Mexican interest rate swaps edged lower
after the data as investors added to bets that the central bank
could cut its 4.50 percent benchmark rate as soon as March.
     
    The Mexican economy moves in lockstep with that of its
northern neighbor, where politicians narrowly averted a package
of tax hikes and spending cuts originally set to kick in in
January.
    "People were very concerned about what was going to happen
with the U.S. fiscal cliff," Tuesta said. Slowing U.S. growth
would likely push Mexican consumers to retrench.
    Some $85 billion in spending cuts will begin to hit the U.S.
economy after March 1 if lawamkers do not soon reach a deal.
Mexico's central bank will be closely watching the outcome of
talks as it heads into a rate decision meeting next month. 
    The bank has said it could cut interest rates if inflation
continues to cool and the economy flags. Mexico's economy grew
3.9 percent in 2012 and is expected to slow to 3.5 percent
expansion this year. 
    The market is pricing in slightly more than even odds of a
25 basis point cut in March, and eyeing a good chance for a
half-percentage point cut during the year. 
    
    MIXED SIGNS
    Retail sales in November were boosted by a long-weekend when
stores offered discounts right after early year-end bonuses,
sapping some of December's demand. 
    Mexican consumer confidence slipped off of a nearly
five-year high in January as shoppers in Latin America's second
biggest economy showed less willingness to make big purchases. 
 
    That same month the Mexico's retailers' association
announced a feeble 0.5 percent growth in sales in January at
stores that have been open at least 12 months. 
    The association has still said it is eyeing 5 percent growth
in 2013 on continued strength in department store sales.
 
    The statistics agency also said on Thursday that retail
sales in December dropped 1.8 percent from a year
earlier, compared to expectations for a 2.1 percent rise and a
3.5 percent annual rate in November.

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