* Mexican GDP expands 0.8 percent in 4th quarter, qtr/qtr
* Grows 3.2 percent compared to Q4 2011, missing forecast
* Data backs bets for lower interest rates ahead
By Krista Hughes and Alexandra Alper
MEXICO CITY, Feb 18 Strong spending by Mexican
consumers drove an acceleration in Latin America's
second-biggest economy in the final months of last year but a
fall in manufacturing raised concerns about resilience in a key
Mexico's economy grew twice as fast in the fourth quarter as
in the third with an expansion of 0.8 percent
quarter-on-quarter, the national statistics agency said on
Monday, beating expectations in a Reuters poll for 0.6 percent
But although full-year growth of 3.9 percent matched 2011's
rate, fourth-quarter growth compared to a year earlier came in
at 3.2 percent, missing expectations for a 3.57 percent rise.
The economy is seen losing steam in the first half of 2013
amid fears U.S. tax hikes and spending cuts will sap demand for
Mexican exports, which had been supporting growth.
The figures showed manufacturing output fell in the fourth
quarter for the first time since 2009, when Mexico was battered
by a deep recession. Growth was instead driven by an expansion
in services, which make up two-thirds of economic output and are
seen as a litmus test for domestic demand.
Services have grown in importance over the last five years
and some analysts think planned structural reforms will help
boost incomes and access to credit and unleash more spending.
"All of the recovery since 2008, 2009 has really been in
industrial exports and ... consumer spending has sort of lagged
behind, but now it's almost a role reversal which is helping to
sustain growth," said David Rees, an economist at Capital
Economics in London.
Rees projects growth of 3.5 percent this year, in line with
government expectations, on strong domestic demand and a pick-up
in industry in the second quarter, helped by robust U.S. factory
activity last month. Most of Mexico's exports go to the United
States and factory activity is closely linked.
But some analysts were not so sanguine. Banco Santander
economist Rafael Camarena said industrial weakness supported
bets for a benchmark interest rate cut, something the central
bank warned last month it might pursue if inflation continues to
cool and economic growth slows.
"We're seeing a slower economic expansion rate and low
inflation, which creates a window of opportunity for the central
bank to make this cut," said Camarena, who expects a
50-basis-point cut at the bank's March meeting.
Markets are pricing in a 64 percent chance of a
25-basis-point cut in March to the central bank's 4.50 percent
benchmark rate and have fully priced in such a cut by April.
SERVICES SAVING GRACE
The figures showed industry contracted by 0.21 percent in
the fourth quarter. The services sector expanded 0.68 percent
while agricultural activity grew 2.09 percent.
Industrial production posted its biggest monthly drop since
2009 in December as Mexican factory managers burned through
inventories amid uncertainty about U.S. budget tightening that
was due to start at the start of 2013.
U.S. lawmakers managed to avert across-the-board tax hikes,
but they could still fail to reach an agreement on spending cuts
that could drag on growth, and that uncertainty may cast a pall
over manufacturing during the first part of this year.
Construction in Mexico also fell in the fourth quarter as
public infrastructure spending dried up at the end of former
President Felipe Calderon's term, hitting companies such as
cement maker Cemex, whose fourth-quarter local sales missed
But strong spending on transport, real estate and financial
services helped pick up the slack.
Confidence about Mexico's internal market drove billionaire
Carlos Slim to take retailer Sanborns public this
month, raising almost $1 billion.
Mexican retailers are eyeing 5 percent growth in 2013 on
continued strength in department store sales and consumer
optimism, which dipped in January off a nearly five-year high.
Mexico's second-biggest retailer Soriana has
said it is planning to invest 4.6 billion Mexican pesos ($362.69
million) to open about 60 new stores and boost its land reserves
for development of future facilities.
"We're very positive about this year, just like last year. I
think that Mexico is ready to grow and generate more jobs,"
Soriana CFO Aurelio Adan told Reuters in an interview last
Separate data showed economic activity slumped in December,
after relatively strong expansion in the previous two months.
Mexico's IGAE indicator fell 0.99 percent in the month, its
biggest fall in almost three years, dragged down again by the
industrial sector. Activity was up just 1.42 percent from