February 21, 2013 / 7:26 PM / 5 years ago

UPDATE 3-Mexico retail sales slump, backing case for rate cut

* Economists point to U.S. fiscal cliff concerns
    * Retail sales fall 3.6 percent m/m in Dec, most since Feb
    * Data worse than Reuters poll expectations for 1.1 percent

    MEXICO CITY, Feb 21 (Reuters) - Mexican retail sales fell by
the most in over a decade in December, backing the case for
interest rate cuts ahead 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. 
    Although the numbers are traditionally volatile, they showed
the steepest decline since February 2001 and came in well below
the downwardly revised 0.73 percent growth notched in November.
    "It's a really bad number ... it means that consumption is
decelerating faster than we expected," said Marco Oviedo, an
economist at Barclays in Mexico. 
    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, but
the central bank has said a cut is far from a done deal. 
    The Mexican economy normally moves in tandem 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," said Pedro Tuesta, an economist at
4cast in Washington DC. 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 lawmakers 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 but growth is expected to slow to 3.5
percent this year. 
    The market is pricing in slightly more than even odds of a
25-basis-point cut in March, down from highs notched last month
after the bank hinted at a rate cut and data showed continued
easing in inflation. 
    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.  
    But 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, though the group has said it's eying 5
percent growth in 2013.  
    Despite the weak retail numbers, Oviedo says other
indicators of consumer sentiment are encouraging, from real wage
and employment gains to stable credit consumption and a rebound
in consumer confidence to pre-crisis levels.
    The statistics agency also said on Thursday that retail
sales growth in December from a year earlier
dropped to a nearly three-year low of 1.8 percent. 
    The annual figure, which was the lowest since January 2010
and showed its first contraction since April that year, missed
expectations for a 2.1 percent rise.
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