November 21, 2014 / 2:16 PM / 5 years ago

Mexico cuts 2014 growth forecast after surprisingly weak third quarter

MEXICO CITY (Reuters) - Mexico’s finance ministry cut its 2014 growth forecast on Friday after the economy grew unexpectedly slowly in the third quarter in a modest recovery that is now also threatened by rising social unrest.

The logo of HSBC Bank is seen on an office building in Mexico City July 22, 2014. REUTERS/Henry Romero

Mexican gross domestic product MXGDPQ=ECI expanded 0.5 percent in the third quarter from the second, the national statistics agency said on Friday, slowing from a downwardly revised 0.9 percent growth in the April-to-June period.

A Reuters poll had projected 0.7 percent growth.

The weak data is the latest blow to President Enrique Pena Nieto, who faces rising protests over the apparent massacre of 43 trainee teachers as well as a conflict-of-interest scandal over a lucrative rail contract.

The finance ministry said it now saw the economy growing between 2.1 and 2.6 percent in 2014, down from its previous 2.7 percent forecast. It is the second time this year the ministry has cut its outlook.

The revision is in line with analysts’ projections for 2.3 percent growth this year.

Latin America’s No. 2 economy has struggled to recover after shrinking last year in the second quarter. Weakness in domestic demand and uneven industrial output have dragged on the rebound.

Mexico’s central bank on Wednesday lowered the range of its own growth forecasts for this year and next, pointing to weakness in domestic demand. Data on Thursday showed retail sales fell in September by the most in nine months.

On Friday, bank governor Agustin Carstens said he was sticking with a 2.0 to 2.5 percent growth forecast for this year despite the slowdown in the third quarter.

Pena Nieto has passed a series of economic reforms in the past two years, including opening up the state-run energy sector, but the laws could take years to boost the economy, and now weak growth and the political crisis have drawn attention away from his reform agenda.

The government this month abruptly canceled a $3.75 billion high-speed rail contract with a Chinese-led consortium. It later emerged that a Mexican firm in the group owned a luxury house that Pena Nieto’s wife is in the process of buying.

New taxes in 2014 have weighed on consumer spending and investment, while construction has struggled to rebound from a sharp drop in 2013 and lower oil output has weighed too.

Factory production has wobbled, contracting in August, then picking up in September amid uneven demand from the United States, Mexico’s top trading partner.

The economy grew 2.2 percent in the third quarter from the same period of 2013 MXGDPY=ECI, slightly below expectations for 2.3 percent.

A separate report showed the economy contracted for the second month in a row in September. Mexico’s monthly economic activity index MXIGAE=ECI fell 0.1 percent compared with August.

Policymakers at the central bank and finance ministry have also warned that growing social unrest could dampen growth.

Mexico has been convulsed by protests since police working with a local drug gang in the state of Guerrero abducted 43 students who were then very likely incinerated, according to the government.

Tens of thousands protested peacefully in the capital on Thursday, while masked demonstrators clashed with riot police outside Mexico City’s National Palace and near the capital’s airport.

Additional reporting by Gabriel Stargardter; Editing by Simon Gardner and James Dalgleish

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