Mexico GDP crawls forward in third quarter, economy stays weak

MEXICO CITY (Reuters) - Mexico’s economy grew 0.1 percent in the third quarter from the previous three-month period, falling short of forecasts and prolonging its tepid start under President Andres Manuel Lopez Obrador, a preliminary estimate showed Wednesday.

FILE PHOTO: An employee of Estafeta Mexicana works at the company's logistics centre in Mexico City, Mexico April, 8, 2019. REUTERS/Edgard Garrido

The seasonally adjusted flash estimate for gross domestic product (GDP) from national statistics agency INEGI increased expectations that the central bank will cut interest rates more in the coming months.

Economists polled by Reuters had forecast that GDP would expand by 0.2% in the July-September period after the economy stagnated in the second quarter. Final third-quarter data are to be published on Nov. 25.

Compared with the same quarter a year earlier, the economy shrank by 0.4 percent when measured in both seasonally adjusted and unadjusted terms, INEGI said.

The result was the first annual decline in GDP in adjusted terms since the final quarter of 2009, a year in which Mexico suffered a sharp recession brought on by the financial crisis.

Mexico's peso MXN= was little moved by the data, trading down slightly against the dollar early on Wednesday.

A breakdown of the data showed secondary activities, which include manufacturing, slipped one-tenth of a percentage point from the previous quarter, while services stagnated.

The category that covers farming, fishing and mining, known as primary activities, grew 3.5%, its biggest increase in more than six years, the data showed.

Mexico has been flirting with recession since Lopez Obrador took office in December pledging to ramp up economic growth to an average of 4% per year. INEGI’s data showed the economy was flat during the first nine months of 2019, year-on-year.

Analysts at Capital Economics said in a research note that the weak GDP data made another rate cut by Mexico’s central bank all but certain when it meets on Nov. 14.

“If the incoming inflation data are also soft, more policymakers could join the two who voted for a larger 50 basis point interest rate cut at the last meeting,” they wrote.

Investor confidence in Mexico, Latin America’s second largest economy, has been shaken by some policy moves made by Lopez Obrador, a leftist exponent of economic nationalism.

In particular, his decision to cancel a partly built, $13 billion airport for Mexico City and his retreat from the prior government’s opening of the oil and gas industry to private capital have raised doubts about his economic credentials.

Reporting by Dave Graham; Additional reporting by Noe Torres; Editing by Steve Orlofsky and David Gregorio