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Mexico Growth Slows as Oil Output Drops

Analysts expect the economy to grow 1.5%.Analysts expect the economy to grow 1.5%.

Mexico’s growth slowed in the fourth quarter, dragged down by falling oil production. Gross domestic product rose 0.6% from the previous three months, according to preliminary figures released by the national statistics institute Tuesday, matching the median forecast of 16 economists surveyed by Bloomberg. 

That’s a slowdown from the third quarter, when the economy grew at the fastest pace in three years. From the previous year, GDP expanded 2.2%, also matching analyst projections, PetroleumWorld reported.

The outlook for 2017 worsened significantly with Donald Trump’s election in US in November. Economists have cut growth expectations as his promise to end or overhaul the North American Free Trade Agreement and make Mexico pay for a border wall upset decades of stronger cooperation between the nations, damped investment projections and sent the peso to a record low. 

Surging gasoline prices have added to expectations for faster inflation, higher interest rates and a weaker economy overall.

“The uncertainty on Trump’s policies is the main issue,” said Marco Oviedo, the head of Latin America economic research at Barclays Plc, who expects growth to slow to 0.3% in the first quarter. “Once we know the final outcome, we can assess the impact in the economy.”

The peso strengthened after the report, rising 0.3% to 20.719 per dollar in morning trading in New York. The peso has weakened 12% since Trump’s election, the most among major world currencies, and sank to a record low beyond 22 per dollar earlier this month.

Economic growth from the previous quarter was led by services activity, which expanded 0.7%, while farming output grew 0.4%. Industrial activity was stagnant. Final figures are scheduled to be released on Feb. 22.

Mexico’s central bank, led by Governor Agustin Carstens, is expected to raise its key interest rate a half point to 6.25% next week, according to the median estimate in a Citibanamex survey. Analysts in the same survey expect the economy to grow 1.5% this year, the least since 2013, and inflation to climb to 4.8%.

Exports rebounded in the fourth quarter, bolstered by the weaker exchange rate. Sales abroad increased 11.1% in November from a year earlier, the most since 2012, and expanded 6.6% in December.

 

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