Mexico's Economy Posts Steady Growth -- 2nd Update

By Anthony Harrup Features Dow Jones Newswires

Mexico's economy maintained a steady pace of growth in the first quarter, expanding for a 15th consecutive period as services continued to compensate for a sluggish industrial sector.

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Gross domestic product, a broad measure of output in goods and services, grew 0.7% seasonally adjusted from the fourth quarter of 2016, and was up 2.8% from the year-earlier quarter, the National Statistics Institute said Monday.

The increase from the previous quarter, which translates into a seasonally adjusted annualized rate of 2.7%, was in line with the median estimate of economists polled by The Wall Street Journal and above the institute's preliminary estimate of 0.6%.

The increase in output from a year earlier was helped by the Easter holiday moving this year to April from March, resulting in more working days in the first quarter.

Despite declines in oil and gas production and a drag on construction from government budget constraints, the economy has proved resilient thanks to robust consumption of goods and services, and gains in manufacturing.

Services grew 1% from the fourth quarter, industrial production edged up 0.1%, while agricultural production rose 1.1%.

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The Finance Ministry raised its full-year growth forecast to a range of 1.5%-to-2.5%, compared with its previous 1.3%-to-2.3% estimate, citing the favorable first-quarter performance, particularly in non-petroleum activities.

The economy performed better in the first quarter than many had initially expected following the election of U.S. President Donald Trump, whose sharp criticisms of the North American Free Trade Agreement and of U.S. companies that invest in factories in Mexico led consumer and business confidence to plummet at the start of the year.

But expectations that the renegotiation of Nafta won't be as ominous for Mexico as once thought have led economists to begin raising pessimistic forecasts for full-year growth, although a slowdown is still seen from last year's 2.3% expansion.

"We expect growth to decelerate and the engines of growth to rebalance -- with higher contributions from manufacturing and net exports, and less thrust from services and private and public consumption," Goldman Sachs's Latin America economist Alberto Ramos said in a note.

Rising inflation, which recently reached an eight-year high, higher interest rates in Mexico and uncertainty over U.S. policy are likely to make Mexican consumers less eager to spend, while added risk from Mexico's 2018 presidential elections could cause investment decisions to be postponed, reduced or even canceled, he added.

Write to Anthony Harrup at anthony.harrup@wsj.com

(END) Dow Jones Newswires

May 22, 2017 12:40 ET (16:40 GMT)