Mexico's GDP Contracted in Third Quarter as Disasters Took Toll

By Anthony Harrup Features Dow Jones Newswires

Mexico's economic output declined in the third quarter, its first contraction in 17 quarters as a series of natural disasters had a negative impact on services and brought about further declines in oil production.

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Gross domestic product, a broad measure of output in goods and services, was down 0.2% seasonally adjusted from the second quarter, and rose 1.6% unadjusted from the year-earlier period, the National Statistics Institute said Tuesday.

The decline from the second quarter -- which translates into an annualized drop of 0.8% -- was led by a 0.5% contraction in industrial output. Services slipped 0.1% and agricultural production rose 0.5%. The preliminary readings could change with the institute's next GDP report on Nov. 24.

Mexico suffered two major earthquakes in September that left 471 people dead and damaged more than 180,000 homes, 16,000 schools and 1,800 churches and other cultural buildings in Mexico City and nine other states. Several hundred schools and churches, and more than 50,000 homes were destroyed or so badly damaged that they have to be demolished.

A number of economists said they expect the short-term impact of the natural disasters to be offset in subsequent quarters by reconstruction efforts.

While manufacturing was largely unaffected by the earthquakes, output at state oil company Petróleos Mexicanos took a hit.

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Pemex cut oil production in September to about 1.73 million barrels a day after a quake in southern Mexico led to the temporary closure of its biggest refinery, and refinery outages on the U.S. Gulf Coast following hurricane Harvey caused crude shipments to be postponed, leaving Pemex's storage at full capacity. Crude output was back at 1.94 million barrels a day in early October, and company officials said they expect Pemex to meet its full-year target of 1.944 million barrels a day.

"Economic activity continued to suffer from weakness in oil production and temporary factors such as the unfortunate natural disasters, while the performance of manufacturing and services, and expectations of a pickup in construction leads us to foresee an improvement in the fourth quarter," Banco Santander said in a report ahead of the GDP release.

The third-quarter marked a slowdown from the first half of the year, when gross domestic product expanded by 2.3%. Concerns about growth have also been increasing as talks with the U.S. and Canada to rewrite the North American Free Trade Agreement become more tense and disagreements emerge.

Fitch Ratings said Monday that while it doesn't foresee a collapse of the 24-year-old trade pact, the extension of negotiations into 2018 and comments from government officials underline the growing risks.

If the U.S. withdrew from Nafta, Mexico's economy would face significant uncertainty and near-term market volatility, the ratings firm said in a report.

"Growth would slow through the medium term, from an already modest base, as the initial disruption would likely result in lower investment and trade dislocations with potentially sustained effects on consumer confidence," Fitch added.

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

(END) Dow Jones Newswires

October 31, 2017 11:04 ET (15:04 GMT)