Mexican Economy Shrank in Third Quarter as Natural Disasters Hit -- Update

By Anthony Harrup Features Dow Jones Newswires

The Mexican economy contracted in the third quarter from the preceding period as a series of natural disasters affected services and oil production, aggravating this year's economic slowdown.

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Gross domestic product, a measure of output in goods and services, fell 0.3% seasonally adjusted from the second quarter, and was up 1.5% unadjusted from the third quarter of 2016, the National Statistics Institute said Friday.

The decline from the second quarter, which translates into an annualized drop of 1.2%, was the first since the fourth quarter of 2015 when GDP slipped 0.1%, according to revised data. Industrial production contracted 0.6% from the second quarter, services were 0.1% lower and agricultural production rose 0.5%.

Mexico suffered two major earthquakes in September that left at least 471 people dead and damaged thousands of homes, schools, and other buildings in Mexico City and nine states.

State oil company Petróleos Mexicanos shut in part of its oil production 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.

Even with the pickup in the fourth quarter, the economy will likely grow only 2% this year, said Marco Oviedo, head of Latin American research at Barclays.

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"The economy was decelerating, then the disasters came, so we don't know exactly if we're going to have a strong rebound or not, and if growth is going to remain relatively resilient to all this noise on Nafta and political uncertainty," he said.

Tension in negotiations with the U.S. and Canada to redraw the North American Free Trade Agreement have added uncertainty to the future of trade and investment relations, and Mexico's presidential elections in 2018 are expected to inject volatility into financial markets.

Still, a strong U.S. economy and election-related spending in Mexico should support growth next year, Mr. Oviedo added.

The third quarter results brought GDP growth for the first nine months of the year to 2.2%, down from 2.9% in all of 2016.

The Bank of Mexico said this week that it expects the economy to grow between 1.8% and 2.3% this year, down from its previous estimate of 2% to 2.5%, largely because of the effect the disasters had on output in the third quarter.

The Finance Ministry kept its forecast for the year at 2% to 2.6%.

"This slowdown is explained to a large extent by the temporary and limited impact of the natural disasters which affected oil production and services such as education and those related to tourism and entertainment, which were temporarily suspended in the affected areas," the ministry said in a statement Friday.

Oil production was restored in October, and as of early November, more than 95% of the schools in Mexico City had resumed work, it added.

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

(END) Dow Jones Newswires

November 24, 2017 11:07 ET (16:07 GMT)