Mexican Economy Grows 5% in 3rd Quarter

Mexico’s economy grew a robust 5% in the third quarter from a year ago, defying expectations of a slowdown amid recent international financial turmoil, according to government figures released Wednesday.

Interest rates that doubled in the period and a peso that weakened to a record low sparked inflation but failed to dampen consumer enthusiasm. This pushed the growth rate far beyond expectations of 3.75%, as estimated by 13 Mexico City-based economists surveyed by Reuters. The quarterly gain was the 11th in a row.

The growth also was helped by exports, though sales abroad have decelerated as Mexican products faced greater competition from inexpensive Asian goods.

Mexico’s trade with the United States, however, has grown so fast that the nation has surpassed Japan as its No. 2 trading partner, according to a report from Washington. Trade between Mexico and the United States grew to $15.2 billion in September, compared with $14.2 billion in trade between the U.S. and Japan, the Commerce Department said.

Stocks rallied in Mexico after the gross domestic product report was released. The benchmark Bolsa stock market index rose 105.04 points, or 2.66%, to close at 4,059.24.

Manufacturing led the growth in the GDP, with a 6.9% gain, according to the Finance Ministry figures--evidence both of strong exports and healthy consumer spending.

“What the figure reflects is that growth is still solid and the productive sector is somewhat insulated from external shocks on the exchange rate and internal shocks on interest rates,” said Pedro Vanegas at the Mexican Center for Economic Forecasting.

Service providers, such as restaurants and hotels, recorded a 4.4% growth rate in the third quarter. Even agricultural activities recorded a strong performance, with a gain of 7.3%.

Although higher interest rates are expected to force a slowdown eventually, economists said Mexico’s economy would have to grow only 2.6% in the final quarter to meet the government’s target of 4.6% growth for the year as a whole.

The GDP figure was welcome news for a government that wants healthy economic growth but not at the expense of fiscal discipline. The government this week proposed a tightfisted 1999 budget with a fiscal deficit target of just 1.25% of GDP.