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Mexico’s Q3 growth eases as farming slumps

A worker maintains machinery at Meco Corp. in Saltillo, Mexico in this file photo. The economy grew 0.5 per cent in the July-September period.

TOMAS BRAVO/REUTERS

Mexico's economic growth slackened in the third quarter as strength in manufacturing and construction was dragged down by a contraction in agriculture in Latin America's No. 2 economy.

The economy grew 0.5 per cent in the July-September period compared with the second quarter, slower than expectations in a Reuters poll calling for 0.8-per-cent expansion.

The growth was the weakest since the first quarter of 2011. It followed a downwardly revised expansion in the second quarter of 0.81 per cent, the national statistics agency said on Friday.

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" We had always built in a weak fourth quarter and that got brought forward a little bit," said Rafael De La Fuente, a UBS economist. "If the manufacturing sector continues to hold its own, I don't think we're looking at a major slowdown."

The data showed Mexico's sagging agricultural sector dragged down strength in manufacturing and construction. Activity including agriculture contracted 0.55 per cent, compared with the second quarter, while industry grew by more than 0.7 per cent. Third-quarter economic growth compared with a year earlier eased to 3.3 per cent, below expectations for a 3.7-per-cent expansion. It slowed from an upwardly revised expansion of 4.4 per cent in the second quarter against a year earlier.

Mexico's growth started the year strong, but it is easing in the second half as the global slowdown finally begins to bite.

Data also released on Friday revealed Mexico's economy shrank 0.02 per cent in September from August, below analysts' estimates for a 0.12-per-cent expansion. Annual expansion in September clocked in at 1.32 per cent, below a forecast of 3.14 per cent.

"This is showing that the real economy started to decelerate more or less significantly since the third quarter, and this validates the central bank's decision to not hike rates," said Deutsche Bank economist Fernando Losada in New York.

The central bank has held benchmark interest rates at 4.5 per cent since mid-2009 and investors stuck to bets that rates will remain steady into 2014.

Egg and chicken prices spiked following an outbreak of avian flu in western Mexico, but inflation slid from a 2-1/2-year high in October, giving weight to policy makers' insistence that the jump is temporary.

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Central Bank Governor Agustin Carstens has said that inflation is likely to finish the year near the central bank's 4-per-cent ceiling, which has been breached for five months running.

Mr. Carstens has also said the U.S. Federal Reserve's third round of bond-buying should help cool Mexican inflation.

The U.S. action may attract funds into Mexico, putting upward pressure on the peso and trim the cost of imported goods.

Despite the weak data, several key Mexican companies last month were cautiously optimistic that sales would maintain momentum through the final months of the year.

"For the rest of the year or for the next quarter, we expect essentially the same volume that we have for the third quarter," said Salvador Ramos, chief financial officer at Nemak, an auto parts maker and subsidiary of conglomerate Alfa.

Nemak reported a 20-per-cent rise in sales volume from a year earlier, with the bulk to the United States. But Mr. Ramos noted in an analysts' call last month that the forecast would depend on the prices of aluminum and the exchange rate.

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The peso's gain of more than 5.0 per cent against the U.S. dollar so far this year is the seventh best performance among the world's 36 most-traded currencies.

But the technical outlook for the peso has darkened as it has shed more than 3 per cent since mid-October, pushing the cost of dollars in pesos past its 100-day and 200-day simple moving averages late last week.

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