October 30, 2018 / 4:43 PM / 20 days ago

Mexican economy recovers in third quarter as trade worries fade

MEXICO CITY (Reuters) - Mexico’s economy rebounded in the third quarter, official data showed on Tuesday, helped by stronger industrial output and a jump in services that reflected a surge in consumer confidence in the wake of elections.

FILE PHOTO: A worker walks in front of compacted cans in an aluminium recycling plant in Ciudad Juarez, Mexico, July 31, 2018. REUTERS/Jose Luis Gonzalez/File Photo

The economy grew 0.9 percent in seasonally adjusted terms in the third quarter, bouncing back from a 0.2 percent contraction in the previous three-month period, according to a preliminary estimate from national statistics agency INEGI.

Growth in services was supported by the biggest jump in consumer confidence on record after the landslide victory of leftist Andres Manuel Lopez Obrador in July’s presidential election.

Industrial output picked up from a slump in the wake of a new trade deal with the United States.

Analysts are divided on the outlook ahead. Some think spending projects by Lopez Obrador could lift growth next year, but others fear uncertainty around his economic policies could paralyze investment.

Compared with the same quarter a year earlier, the economy grew by 2.6 percent in unadjusted terms, INEGI said.

In late August, Mexican negotiators agreed to an updated North American trade deal with the United States, with Canada joining the accord a month later.

While the deal must still be ratified in all three countries, the accord helped calm investor uncertainty after months of often contentious talks.

Analysts noted the United States, the destination for around 80 percent of Mexican exports, had stronger-than-expected growth in the third quarter.

Analysts at Capital Economics said lower inflation, which has been easing from a more than 16-year high, and increased spending under Lopez Obrador should boost growth next year.

The incoming president has pledged to roll out cash transfer programs to the young and elderly and ramp up building projects, including a new oil refinery.

But Alberto Ramos at Goldman Sachs said there was “rising market apprehension” about what policy direction Lopez Obrador will take once he assumes office on Dec. 1 that could make national businesses “more defensive in their spending and investment decisions.”

On Monday, Lopez Obrador said he would cancel a new airport backed by the country’s business elite, sparking the biggest slump in local financial markets since the surprise election of U.S. President Donald Trump.

Reporting by Sharay Angulo and Michael O'Boyle; Editing by Dave Graham, Bill Trott and Dan Grebler

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