October 31, 2017 / 3:11 PM / in a year

Mexico economy likely shrank for first time in four years after quakes

MEXICO CITY (Reuters) - Mexico’s economy likely shrank for the first time in more than four years during the third quarter, a preliminary official estimate showed on Tuesday, after the country was battered by earthquakes and hurricanes in September.

FILE PHOTO: A street damaged during the earthquake on September 19th is pictured in Colonia del Mar neighbourhood in Tlahuac, Mexico, October 18, 2017. REUTERS/Henry Romero

Gross domestic product in Latin America’s second-biggest economy contracted around 0.2 percent in seasonally adjusted terms during the July-September period compared with the previous quarter, the national statistics agency said.

That follows expansion of 0.6 percent in the second quarter. If confirmed, it would be the first quarterly contraction since the second quarter of 2013. Official third-quarter data will be released on Nov. 24.

Mexico was struck by two devastating earthquakes in September and was also hit by hurricanes. The head of the statistics agency, Julio Santaella, said on Twitter that economic activity had been affected by the quakes.

The government says the cost of rebuilding tens of thousands of homes and buildings damaged by the quakes, which killed at least 471 people, will approach 48 billion pesos ($2.5 billion).

Central bank officials have said that after a dip in output, the economy should bounce back as reconstruction efforts gather pace.

The preliminary data showed the industrial sector likely shrank by 0.5 percent in the July-September period versus the second quarter, while services slipped 0.1 percent. Agriculture expanded 0.5 percent quarter-on-quarter.

Economists noted that the drop in services, a main engine of growth in recent years, might not be due to the quake.

“Activity was significantly more resilient than expected during the first half of 2017, but there are now growing and clear signs that the forward momentum is softening,” Goldman Sachs economist Alberto Ramos wrote in a report.

The national statistics institute also introduced a new base year of 2013 for GDP data, replacing data based on 2008.

The revisions led to higher growth during previous quarters as mining now has a lower weight than services, economists at Banorte said.

Given those higher growth rates in the first two quarters, Banorte raised its outlook for economic expansion this year from 1.9 percent to 2.1 percent.

Compared with the same quarter a year earlier, the economy grew by about 1.6 percent in unadjusted terms, the statistics agency said.

Before the string of natural disasters, Mexico’s economy had been more resilient than expected this year after U.S. President Donald Trump held off on threats to impose punitive tariffs on Mexican-made exports.

($1 = 19.2150 Mexican pesos)

Reporting by Michael O'Boyle and Miguel Gutierrez; Editing by Chizu Nomiyama

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