Mexico’s economy appears to have bounced back from its first contraction in three years, expanding by about 1% in the third quarter, according to preliminary data published on Monday.
The country’s GDP picked up pace compared to the second quarter, when the economy shrank 0.2%. The quarter-on-quarter growth was also stronger than economists forecast, marking the fastest growth over three months since the second quarter of 2014.
GDP expanded 2% when compared with the third quarter of 2015, Mexico’s statistics agency INEGI said.
Although Mexico’s economy shrank earlier this year, the country’s central bank has had to tighten interest rates to help boost the peso, which has been highly sensitive to the US presidential campaign.
Growth in the third quarter was largely driven by the services sector, which grew 1.5%, followed by a 1.2% expansion in the agricultural sector. Adam Collins, a Latin America economist with Capital Economics, said the rapid pace of growth in the service sector is “unlikely to be sustained” through the rest of the year.
“Rising inflation due to the previous falls in the peso will eat into consumers’ real income and trigger a further tightening of monetary policy that will weigh on domestic demand,” he said in a note. Collins said he expects the Mexican economy to register 1.8% growth this year.
Alberto Ramos, an economist with Goldman Sachs, also said the service sector will unlikely be an engine of growth in the months ahead.
“Going forward, we expect to see some rebalancing of the engines of growth – more contribution from manufacturing and net exports and less thrust from the services and private and public consumption – but not a major acceleration in real GDP growth,” he wrote in a research note.