Mexico economy beats Q4 forecasts, analysts predict rate pause

MEXICO CITY, Jan 30 (Reuters) - Mexico's economy recorded its strongest quarterly expansion in more than two years in the fourth quarter, preliminary data showed on Friday, beating market expectations thanks mainly to growth in industry and services.

Latin America's second-largest economy grew 0.8% in the period, statistics agency INEGI said, rebounding from a 0.3% contraction in the previous quarter and exceeding the 0.6% rise expected by economists in a Reuters poll.

The data marked the strongest performance since the third quarter of 2024 and may strengthen the case for the Bank of Mexico (Banxico) to pause its monetary easing cycle at its next meeting on February 5.

In December, the central bank cut its benchmark interest rate by 25 basis points to 7%, the lowest since April 2022, but board members have since signaled greater caution.

"The rebound in growth - and strength in services in particular - adds weigh to our view that Banxico will pause the easing cycle at the meeting next week," Capital Economics' chief emerging markets economist, William Jackson, said.

He pointed to an uptick in inflation in mid-January and the more cautious messaging from policymakers.

SERVICES, INDUSTRY OFFSET AGRICULTURE WEAKNESS

Mexico's economic expansion in late 2024 was mainly driven by secondary and tertiary activities, respectively covering manufacturing and services, as both grew 0.9% on a sequential basis.

Those increases helped offset a 2.7% decline in primary activities such as farming, fishing and mining.

Pantheon Macroeconomics' chief Latin America economist, Andres Abadia, said the data reduces near-term recession risks, but that "activity remains inconsistent with a robust upswing".

A sustained acceleration, he said, hinges on clearer trade policy signals and firmer external demand.

Analysts have been cautions about Mexico's prospects in 2026 given high uncertainty around the looming review of the United States-Mexico-Canada (USMCA) trade agreement.

Compared with the same period a year earlier, INEGI said, growth in the fourth quarter hit 1.6%, above the 1.3% expected in the Reuters poll. It was the strongest year-on-year performance since the second quarter of 2024.

In 2025, full-year growth stood at 0.7%.