Mexican economy unexpectedly falters in November, fueling rate-cut caution

MEXICO CITY, Jan 23 (Reuters) - Mexico's economy unexpectedly contracted in November due to declines in manufacturing and mining, official data showed on Friday, prompting analysts to underline the need ?for caution ahead of the next central bank rate decision.

National statistics agency INEGI ?reported that economic activity fell 0.1% compared with the same ?month in 2024, well below expectations for a ?1% increase.

On a ?monthly basis, the economy shrank 0.2%, compared with forecast growth of 0.3%.

Pantheon Economics ?Chief Latam Economist Andres Abadia ?noted that the economy was not headed into recession, but activity has been muted despite rate cuts.

"Activity ?levels are inconsistent with a ?robust recovery, ?arguing for continued policy caution rather than a decisive shift towards accommodation," he said in a note.

Mexico's central bank ?in December cut its benchmark interest rate by 25 basis points, bringing it to its lowest level since April 2022. Board members have since signaled greater caution, and the bank is widely expected to hold the rate steady at ?its February ?meeting.

Analysts said activity in Latin America's second-largest economy was dragged down by weak investment, policy uncertainty and declining external ?demand.

Looking ahead, Goldman Sachs analyst Alberto Ramos said minimum wage increases may help prop up domestic demand, but growth will likely still be constrained by subdued business confidence, a softening formal job market and a credit cycle reaching its peak.

He also pointed to uncertainty both domestically ?and abroad as an expected drag on investment, particularly tied to U.S. trade policy and the upcoming review of the United States-Mexico-Canada trade deal. (Reporting by Aida ?Pelaez-Fernandez and Noe Torres; Editing by Kylie Madry and Alistair Bell)