By Anthony Harrup

MEXICO CITY -- Mexico's economic growth accelerated in the third quarter, with growth in services continuing to offset weakness in industrial production, the National Statistics Institute said Wednesday.

Gross domestic product, a measure of output of goods and services, grew 1.0% from the second quarter and was up 2.0% from the year-earlier period.

The expansion from the second quarter was unchanged from the institute's preliminary estimate, and translates into a seasonally adjusted annualized rate of 4.0%.

GDP for the second quarter was revised to a 0.1% expansion from a previously reported contraction.

Services rose 1.4% from the second quarter, with private consumption supported by low inflation and employment and credit growth. Industrial production barely grew, however, as a sluggish U.S. manufacturing sector weighed on demand for Mexican factory exports, oil and gas production continued to decline, and government budget cuts limited construction.

Despite the pickup, Mexico's economy is on track to slow down from the 2.6% full-year growth seen in 2015. In the first nine months of this year growth was 2.3%.

A number of economists have cut their growth expectations for 2017 and beyond, citing uncertainty about the trade and immigration policies that U.S. President-elect Donald Trump will implement once in office. Mr. Trump's election victory sent the peso to new lows against the U.S. dollar and prompted the central bank to raise interest rates to avoid knock-on effects on inflation.

The uncertainty is expected to put the brakes on new investment decisions, at least in the near term.

Mr. Trump said this week that his government will pull out of the Trans-Pacific Partnership, but made no mention of the North American Free Trade Agreement with Mexico and Canada, which he has said he would renegotiate to improve terms for the U.S. or abandon.

Many consider that the integration of supply chains across the region will keep the U.S. from pulling out of Nafta altogether, and some expect to see only limited trade barriers since they would also hurt U.S. manufacturers.

"This makes it less likely that the more extreme protectionist measures that were a central feature of Mr. Trump's campaign will be implemented, " Capital Economics said in a report.

Still, the London-based research firm joined others in lowering its Mexico growth outlook for next year, as it also expects rising inflation and higher local interest rates to prove a drag on the economy.

Banks polled this week by Citibanamex lowered their median expectation for growth next year to 1.8% from 2.3%.

Write to Anthony Harrup at anthony.harrup@wsj.com

(END) Dow Jones Newswires

November 23, 2016 09:53 ET (14:53 GMT)

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