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MEXICO CITY, Feb 20 (Reuters) - Mexico's economy grew at a faster pace in the fourth quarter but still below expectations, as stronger manufacturing and a construction boom was crimped by flagging oil output, government data showed on Friday.
Gross domestic product grew 0.7 percent in the latest quarter compared to 0.5 percent growth in the third quarter, Mexico's national statistics agency said. A Reuters poll had forecast 0.9 percent growth for the latest quarter.
Latin America's No. 2 economy, which has been hurt by weak domestic demand, grew 2.1 percent for all of 2014, up from 1.4 percent in 2013.
Mexico's economy has been growing during the last two years at its slowest pace since the 2009 recession, which has spurred President Enrique Pena Nieto's government to pass a series of pro-growth reforms.
Industrial output rose 0.6 percent in the fourth quarter compared to the third, as exporters were supported by a weak peso and rising U.S. demand for Mexican-made goods.
But the mining component that includes oil output by state-run company Pemex fell 2.2 percent quarter-on-quarter, its steepest drop in six years.
The sharp drop in global crude prices has forced the government to cut infrastructure projects and other spending by an amount equivalent to 0.7 percent of gross domestic product. About one-third of government spending is funded by oil revenue.
Expectations that the opening of Mexico's energy sector could lead to a tide of private sector investment have been dampened by forecasts that oil prices will remain low for years.
"The decline in oil production will be a drag, but it is not that important a part of the economy," said Marco Oviedo, an analyst at Barclays. He added that the export sector, a bigger part of the domestic economy, would benefit from the weak peso.
GDP on an annualized basis grew 2.6 percent in the fourth quarter from the same period in 2013, in line with forecasts and up from the 2.2 percent reported for the third quarter.
A separate report from the statistics agency showed the economy contracted in December by 0.3 percent from November as industrial activity and services fell.
On Wednesday, Mexico's central bank cut its growth outlook for this year to a range of 2.5 percent to 3.5 percent.
A Reuters poll last week projected 2015 growth at 3 percent. (Reporting by Michael O'Boyle; Editing by Meredith Mazzilli and Paul Simao)