Mexican Economy Maintains Growth in First Quarter -- Update

By Anthony Harrup Features Dow Jones Newswires

Mexico's economy kept up steady growth in the first quarter, expanding for a 15th consecutive period despite concerns that strained trade and investment relations with the U.S. will bring about a sharp slowdown.

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Gross domestic product, which measures output of goods and services, grew 0.6% seasonally adjusted from the fourth quarter of 2016, and was up 2.7% from the year-earlier period, the National Statistics Institute said Friday. The quarterly increase, which translates into an annualized rate of 2.4%, was down slightly from 0.7% in the previous quarter.

Services continued to be the main driver of growth in the January-March period, rising 1% from the previous quarter, while industrial production was unchanged.

The 2.7% expansion from a year earlier was boosted by the shift in the Easter holiday to April this year, as economic activity tends to slow sharply during that week. Adjusted for calendar and other seasonal effects, output increased 2.5% from the first quarter of 2016.

The statistics institute is scheduled to release its next report on first-quarter GDP on May 22.

Mexico's economic growth has been modest but steady for more than three years. The last time output contracted was in the second quarter of 2013.

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The election of U.S. President Donald Trump has led economists to lower expectations for growth as Mr. Trump seeks to renegotiate the North American Free Trade Agreement, and is critical of U.S. companies moving factories to Mexico and then exporting the production to the U.S.

But this week, Mr. Trump abandoned the idea of pulling out of Nafta before sitting down to negotiate changes in the 23-year-old trade pact with Mexico and Canada. The White House has been cool to a border-adjusted tax favored by some Republicans, which would hurt Mexican exports.

"What Trump has delivered has been more bark than bite," said Jorge Mariscal, emerging markets chief investment officer at UBS Wealth Management. "Once the more real policies began to be heard coming out of the Trump administration, the world realized, and emerging markets realized, maybe things weren't going to be as dire in relation to the U.S."

Mexico's economy has proven more resilient than many expected, and a number of analysts have started raising their forecasts.

Banco Santander recently raised its 2017 growth forecast to 2.2% from 1.7%, predicting a slowdown in consumption will be less harsh than previously thought.

Still, the economy is expected to lose steam after last year's 2.3% growth, given higher inflation and interest rates, declining oil production, and government spending constraints that will curb investment.

"We expect growth to decelerate and the engines of growth to rebalance -- with higher contributions from manufacturing and net exports, and less thrust from services and private and public consumption," Goldman Sachs chief Latin America economist Alberto Ramos said in a note.

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

(END) Dow Jones Newswires

April 28, 2017 11:01 ET (15:01 GMT)