Portugal Colonial - Mexico avoids recession despite tariff uncertainty

Gross domestic product (GDP) grew 0.2 percent from the fourth quarter of 2024, when Latin America's second-largest economy had contracted for the first time in three years, national statistics agency INEGI reported.

Year-on-year, GDP rose 0.6 percent in the first quarter, it said in a preliminary estimate.

The positive growth means Mexico outpaced the US economy, which data released on Wednesday showed contracted in the first three months of the year.

The resilient performance, at least for now, eased fears of a recession, generally defined as two consecutive quarters of economic contraction.

"The economy dodged a technical recession last quarter. But growth was driven by a rebound in agriculture and the rest of the economy -- and the manufacturing sector in particular -- continued to struggle," Kimberley Sperrfechter, an economist at the Capital Economics consultancy firm, wrote in a note to clients.

"The weakness in industry suggests that US tariffs on Mexico (threatened in February and in force in March) took a toll on the economy last quarter," she added.

Trump has announced various tariffs targeting Mexico, as well as several policy U-turns, as part of his global trade war.

While he left Mexico off the list of nations facing his steep "reciprocal tariffs," its carmakers as well as steel and aluminum exporters still face duties.

Given the uncertain outlook, Mexico's central bank was likely to announce another half-percentage-point cut to its benchmark interest rate in May, Sperrfechter predicted.

The International Monetary Fund has predicted that Mexico's economy will shrink by 0.3 percent this year.

President Claudia Sheinbaum has said her outlook is more optimistic, because of her efforts to boost the economy and attract foreign investment.

Her government has touted a series of major investments pledged by international companies in recent weeks, including e-commerce behemoth Amazon, its regional rival Mercado Libre, streaming giant Netflix and Spain's biggest bank Santander.

In theory, Mexico should be protected against US tariffs by a North American free trade agreement that was renegotiated during Trump's first term in office.

The United States-Mexico-Canada Agreement (USMCA), which replaced the previous NAFTA accord on July 1, 2020, is due to be reviewed by July next year.

Mexico replaced China in 2023 as the largest trading partner with the United States, which buys more than 80 percent of its exports.

S.Caetano--PC