Mexican GDP growth accelerates in Q1, domestic consumption seen as the main driver

According to preliminary estimates, the Mexican economy grew a stronger-than-expected 0.8 percent in Q1 2016 and 2.7% from the year-earlier quarter. Mexico’s economy expanded more than analysts forecast for the third time in four quarters as strength in domestic consumption offset weak exports and a drop in oil output. The expansion from the previous quarter translates into an annualized seasonally adjusted rate of 3.2%.

“This is a very good report and shows the Mexican economy has good momentum,” said Barclays’ chief Mexico economist Marco Oviedo. “But we are still cautious as external headwinds remain strong.”

Growth was led by the services sector, which expanded 3.7 percent from a year earlier, while industrial activity increased 0.7 percent, according to the statistics institute. The overall pace of expansion strengthened from 2.5 percent in the fourth quarter, the statistics institute said.

Consumer spending remains strong as inflation holds near a record low and remittances rise amid weakness in the peso. A still sluggish U.S. manufacturing sector, Mexican government spending cuts, and the possibility of higher inflation in Mexico could pose obstacles to future growth. Banxico estimates the economy will grow between 2% and 3% this year.