April 30, 2019 / 3:13 PM / 3 months ago

UPDATE 3-In blow to president, Mexican economy shrank in 1st quarter - preliminary data

(Adds comment from economist, details)

By Sharay Angulo

MEXICO CITY, April 30 (Reuters) - Mexico’s economy contracted in the January-March period compared with the previous three-month period, preliminary data showed on Tuesday, dealing a setback to President Andres Manuel Lopez Obrador’s administration.

Economic activity shrank 0.2 percent in the first quarter compared with the October-December period, dragged down by a decline in output in the manufacturing and service sectors, figures from the national statistics agency showed.

The agency’s preliminary growth estimates have tended to be subject to revisions. But the result was still a disappointment given that prior data from the agency had shown the economy growing during January and February, albeit moderately.

Gross domestic product (GDP) grew by 1.3 percent in the first quarter compared with the same period last year, according to unadjusted data from the agency known as INEGI.

Goldman Sachs economist Alberto Ramos said labor strikes and fuel shortages had undermined the performance of Latin America’s second biggest economy during the first quarter and warned that the outlook was grim if activity did not pick up going forward.

“Were the economy to remain flat during (the remaining quarters of 2019) at the (first quarter) level, real GDP would only grow 0.2 percent in 2019,” Ramos said in a research note.

Lopez Obrador took office in December pledging to ramp up lackluster economic growth and to improve job creation.

He is targeting average annual economic growth of 4 percent during his six-year term. Still, his economic decision-making has rattled investors, and private sector analysts have been cutting their Mexican growth forecasts for 2019.

His cancellation of a partly built $13 billion Mexico City airport in October, a few weeks before taking office, sparked billions of dollars of losses on Mexican financial markets.

The leftist veteran has also been a strong critic of an energy overhaul passed by his predecessor that many private sector economists regard as one of the best bets for Mexico to lift foreign investment and economic growth.

The president has justified his skepticism about the 2013-14 energy reform by arguing it has yet to result in significant investment or any substantial rise in oil production.

Lopez Obrador has said the economy could grow 2 percent this year, but his finance ministry is more cautious. At the start of this month, the ministry cut its 2019 Mexican growth forecast to between 1.1 percent and 2.1 percent. (Reporting by Sharay Angulo; Editing by Phil Berlowitz and Jonathan Oatis)

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