Mexico avoids technical recession but economists see tough path ahead

April 30 (Reuters) - Mexico's economy performed better than expected in the first quarter of the year, preliminary data released by national statistics agency INEGI showed on Wednesday, although analysts continue to warn of a difficult path ahead.

Latin America's second-largest economy grew 0.2% in the first quarter from the final three months of 2024, INEGI said.

That outpaced market expectations in a Reuters poll for zero growth and also marked a rebound from a 0.6% fourth-quarter contraction, but economists continued to sound a cautious note in light of the trade shock generated by U.S. President Donald Trump's tariff threats.

"The quarter-to-quarter gain helped the Mexican economy avoid a technical recession, but it does little to alter the weak trajectory," Pantheon Macroeconomics chief Latin America economist Andres Abadia said in a note to clients.

He mentioned heightened domestic uncertainty, tight financial conditions and ongoing risks from the U.S. trade war, noting that leading indicators already point to a challenging outlook.

Quarterly growth was driven mainly by an 8.1% expansion in the primary sector, which includes farming, fishing and mining. Secondary or manufacturing activities contracted 0.3% while services were unchanged.

Compared with the same quarter a year earlier, the Mexican economy expanded 0.8% in the January-March period, the statistics agency said, also boosted by primary activities. Economists expected 0.6% year-on-year growth.

Capital Economics emerging markets economist Kimberley Sperrfechter said the data, which suggests that Mexico headed into the second quarter with weak momentum, should reinforce the central bank's concerns about the health of the economy.

"This should pave the way for another 50 basis point rate cut at Banxico's meeting next month," she said, which would represent the third such consecutive reduction, even as annual inflation ticked up in early April.