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Mexico ETF’s Momentum Hindered as Economic Activity Slows

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This article was originally published on ETFTrends.com.

Mexico's markets strengthened after the elections, but the momentum in the country-specific ETF stalled as economic activity weakened over the second quarter.

The iShares MSCI Mexico Capped ETF (EWW) , the largest exchange traded fund dedicated to Mexican equities, was stuck within range in recent weeks, rising 0.5% over the month. EWW is still up 4.9% year-to-date.

Mexico’s national statistics institute revealed gross domestic product slipped a slightly worse-than-expected 0.2% quarter-over-quarter, compared to the preliminary estimates of a 0.1% contraction and a 1% expansion over the first quarter, Bloomberg reports.

Economy is Still Expected to Grow

The economy is still expected to grow faster than in 2017 on rising spending that preceded the July 1 election, but the road ahead may be bumpy. The International Monetary Fund last month cut its forecast for the emerging Latin country’s 2019 growth, pointing to trade tensions, uncertainty over the North American Free Trade Agreement and the new president's agenda.

Specifically, Andres Manuel Lopez Obrador fanned concerns after stating he would hold a public referendum on whether to cancel construction of a $13 billion international airport for Mexico City, arguing that cost and corruption surrounding the project may not be worth the trouble.

Related: Mexico ETF Stands Out Among Emerging Markets

The president-elect also said he will review oil contracts already awarded for signs of corruption. He also named an industry neophyte to head state-owned Petroleos Mexicanos, the country's largest company.

Furthermore, government costs could rise as the new president promised expanding public spending to a tune of 75 billion pesos, or $4 billion, through cost cutting and increased government efficiency. Some observers are concerned about the president's ability to pay for it all without raising debt or increasing taxes.

Analysts project the Mexican economy will expand 2.2% this year and 2.1% in 2019. Non-seasonally adjusted GDP expanded 2.6% year-over-year as of the end of the second quarter.

For more information on the Mexican markets, visit our Mexico category.

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