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Mexico & U.S. Diverging

The U.S. and Mexican economies are supposed to be converging, but their data keep heading in opposite directions.

Mexico reported Wednesday that gross domestic product contracted 0.25% between the first quarter and the fourth quarter in seasonally-adjusted terms - again failing to climb out of a recession that began in late 2000.

The negative number surprised many economists, including Finance Minister Francisco Gil Diaz, who had estimated in April that GDP rose 0.7% in quarter-on-quarter terms as Mexico tracked the neighboring U.S. economy higher.

GDP data out of the U.S., meanwhile, has been surprising on the upside, surging an annualized 5.8% in the first three months of the year after a 1.4% uptick in the preceding quarter. Some argue that the U.S., which absorbs around 90% of Mexican exports, technically never went into recession...

"There's some reason for modest optimism," agreed Anirvan Banerji , a research director at Economic Cycle Research Institute, a U.S. think tank that helped devise a leading index indicator for Mexico's central bank a few years ago.

He says Mexico, which inked a free trade pact with the U.S. and Canada in late 1993, should be lifted by a nascent global recovery in the industrial sector. "It may already have begun in the second quarter, it's too early to tell," he added...