S&P affirms Mexico's "BBB" rating but upgrades outlook to stable

Standard & Poor's (S&P) ratified this Wednesday (6) Mexico's sovereign credit rating at "BBB", but improved the outlook to "stable" from a previous "negative".

The rating agency justified the change in outlook by expecting "continued cautious execution of fiscal and monetary policies" for the remainder of Andrés Manuel López Obrador's presidency, which ends in 2024, and that the government's net debt ratio will remain stable.

In addition, following the 2021 mid-term elections, in which López Obrador's coalition lost the two-thirds qualified majority in Congress to reform the Constitution, S&P was confident that no constitutional initiatives "put pressure on the business environment" would be approved.

"Accordingly, we revise the outlook on Mexico's sovereign ratings to stable from negative, and affirm our long-term foreign currency ratings of BBB and local currency ratings of BBB+," it reiterated in its statement.

The agency forecast a Gross Domestic Product (GDP) growth of 1.7% for this year and one of 1.9% for 2023, which would come after the historical slump of 8.2% in 2020 and the insufficient rebound of 4.8% in 2021.

"Mexico's GDP per capita should exceed $10,000 in 2022, but the economy has not yet reached pre-pandemic levels and has an output gap of 4% of GDP," he expounded.

At the beginning of the Covid-19 pandemic and the international oil price crisis, in March and April 2020, the three major international rating agencies, S&P, Fitch, and Moody's, downgraded Mexico's credit rating.

But since then they have kept them at the same level: Moody's at Baa1, Fitch at BBB- and S&P at BBB, until now.

Last May, Fitch ratified Mexico's credit rating at BBB- with a "stable" outlook.

Despite improving its outlook, S&P warned of "pressures on inflation and growth, amid international price shocks and the growing risk of recession in the United States".

It also enunciated the "complex fiscal challenges" of Petróleos Mexicanos (Pemex) and the Federal Electricity Commission (CFE), the state-owned companies, although accompanied by "reduced uncertainty over energy policy and progress in trade-related private sector investment".

It also considered private investment and growth expectations as "weak".

President López Obrador boasted on his social networks that the news from S&P "provides greater certainty to investors that there will not be a downgrade in the following months -usually in the next 12- unless some extraordinary event occurs".