| | |  Business News | June 2009 
Mexico's Credit Compromised
 Reuters
go to original
 |  | U.S. recession has accelerated Mexico's economic woes, highlighted by the decline in Mexico's manufactured exports, overseas workers' remittances and tourism receipts. |  | | |
New York - Mexico's weak macroeconomic outlook and rising fiscal pressures are weighing on its sovereign creditworthiness, according to a Fitch Ratings report published on this week.
- Shelly Shetty
Fitch forecasts a 5.5 percent contraction of Mexico's real gross domestic product in 2009 followed by a modest recovery in 2010.
Fitch puts Mexico's credit rating at "BBB-plus" with a negative outlook since November 2008 reflecting the country's vulnerability to the global recession, falling commodity prices and lower private capital inflows.
Mexico is entering the worsening economic environment with weaker external and fiscal cushions relative to its peers.
"In the period since then, vulnerabilities in Mexico's economic outlook have come under sharper focus, particularly with the decline in U.S. consumer spending and other external factors," Fitch said in a report.
According to Shelly Shetty, Senior Director at Fitch, the U.S. recession has accelerated Mexico's economic woes, highlighted by the decline in Mexico's manufactured exports, overseas workers' remittances and tourism receipts.
Oil prices are unlikely to see a strong recovery in 2010 as Fitch anticipates a muted global recovery next year. Non-oil tax revenue will also be affected by the economic contraction in 2009 and a gradual recovery in 2010. A fiscal response will be required in 2010 to contain further deterioration.
The direction of Mexico's sovereign ratings and outlook will partly depend on the authorities' overall policy response to the growing economic and fiscal pressures, Fitch said.
Fitch revised its Outlook on Mexico's long-term foreign and local currency ratings to Negative from Stable in November 2008, reflecting the country's vulnerability to the global recession, falling commodity prices and lower private capital inflows.
"The U.S. recession has accelerated Mexico's economic woes, highlighted by the decline in Mexico's manufactured exports, overseas workers' remittances and tourism receipts," said Shetty. Rising unemployment, depressed consumer and investor sentiment as well as sharply decelerated credit growth have dampened domestic demand despite the interest rate cuts delivered by the central bank.
"The economic contraction this year will do little to help bridge the gap of Mexico's average five-year GDP growth of 3.3% in 2008 with the 'BBB' median of 5.3%, highlighting the need for further structural reforms to improve the country's competitiveness," added Shetty.
Pressures on public finances are likely to increase in 2010 as the government is unlikely to have access to the 'oil hedge' it had executed this year.
Non-oil tax revenues will also be affected by the economic contraction in 2009 and a gradual recovery in 2010.
A fiscal response will be required in 2010 to contain further fiscal deterioration.
The outlook for policy reforms following the mid-term Congressional elections scheduled for July 5 remains unclear.
Policy flexibility to mitigate the fallout from the unfavorable external economic environment is relatively limited.
Significant economic and financial dislocations, further weakening of policy framework and inadequate response to rising fiscal pressures would be viewed negatively.
"The Calderon Administration's fiscal strategy and its political feasibility will become clearer after the July elections which Fitch will assess to evaluate the effect on Mexico's credit profile," said Shetty. |
|
| |
Vallarta Weddings
Tell a Friend
Site Map
Print this Page
Email Us