LatinNews Regional Monitor: Mexico - 16 April 2020

* International ratings agency Fitch Ratings has downgraded Mexico’s Long-Term Foreign Currency Issue Default Rating (IDR) from ‘BBB’ to ‘BBB-’ with a ‘stable’ outlook. Fitch predicts that the coronavirus pandemic will lead to a severe recession in Mexico in 2020 noting that “Mexico lost 130,500 formal sector jobs in March, equivalent to more than one-third of jobs created in 2019, while automotive output contracted 24.6% yoy”.  Forecasting that Mexico’s economy will contract by at least 4% in 2020, Fitch adds that even in the absence of a debt-financed fiscal response to the economic recession, general government debt-to-GDP ration “is likely to jump by at least 6pp of GDP to almost 50%, the highest since the 1980s”. State-owned oil company Pemex’s debt, which totals US$105bn or 9% of GDP, is a key risk factor due to falling global oil prices. Other factors cited for the downgrade include a “deterioration in the business climate in certain sectors” and a “perceived erosion of institutional strength in the regulatory framework.”  Fitch also notes that the economic contraction and the speed of recovery will depend on economic growth prospects in the US, Mexico’s largest trading partner, and the duration of the coronavirus lockdown.

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