He added that for Mexico to lose its investment grade, there would have to be a combination of factors such as institutional weakening and the economy growing by 1%, since this would complicate fiscal management and could also lead to the expectation of a deterioration in the government’s debt metrics, whether it will stabilize or continue to increase.
But he points out that Mexico has managed to maintain its investment grade in adverse conditions and this has to do with the ability of macroeconomic policy makers to face challenges and correct imbalances.
The latter is due to concerns that the government will maintain a high fiscal deficit, which is expected to be above 5% of GDP this year.
For next year, the government is planning a fiscal deficit of 3.5%, but Moody’s outlook is less encouraging, at around 4.5%.
He stressed that Mexico’s fiscal strength has been declining over the past two years.
Another factor that worries Moody’s is what could happen with Pemex, since there is talk of the government absorbing part of its debt.
The last time Moody’s changed its sovereign rating for Mexico was in July 2022, when it downgraded it to Baa2, with a stable outlook. Renzo said that a review will be carried out at the end of the year and an opinion will be issued.
“We still see Mexico with its strengths and weaknesses within the investment grade,” said Renzo Merino.
Regarding nearshoring, a factor that was seen as a positive point for Mexico, this is no longer the case because the expectation that it will materialize remains high, new investment has not been observed and the effects of this phenomenon are expected to be delayed until 2026.
If nearshoring materializes, Mexico’s growth expectations may improve, with growth above 2%, but if uncertainty affects and investments do not materialize, the growth projection is between 1 and 2%, which may affect the credit profile.
Finally, regarding judicial reform, he pointed out that it could have an effect on the credit profile if the checks and balances are weakened, if there is no impartiality and if it affects contracts, which are the concerns of investors.
