“The change in the Outlook from Stable to Negative is the result of the deterioration in our estimates of economic growth in 2024 and 2025 for Mexico, as well as our expectation of a slower reduction in the fiscal deficit for 2025, compared to what was estimated by the Secretariat. of the Treasury (Treasury), which could put pressure on net debt as a proportion of the Gross Domestic Product (GDP),” explained HR Ratings.
The agency estimates that economic growth in 2024 will be 1.4% and 1.1% for 2025, lower than what was expected by the Ministry of Finance in the General Criteria of Economic Policy (CGPE25), of 2.1% and 2.3%, respectively.
“The reduction in our growth expectation for the sovereign is the result of the negative behavior that industrial activity has shown during the last twelve months, especially due to the lower dynamism of the construction sector, in addition to a slowdown in the manufacturing sector and lower demand external,” he explained.
A reduction in the deficit of the Financial Requirements of the Public Sector is anticipated for 2025, but the deterioration of growth expectations, the historical behavior of indebtedness and the expected exchange rate, place a net debt to GDP at 54% at the close of 2025, higher than the 52.33% previously expected, and than estimated by the Ministry of Finance (51.4%).
HR Ratings pointed out that although the reduction in the 2025 fiscal deficit is positive, it observes that it is difficult to maintain in the long term the low level of capital spending represented by the CGPE25 without negative consequences for economic performance.
He also noted that the change of administration expected in January 2025 in the United States may lead to a deterioration in the trade relationship with Mexico’s main trading partner and, therefore, continue to negatively affect the performance of economic behavior.
On November 14, the agency Moody’s decided to change perspective of the Mexican government’s ratings, but maintains them at Baa2, in the face of a weakening in policy formulation that can undermine fiscal and economic results.
Outlook is positive, responds Treasury
Regarding the lowering of the rating agency’s outlook, the Ministry of Finance and Public Credit highlighted “that the growth outlook for Mexico is positive, given that supply shocks have begun to decrease and industrial production has shown better dynamism since the second half of the year. For this reason, our growth forecast, presented in the Economic Package for 2025, remains between 2% and 3%, supported by the strength of domestic demand, the support of social programs and investment in strategic sectors.”
Furthermore, that the Economic Package was prepared on a realistic and prudent basis, considering the current economic situation and both internal and global risks. Projections were established that guarantee responsible fiscal consolidation, both in the short and long term. Mexico is the United States’ main trading partner, and the USMCA provides a framework of certainty for national and international investments.
“The debt of the Government of Mexico maintains a solid attractiveness in international markets, demonstrating a resilient profile in the face of economic fluctuations and financial volatility. Additionally, Mexico has the necessary fiscal buffers to mitigate possible adverse scenarios in the global environment, reaffirming the commitment of the Ministry of Finance to prudent management that reaffirms the strength of public finances and the sustainability of the debt,” concluded the Treasury.
