S&P downgrades Mexico's outlook due to debt and growth concerns

S&P, a credit rating agency, revised Mexico's outlook on Tuesday from "stable" to "negative", citing the possibility of a?very slow?fiscal reorganization largely due to weak economic growth. This could result in a faster than expected increase in government debt as well as a higher burden of interest.

Mexico's low growth per capita remains a major rating constraint. Meanwhile, the agency stated that Mexico's weak financial position, rigid spending, and soft economic activity are contributing to Mexico's debt increase.

S&P says that continued fiscal support to the Mexican state energy company Petroleos Mexicanos and the power utility Comision Federal de Electricidad (CFE), as well as their energy?utility, Petroleos Mexicanos, is expected further strain public finances.

The agency said that while trade ties will likely remain strong with the United States, the uncertainty over the renegotiation the free trade agreement has a negative impact on investment.

S&P predicts that Mexico's general budget deficit will reach 4,8% of GDP by?2026. They cite a weak economy, and the government's attempts to stabilize fuel prices through forgone taxation. It expects a gradual fiscal consolidation, as the?growth recovers' and energy shocks fade.

S&P said that the net?general government?debt is expected to increase to 54% of GDP by 2029, up from 49% in 2025.

The agency maintained Mexico’s sovereign credit rating of "BBB+" in long-term local currency and "BBB+" for long-term foreign currencies. (Reporting by Aatrayee Chatterjee in Bengaluru; Editing by Shailesh Kuber)

(source: Reuters)