Fitch Ratings has affirmed Mexico’s BBB+ rating this week following its recent assessment of the Mexican economy and a variety of key rating drivers. According to a press release,the Mexican economy has been protected by the latest decline in oil prices and production,along with the subdued growth in the U.S. and increased financial volatility among international nations.
In addition,Fitch says the Mexican authorities have been proactive in their response to this less than ideal external environment. For example,the government announced a series of pre-emptive public sector spending cuts in 2015 and 2016 to bolster confidence in public finances,which remain largely dependent on oil income,despite historic reforms that are helping Mexico build a strong economic legacy in the nation’s new oil era.
Fitch reportedly forecasts that Mexico’s economy will pick up to an average of more than three percent annual growth starting in 2016,thanks to improved external demand,depreciation of the real exchange rate and progress on implementation of economic reforms.
“Mexico continues to make headway in implementing the structural reforms passed in recent years,which could raise medium-term investment and growth prospects,” writes Fitch in the press release. “The reduction in telecom rates and the recent announcements of foreign investment in this sector highlight the positive spillovers of the reform.”
In addition,Round One of Mexico’s historic auctions related to the oil reform is currently in progress and authorities are expected to announce additional tenders later in 2015,including some for deep-water fields. As a result,private investment,including foreign direct investment (FDI) is also expected to flow into a variety of ancillary oil and gas-related activities,as well as the electricity sector,over the next several years.
“Macroeconomic stability remains well-anchored,underpinned by modest current account deficits and low inflation,which has declined further in 2015,reaching below 3% in June,” Fitch reveals in its report. “Fitch expects the Mexican authorities to take the necessary actions to maintain financial stability and the credibility of their policy framework.”
Fitch also writes that Mexico’s flexible exchange rate,along with its enhanced international reserves position access to the IMF’s Flexible Credit Line and proactive policy actions are important factors to consider. In addition,Mexico’s BBB+ ratings are supported by the nation’s disciplined economic policies,well-anchored macroeconomic stability and low imbalances,along with its adequately capitalized banking sector.