The economic and financial characteristics that Mexico is showing are approaching those of issuers with speculative ratings, revealed Nadia Montes de Oca, who is a senior portfolio manager at the Franklin Templeton fund manager.
According to the strategist, “Mexico’s characteristics no longer coincide with those of a country rated “BBB.”
To prove it, she identified the characteristics indicated by the evaluation agencies that rate the largest number of countries in the world, to verify whether Mexico maintains the characteristics of an issuer rated with an investment grade of “BBB.”
According to Moody’s, which on November 14 changed Mexico’s rating outlook from Stable to Negative, indicating one of three risks of a cut, Mexico’s sovereign rating is made up of economic growth, economic governance and exposure to financial risks.
In the final webinar of 2024, the strategist highlighted that the average growth that the Mexican economy has maintained from 2000 to 2023 has been 1.7%, less than half the average of its peers rated at the “BBB” level, which is 3.6 percent. Currently at Franklin Templeton, they anticipate a 1.5% increase in GDP this year that will moderate to 1.2% in 2025.
Fiscal situation and governance
Regarding the fiscal situation, she considered that it is where Mexico has more room despite the larger deficit incurred this year due to the election issue.
She highlighted that the country was left without the stabilization funds that had been built and the lower caution in the management of public finances, which led to the fiscal deficit to the highest level in 35 years, could also affect us. From her perspective, the government’s commitment to bring the deficit to 3.9% of GDP is good news.
Regarding the governance factor, which also makes up Mexico’s rating at Moody’s, she said that the country has the lowest rating in this area among its peers. The expert highlighted that the implementation of the reform to the Judicial Branch will be decisive in providing confidence to investors, which will help boost economic growth if the relocation is carried out and at the same time would support the social perception of the government and its interaction with other actors.
Low growth, not recession
The strategist pointed out Donald Trump’s policies and internal political factors among the risk factors for the Mexican economy in 2025.
“We are seeing a slowdown for Mexico, but we do not anticipate anything more abrupt that would start to worry us.”
From her perspective, the volatility of the financial markets will continue as a constant while the United States government headed by Trump begins; however, they trust that as agreements are reached, this uncertainty can be moderated.
Source: eleconomista
