S&P Lifts Mexico's Rating Outlook to Stable on Debt Progress

  • Government debt seen below 50% of GDP over next two years
  • U.S., Canada, Mexico likely to agree new trade deal, S&P says

S&P Global Ratings raised its outlook on Mexico’s credit rating to stable from negative, saying it doesn’t expect a material worsening in the nation’s debt levels.

The foreign-currency rating was affirmed at BBB+, S&P said in a statement on Wednesday. The ratings company sees Mexico’s general government debt reaching about 45 percent of gross domestic product this year and in 2018, but remaining below 50 percent over the next two years.  

“We believe that the prompt reaction of Mexican government authorities to recent negative shocks, such as the depreciation of the currency in late 2016, will diminish the recently rapid pace of debt accumulation and help stabilize the government’s debt burden,” S&P said.

The U.S., Canada and Mexico will likely agree on a new trade deal that preserves cross-border links, S&P said. Growth in Mexico’s economy will probably come in just below 2 percent in 2017 but may rise to be between 2 percent and 3 percent in 2018-2019, it said.

S&P’s move was “not surprising,” said Kathryn Rooney Vera, head of research at Bulltick Capital Markets. “The Nafta panic is over, the protectionist threat is over. Markets are catching up.”

The peso gained 0.1 percent to 17.4521 per dollar as of 11:50 a.m. in Singapore. Masakatsu Fukaya, an emerging-market trader at Mizuho Bank Ltd. in Tokyo, said the S&P news will help support the market’s “already bullish view” on the currency, with further outperformance likely as the U.S. sticks to gradual monetary policy tightening.

Moody’s Investors Service rates Mexico’s debt at A3 -- one level above S&P’s assessment -- with a negative outlook.

S&P said the stable outlook reflected expectations of continuity in economic policies in the next two years, along with fiscal policy that would contain the general government debt burden.

“Persistent low GDP growth will continue to pose a fiscal challenge for the Mexican government as it seeks to stabilize its debt burden.” it said.

— With assistance by Ben Bartenstein

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