Introduction
Credit rating agency Fitch has affirmed Mexico’s sovereign rating at “BBB-/Stable Outlook,” acknowledging the country’s prudent macroeconomic policy, robust external finances, and economic diversification. However, the agency also highlights certain limitations and risks associated with Mexico’s fiscal consolidation efforts.
Fiscal Consolidation Progress
Despite the challenging economic environment, Fitch believes that Mexican authorities will achieve their fiscal target of reducing the budget deficit from 5.7% of GDP in the previous year to 3.9%. This is attributed to their continued ability to maneuver within the modest Fondo de Estabilización de los Ingresos Presupuestarios (FEIP), which accounts for approximately 0.3% of GDP, and their access to the Banco de México’s operating surplus.
Revenue Growth
In the first two months of 2025, real annual revenue growth amounted to 10%, demonstrating resilience amidst the stagnant economy. This growth is partly due to fiscal measures targeting e-commerce, which have generated some gains.
Fiscal Challenges
Fitch points out that increased public spending on mega-projects, rising interest payments on debt, and operational losses at Pemex have strained Mexico’s fiscal position. The agency anticipates continued challenges in meeting the austerity plan due to budget rigidities and a weak macroeconomic environment.
Economic Growth Projections
Fitch has revised its GDP growth projection for Mexico downwards. The agency now expects a 0.4% contraction in 2025, followed by modest growth of 0.8% by 2026 as the economy adjusts to tariffs and a slowing U.S. economy.
Trade Vulnerability
Fitch recognizes Mexico’s vulnerability to U.S. trade protectionism, as exports constitute a significant portion of its economy (27% of GDP in 2024). The agency warns that tariffs could have substantial impacts, particularly on the automotive sector and overall economic uncertainty.
Plan México Analysis
Fitch briefly examines the “Plan México,” which focuses on economic growth for the current administration. The agency notes that private sector participation in this plan is limited by fiscal constraints, citing recent energy sector legislation that favors public enterprises over private ones. Furthermore, concerns exist regarding the business environment due to recent reforms affecting judicial operations and autonomous bodies.
Key Questions and Answers
- What is Fitch’s sovereign rating for Mexico? Fitch has affirmed Mexico’s sovereign rating at “BBB-/Stable Outlook.”
- What are the fiscal consolidation targets? Mexican authorities aim to reduce the budget deficit from 5.7% of GDP in the previous year to 3.9%.
- What is the current GDP growth projection for Mexico? Fitch now expects a 0.4% contraction in 2025, followed by modest growth of 0.8% by 2026.
- How vulnerable is Mexico to U.S. trade protectionism? Mexico’s economy is significantly exposed to U.S. trade policies, with exports accounting for 27% of GDP in 2024. Tariffs could have substantial impacts, especially on the automotive sector.
- What are Fitch’s concerns regarding Plan México? Fitch notes limited private sector participation in the plan due to fiscal constraints and recent reforms affecting judicial operations and autonomous bodies.
