S&P Global Ratings cut its sovereign credit score for Mexico by one notch to “BBB,” saying shocks from the spread of COVID-19 and an oil price rout would harm the country’s already grim economic outlook.
In their statement, S&P also said that Mexico would remain on credit watch negative, reflecting the possibility that its rating could be cut a second time within a year or two.
“Prolonged poor fiscal performance and a resulting rising debt burden, or the risk of potentially weak policy implementation, could lead us to lower the rating,” S&P analysts Lisa Schineller and Joydeep Mukherji wrote in the decision.
For Mexican President Andres Manuel Lopez Obrador — who is already contending with an economic slump, the virus, and a steep decline in business confidence — the S&P decision is yet another in a long list of setbacks.
While the downgrade was widely expected after Mexican assets fell, it confirms just how dire the situation is for an economy that some experts see contracting near 6 percent, a similar scenario to the Tequila Crisis of the mid-1990s.
“While we were surprised by the timing, we were not surprised by the downgrade itself and the negative credit watch,” Emso Asset Management senior portfolio manager Jens Nystedt said. “It shows the growth and fiscal challenges Mexico is facing and those have been made worse by the likely impact of the COVID-19 virus.”
Nystedt added that while Mexico’s investment grade rating is not yet at risk, state oil company Petroleos Mexicanos’ (Pemex) might be over the next few months. It has already been downgraded to junk by Fitch, and Moody’s Investor Service has it on negative watch to lose investment grade.
Despite the government’s strict adherence to fiscal discipline, it is the poor economic prospects that analysts worry could lead to further credit downgrades in the future.
“The probability of another downgrade to materialize in the next 12 to 24 months is not low,” BBVA strategist Claudia Ceja said. “Another downgrade would depend on the ability to implement public policies amid the risks that the economy will keep on facing.”
Mexico’s peso reversed gains and fell 1.4 percent to 23.2630 per US dollar after the downgrade.
The S&P analysts also mentioned potential increases in contingent liabilities from Pemex, which has been hammered by the oil price plunge this year.
Investors have long feared that the Mexican sovereign would need to do more to support the company as it struggles under a debt burden of more than US$100 billion.
In the decision, S&P highlighted the shift in energy policy under Lopez Obrador, which the analysts said has increased the country’s reliance on the oil company.
MULTIFACETED: A task force has analyzed possible scenarios and created responses to assist domestic industries in dealing with US tariffs, the economics minister said The Executive Yuan is tomorrow to announce countermeasures to US President Donald Trump’s planned reciprocal tariffs, although the details of the plan would not be made public until Monday next week, Minister of Economic Affairs J.W. Kuo (郭智輝) said yesterday. The Cabinet established an economic and trade task force in November last year to deal with US trade and tariff related issues, Kuo told reporters outside the legislature in Taipei. The task force has been analyzing and evaluating all kinds of scenarios to identify suitable responses and determine how best to assist domestic industries in managing the effects of Trump’s tariffs, he
TIGHT-LIPPED: UMC said it had no merger plans at the moment, after Nikkei Asia reported that the firm and GlobalFoundries were considering restarting merger talks United Microelectronics Corp (UMC, 聯電), the world’s No. 4 contract chipmaker, yesterday launched a new US$5 billion 12-inch chip factory in Singapore as part of its latest effort to diversify its manufacturing footprint amid growing geopolitical risks. The new factory, adjacent to UMC’s existing Singapore fab in the Pasir Res Wafer Fab Park, is scheduled to enter volume production next year, utilizing mature 22-nanometer and 28-nanometer process technologies, UMC said in a statement. The company plans to invest US$5 billion during the first phase of the new fab, which would have an installed capacity of 30,000 12-inch wafers per month, it said. The
Taiwan’s official purchasing managers’ index (PMI) last month rose 0.2 percentage points to 54.2, in a second consecutive month of expansion, thanks to front-loading demand intended to avoid potential US tariff hikes, the Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) said yesterday. While short-term demand appeared robust, uncertainties rose due to US President Donald Trump’s unpredictable trade policy, CIER president Lien Hsien-ming (連賢明) told a news conference in Taipei. Taiwan’s economy this year would be characterized by high-level fluctuations and the volatility would be wilder than most expect, Lien said Demand for electronics, particularly semiconductors, continues to benefit from US technology giants’ effort
‘SWASTICAR’: Tesla CEO Elon Musk’s close association with Donald Trump has prompted opponents to brand him a ‘Nazi’ and resulted in a dramatic drop in sales Demonstrators descended on Tesla Inc dealerships across the US, and in Europe and Canada on Saturday to protest company chief Elon Musk, who has amassed extraordinary power as a top adviser to US President Donald Trump. Waving signs with messages such as “Musk is stealing our money” and “Reclaim our country,” the protests largely took place peacefully following fiery episodes of vandalism on Tesla vehicles, dealerships and other facilities in recent weeks that US officials have denounced as terrorism. Hundreds rallied on Saturday outside the Tesla dealership in Manhattan. Some blasted Musk, the world’s richest man, while others demanded the shuttering of his
RSS