Mexico Still Sliding: Fitch

Fitch, which put Mexico’s BBB+ rating on outlook to negative from stable in November, might have soon find enough reason to downgrade the sovereign as the economy shows little signs of improvement. The agency expects Mexico’s economy to shrink by 5.5% this year, which is more severe that the 3.0% contraction expected of other sovereigns in the BBB median. “Mexico’s five-year growth average has lagged that of the BBB median and the current economic contraction will prevent the country from closing this gap,” it says in a report issued Wednesday. “Moreover, since 2001, Mexico’s real per capita GDP growth has underperformed the BBB median, thus eroding the country’s once forefront position among its peers,” it explains. Also affecting Mexico’s growth, says the agency, is the rising wave of drug-related violence, which it believes could impact FDI and investor and consumer confidence. In addition, high dependence on oil revenue, which accounts for more than 35% of public sector revenue, also makes the country vulnerable, as Fitch does not expect oil prices to recover strongly in 2010 and sees them below $70 per barrel for the Mexican mix. Nevertheless, Fitch says that progress on fiscal and other reforms, a successful navigation through the current global recession and financial crisis with the credibility of the country’s policy framework well intact could help in reverting the rating the outlook to stable.