S&P Lowers Mexico Outlook, Warns of Downgrade Risk

S&P Global Ratings’ revision of Mexico’s credit outlook to negative underscores mounting fiscal risks tied to stagnant economic growth and the rising debt burden of state-owned enterprises such as PEMEX. The move raises concerns over Mexico’s investment-grade status, as a potential downgrade could trigger institutional bond selloffs and significantly increase financing costs for both public and private borrowers. Persistent fiscal rigidity and uncertainty ahead of the 2026 USMCA review continue to weigh on sovereign creditworthiness, reinforcing the need for a credible fiscal consolidation plan to safeguard long-term access to capital.

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S&P Global Ratings revised Mexico’s credit outlook from stable to negative, citing persistent fiscal weakness, rising debt levels and stagnant economic growth. While the agency reaffirmed the country’s long-term foreign-currency sovereign credit rating at ‘BBB’—two notches above speculative grade—the outlook revision reflects mounting concerns about the government’s ability to reduce its fiscal deficit.

The negative outlook signals a heightened risk that Mexico could face a sovereign downgrade within the next 24 months. The assessment aligns S&P with Moody’s Ratings, which also maintains a negative outlook on the country’s sovereign debt. Meanwhile, Fitch Ratings places Mexico one level above speculative grade with a stable outlook. Financial analysts at Banco Base noted that a downgrade by two of the three major rating agencies could trigger mandatory sell-offs by institutional fund managers, potentially leading to capital outflows and higher financing costs for both the public and private sectors.

S&P said the outlook revision reflects the risk of “very slow fiscal consolidation,” driven primarily by weak economic growth. This dynamic is expected to accelerate the increase in public debt and raise the government’s interest burden. According to the agency, net general government debt is projected to reach approximately 54% of GDP by 2029, up from 49% in 2025.

Growth Projections and Budgetary Constraints

Economic performance remains a central concern for credit analysts. S&P forecasts that Mexico’s economy will grow by only 1% in 2026. This projection is significantly more conservative than the revised estimate from the Ministry of Finance (SHCP), which recently lowered its 2026 GDP growth forecast to 2.4% from an earlier estimate of 3%.

The slowdown is already evident in recent data. Mexico’s GDP growth moderated to 0.8% in 2025, down from 1.1% in 2024. During the first quarter of 2026, the economy expanded by just 0.2% year over year. S&P attributed the weak outlook to subdued private investment and rising energy costs, both of which continue to weigh on industrial activity.

Fiscal indicators also point to increasing strain. The general government deficit stood at 4.9% of GDP in 2025, a slight improvement from 5.2% in 2024. For 2026, S&P expects the deficit to remain elevated at 4.8% of GDP. The agency noted that government efforts to stabilize domestic fuel prices—partly through tax waivers—have further constrained revenue growth. As a result, interest payments are expected to consume more than 15% of total government revenues by 2028, increasing the rigidity of public spending. public spending.

The PEMEX Factor

A key driver behind the negative outlook is the continued financial support required by state-owned enterprises, particularly PEMEX. S&P emphasized that ongoing substantial support for these entities “would further aggravate Mexico’s fiscal rigidity.”

The report highlighted that PEMEX’s weak operational performance could compel President Claudia Sheinbaum’s administration to provide additional funding to cover financial losses. S&P warned that the materialization of these contingent liabilities would widen the fiscal deficit and place additional pressure on the sovereign rating. While the government maintains that these obligations remain manageable, the agency said it will closely monitor the fiscal impact of such transfers over the next two years.

USMCA Uncertainty

The geopolitical and trade environment adds another layer of risk to Mexico’s credit profile. S&P explicitly identified the upcoming 2026 review of the United States-Mexico-Canada Agreement (USMCA) as a source of investor concern. Uncertainty surrounding the renegotiation could weaken investor confidence and undermine the country’s external position.

The agency cautioned that “unexpected setbacks in trade and other economic relations with the United States” could destabilize Mexico’s economy. If trade tensions were to impair the country’s access to its primary export market, S&P indicated it would likely proceed with a rating downgrade. Conversely, the agency said a stable outlook could be restored if effective policy implementation results in meaningful fiscal consolidation and a significant rebound in private-sector investment.

Government Response

The Ministry of Finance responded to the announcement by emphasizing that Mexico continues to retain investment-grade status across all eight agencies that evaluate its sovereign debt. In a statement, the SHCP highlighted key structural strengths, including a record-low unemployment rate of 2.6% at the close of 1Q26 and stable inflation despite a challenging global environment.

Finance officials also noted that S&P’s report acknowledged Mexico’s robust institutional framework, which has supported political stability and orderly government transitions for more than two decades. The agency further recognized the country’s prudent monetary policy and the independence of Mexico’s Central Bank (Banxico), as critical factors sustaining investor confidence and preserving access to international capital markets.