The depreciation of the Mexican peso, which is assumed would be, on an average, 10 per cent weaker than S&P Global Ratings’ baseline, would partially absorb the higher costs associated with the tariff increase and would lead to a significant decline in imports.
Such a hit to the economy—which is highly integrated with the United States, considering that Mexican exports are around 36 per cent of its gross domestic product (GDP), and four-fifths of that go to the United States—would add to the existing vulnerabilities that weigh on S&P Global Ratings’ sovereign credit ratings on Mexico.
If US tariffs on Mexican imports persist for months, S&P Global Ratings predicts a ‘significant’ economic impact, with Mexico’s GDP potentially contracting by 0.5 per cent.
A weaker peso could offset some costs but would also reduce imports.
Key industries like auto supply, metals, and oil would suffer, along with infrastructure and finance.
The rating agency thinks the tariffs would represent a significant challenge to corporate credit quality in Mexico—particularly for auto suppliers, metals and mining, and oil and gas. But some rated companies are insulated by company-specific factors and the possibility of passing through costs to consumers.
It also anticipates negative impacts for rated entities across the infrastructure, financial services, structured finance and local and regional governments sectors.
The Trump administration’s recent policies, combined with Mexico’s existing economic vulnerabilities, are posing risks to the sovereign credit rating trajectory for Mexico.
S&P Global Ratings Economics feels cautious macroeconomic management, including prudent monetary policy and a return to low fiscal deficits, will stabilise public finances and the sovereign’s debt burden over the next two years.
Fibre2Fashion News Desk (DS)
