Moody's says Mexico's economic recovery is slower than other Latin American countries

Moody's rating agency considers slow growth in Mexico is due to limited fiscal stimulus and continued political uncertainty, which has hindered a rebound in private investment.

Moody's says Mexico's economic recovery is slower than other Latin American countries
Recovery of Mexico's economy slower than other Latin American countries. Photo by Adam Nir / Unsplash

The rating agency Moody's Investors Service warned that after a strong recovery in 2021, it expects for next year more moderate economic growth rates in the main economies of Latin America and the Caribbean; but in Mexico, the recovery has been slower than in other economies of the region.

In the document "Sovereign Outlook for Latin America and the Caribbean", Moody's warned that this slow growth in Mexico is due to the limited fiscal stimulus and continued political uncertainty, which has hindered the rebound of private investment. Moody's referred that Brazil, Chile, Colombia, and Peru will exceed 2019 output levels by the end of 2022, Mexico will not; however, Mexico and Central America will benefit from solid U.S. growth and strong remittance flows, which will boost domestic consumption.

In countries with relatively high spending on social programs, such as Chile and Colombia, and adequate targeting of vulnerable groups, such as Brazil, Mexico, Uruguay, governments will be better positioned to expand the reach of existing programs and meet social demands, with greater efficiency in social safety nets.  However, the rating agency highlighted that sovereigns with high non-resident participation in domestic debt markets (Peru, Uruguay, Mexico, Colombia, and Chile) could be exposed to changes in foreign investor sentiment.

For Latin America, Moody's projects a decline in fiscal deficits and a gradual stabilization of debt levels as fiscal measures implemented to counteract the effects of the pandemic are phased out and government revenue performance improves. Despite a marked increase in debt in most sovereigns in the region, it expects the interest burden to remain at levels similar to those observed before the pandemic. Exceptions will correspond only to countries facing high short-term financial pressures or large fiscal imbalances.

The rating agency noted that the pandemic increased social tensions and political risks in the region, generating pressures that will complicate fiscal management, but countries that have broad social safety nets and adopt more effective public policies will be better positioned to manage these conditions and effectively address the challenges they face.