July 19, 2019 / 9:16 PM / 5 months ago

Mexico recession would hasten annual ratings review, S&P warns

MEXICO CITY, July 19 (Reuters) - Ratings agency Standard & Poor’s could accelerate its annual review of Mexico’s sovereign bonds and state oil company Pemex if the economy enters a recession and growth estimates fall for 2020, an S&P analyst said on Friday.

The firm links its ratings of Mexico’s sovereign debt and Pemex due to their close ties. The next review was planned for March, but that could change if Mexico’s economy continues to contract, S&P Analyst Luis Manuel Martinez said in an interview.

“Such a scenario, where we see two or three quarters of economic contraction, may lead us to move up the review before the end of this year and to ask whether it is consistent with the current rating or not,” Martinez said.

Mexico’s economy contracted 0.2% in the first quarter of the year compared to the previous quarter, according to government data. While some banks say the nation’s economy went into recession in the second quarter, based on available employment and industrial production data, the government denies that is the case.

In March, S&P lowered the government’s credit outlook and cut Pemex’s credit rating.

“If Mexico goes down, Pemex goes down,” Martinez said. “We don’t care only about how much we are going to grow this year but the trajectory and expectations for 2020.”

For the rest of this year, S&P will be watching a recently unveiled business plan for Pemex and the government’s financial health as risk factors.

For Pemex, Martinez said the rating could face a downgrade if the company fails to increase production and maintain prices of $55 per barrel. (Reporting by Abraham Gonzalez Writing by Julia Love; Editing by Tom Brown)

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