The Mexican economy started 2026 on the wrong foot, as it began with declining figures in economic growth and two negative adjustments in the rating of its sovereign debt. The two pieces of news are closely linked because the rating of Mexican debt is harmed by the low economic dynamism the country has shown in recent years.
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Indeed, last Friday the official GDP figures for Mexico corresponding to the first quarter of the year were released. The results were very discouraging: the quarterly GDP grew at an annual rate of just 0.4% with seasonally adjusted figures (0.2% with original figures). A very notable contrast with the annual growth observed in the last quarter of 2025, which reached 1.7%.
In its quarterly comparison, the GDP result was even worse, as a contraction of -0.6% was observed compared to the last quarter of 2025. As if that were not enough, this contraction was widespread: primary activities contracted by 1.7%, secondary activities (that is, manufacturing and other industries) decreased by 1%, and tertiary activities (that is, services) fell by 0.4%.
These results will very soon lead to a downward revision in growth expectations for all of 2026. Let us remember that after the positive result of the last quarter of 2025, the growth expectation for 2026 rose from 1.1% to 1.5% in the monthly survey conducted by the Bank of Mexico among private sector specialists. However, with the results of the first quarter of the year, it would not be surprising to see a drop in this expectation even below 1%. It is worth remembering that a result close to this figure would imply an average annual growth below 0.8% from 2018 to date, which in turn would imply a total stagnation of per capita income in that same period.
In addition to low economic growth, the Mexican economy received two bad news in recent days regarding the rating of its sovereign debt. On the one hand, on May 12, the global rating agency S&P (Standard and Poor’s) reaffirmed the rating of Mexico’s sovereign debt but adjusted its outlook from stable to negative. Usually, this type of move anticipates a potential downgrade in the credit rating if the conditions of the Mexican economy do not improve or continue on the same trajectory. According to S&P, “the negative outlook incorporates the risk that persistently weak fiscal results will lead to a faster-than-expected increase in Mexico’s public debt levels.” In this regard, an important part of the problem foreseen by S&P is the slow fiscal adjustment derived from the low economic growth observed in the country.
On the other hand, on May 20, the rating agency Moody’s downgraded Mexico’s debt by one notch, which is now on the threshold of falling below investment grade with this agency. It should be remembered that this agency had changed its outlook on Mexico’s debt rating from stable to negative 18 months ago, in November 2024, which in some way already anticipated a move in this direction. Among the arguments put forward by Moody’s are the following: “Rigid spending, a limited revenue base, and continued support for Petróleos Mexicanos (Pemex) limit the government’s ability to stabilize debt in a low-growth environment. Despite efforts to reduce the fiscal deficit, other policy priorities, such as energy sovereignty and a redistributive spending model, have weakened the pillars of fiscal policy.”
With Moody’s decision, Mexico’s sovereign debt is in a delicate situation, as with two of the three major global rating agencies (Fitch and Moody’s), our rating is at the lowest rung of investment grade. With the third agency, S&P, Mexico’s debt is two notches above the threshold that determines investment grade, although with a negative outlook. This implies that there is a very real possibility that in a few months the country’s debt could be at the lowest rung with all three major global rating agencies.
The above does not necessarily imply that Mexico will lose investment grade. In reality, the rating agencies will be closely watching the fiscal and economic results of the coming months. However, if the fiscal deficit remains high, if measures are not taken to strengthen public revenues, and if a growth path at least close to 2% is not achieved, the risk of losing investment grade will be real. We have about a year to start showing some improvement. Time is pressing.
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