Weak Growth, Lower Oil Revenues Strain Mexico Budget

• Economic underperformance relative to budget assumptions and lower than expected oil revenue is straining Mexico's budget framework and underscores challenges the government faces in meeting its non-financial public sector (NFPS) primary surplus targets, says Fitch Ratings.
• The recent announcement that the government will use part of the stabilization fund (FEIP) to offset lower than expected revenues without further spending cuts should allow the 2019 primary surplus target to be met. However, the decision also highlights the trade-off facing the government between maintaining fiscal targets and supporting the economy.
• The Ministry of Finance revised downward its 2019 real GDP growth forecast to 1.1% from 1.6% this week, following the release of 2Q19 data, which showed the economy expanded by just 0.1% QoQ (0.4% YoY). This means that Mexico barely grew in 1H19 and only narrowly avoided a technical recession as the economy contracted by 0.2% QoQ in 1Q19.

(Source: Fitch)