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S&P confirms Mexico credit rating, keeps negative outlook

MEXICO CITY (Reuters) -S&P Global Ratings confirmed Mexico's investment grade credit rating on Wednesday, saying that despite a record hit to the economy from the coronavirus pandemic, the government's cautious policy response had kept public debt under control.

In a statement, S&P affirmed Mexico's 'BBB' long-term foreign currency and 'BBB+' long-term local currency sovereign credit ratings, news that is likely to be welcomed by the government of President Andres Manuel Lopez Obrador.

Still, S&P kept Mexico's outlook on negative, arguing that a likely soft economic recovery and the strained finances of national oil firm Petroleos Mexicanos (Pemex) meant that there was a risk of a downgrade in the coming 12-18 months.

Latin America's second-biggest economy is expected to shrink by around 9% in 2020, and it entered the pandemic already in a mild recession, partly dragged down by concern among investors about some of Lopez Obrador's policy decisions.

The sharp economic contraction would this year raise Mexico's general government debt to around 50% of gross domestic product (GDP) from 42% last year, according to S&P.

"(However), the general government deficit should be around 3% of GDP in 2020, much lower than peers given the government's measured policy response," S&P wrote.

By contrast, Britain's budget deficit is expected to reach around 19% of GDP this year.

Next year, Mexico's economy is expected to grow just over 3.3%, a central bank poll of analysts showed this week.

Lopez Obrador has vowed to revive the fortunes of Pemex, but in trying to carve out a bigger role for the state on energy, he has clashed with private investors in the sector.

Pemex has financial debt of around $110 billion and S&P estimated it was "almost certain" that the government would provide extraordinary support to the firm. Pemex's struggles could increase risks for Mexico's creditworthiness, it said.

The ratings agency expected Mexican fiscal, monetary and exchange rate policy to remain cautious, but was not upbeat about the prospects for economic growth.

"We expect growth to remain lower than peers, and the post-pandemic rebound will be among the slowest in the region given weak private investor sentiment," S&P said.

(Writing by Dave GrahamReporting by Bengaluru Newsroom; Editing by Frank Jack Daniel and Stephen Coates)

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