S&P lowers Mexico's sovereign credit outlook to negative

Standard & Poor's on Tuesday lowered Mexico's sovereign credit outlook to negative from stable, adding that a downgrade could happen in the next two years if the government's debt or interest burden deteriorated.

Mexico's peso slumped on the news, to trade nearly 1 percent lower against the dollar, while the IPC stock index fell more than 1 percent.

Standard & Poor's said in a statement it affirmed Mexico's 'BBB+/A2' foreign currency and 'A/A1' local currency sovereign credit ratings but added it saw "an at least one-in-three possibility of a downgrade over the next 24 months."

The ratings agency said it expects government debt to rise to an average of 4 percent of gross domestic product per year over the next three years.

It expects GDP to expand by just over 2 percent in 2016, and roughly 3 percent between 2017 and 2019, if growth in the neighboring United States remains stable.

"Low GDP growth will make it difficult for the government to meet its ambitious target of stabilizing and gradually reducing its debt as a share of GDP over the next three years," it said.

On Monday, data showed Mexico's economy shrank in the second quarter for the first time in three years, prompting the government to revise down its 2016 outlook.

The contraction comes as a slump in crude oil prices hammers Mexico's economy and after the central bank aggressively increased its benchmark rate in June following a sharp depreciation of the peso.

Deputy Finance Minister Fernando Aportela told a news conference the government had revised down its 2016 growth outlook from 2.2 percent to 3.2 percent to a range of 2.0 percent 2.6 percent, because of unfavorable external conditions.