Latin America and the Caribbean sovereigns will continue to experience ratings pressures, reflecting the region's deteriorated growth outlook due to persistent external headwinds and uncertain domestic policies, Fitch Ratings said in an Oct. 14 report.
The rating agency pointed to its second-quarter sovereign credit overview for Latin America, saying that out of seven sovereign ratings actions, six were negative. In addition to a deteriorated growth outlook and policy uncertainty, Fitch sees increasing challenges for countries in the region to consolidate fiscal accounts and stabilize public debt burdens.
Fitch has lowered the growth forecast for the region to 0.7% from 1.9%. The rating agency cited slower global and Chinese growth, as well as commodity price volatility, and uncertainties related to trade protectionism as external challenges to Latin America.
The economic and fiscal reform momentum needed to increase productivity growth, encourage investment, cut deficits and stabilize public debt in several bigger economies is also limited, the rating agency added.
"Negative spill-overs from Argentina's deepening crisis and country-specific political and reform uncertainties also weigh on domestic confidence and activity in neighboring countries," the rating agency noted.
"Argentina's crisis was spurred by a surprise primary election result, which pointed to a likely victory for the opposition in the forthcoming presidential election, raising significant questions about policy direction in Argentina and the implementation of a key IMF program," it added.
Meanwhile, although Brazil has made some headway toward passing its pension overhaul, other economic measures are needed to expand the public finance landscape. Mexico's downgrade to BBB in June also reflects political uncertainty and a weak macroeconomic outlook.
Moreover, the rating agency believes that "the wide fiscal deficits and challenging debt dynamics will continue to weigh on fiscal flexibility, constraining the ability of several governments in the region to stimulate domestic demand."