MEXICO CITY, Nov 17 (Reuters) - Fitch Ratings on Wednesday affirmed Mexico's long-term foreign-currency and local-currency issuer default ratings at "BBB-" with a stable rating outlook, a move that Mexico welcomed as a way to maintain access to international finance markets.
The ratings agency also said it expected Mexico's economy to grow 5.9% this year and 2.8% next year, amid supply shortages through the first half of 2022.
"Rising U.S. demand for goods has resulted in input supply-demand imbalances, most importantly semiconductors, delaying industrial production recovery, particularly in Mexico's auto sector," said Fitch.
The longer-than-expected supply shocks will constrain the Bank of Mexico's monetary policy space, likely resulting in further interest rate hikes in 2022, Fitch added.
The scarcity of inputs, which is expected to continue through the first half of 2022, has led to technical stoppages in the auto industry and could hit gross domestic product growth by 1 percentage point, Fitch said.
Despite maintaining Mexico's rating, Fitch flagged several concerns, saying Mexico's "regulatory quality" has deteriorated during the current administration of President Andres Manuel Lopez Obrador and that distrust of autonomous regulatory entities continues to affect investment climate and governance quality.
As well, Fitch warned that an electricity reform proposal championed by Lopez Obrador, if passed, could lead to "underinvestment" in the electricity sector.
The reform could also usher in noncompetitive electricity pricing and weaken Mexico's regulatory quality, Fitch said.
Mexico's Finance Ministry said in a statement that Fitch's decision to keep the rating stable would help preserve favorable access for the public and private sectors in international and domestic financial markets. (Reporting by Anthony Esposito in Mexico City Writing by Daina Beth Solomon Editing by Matthew Lewis)
