While Mexico scored a dramatic, if mostly symbolic, victory in its "Mexican standoff" with Saudi Arabia over the weekend, when the oil producer who famously hedges its output every year in preparation for the worst received an exemption from the uniform 23% production cut, its economy sadly remains in shambles as it enters a deep recession, the Mexican peso recently plunged to all time lows (and is headed in that direction again), the coronavirus epidemic is ravaging its population, its industrial base is frozen with its biggest client - the US - on indefinite hiatus, and generally things are going from bad to worse.

None of that has escaped Fitch, which moments ago downgrade Mexico from BBB to BBB-, the lowest rating above junk (outlook stable) because as the rating agency writes, "the economic shock represented by the coronavirus pandemic will lead to a severe recession in Mexico in 2020."

It gets worse: "the outlook for the public finances is much less favorable than at the time of the last rating review in December 2019." Fitch expects the general government deficit to widen by around 2.5% of GDP to 4.4% of GDP, higher than implied by the most recent budget review, with little scope for consolidation in 2021. Sensitivity of revenues to changes in the growth rate is comparatively limited given the low non-oil tax take but more serious damage to the tax base is possible if the current one month lockdown is prolonged or subsequently re-imposed.

In short, Mexico is now caught in a perfect storm: on one hand the economy is collapsing and desperatly in need of more fiscal stimulus; on the other any new debt issued to fund this stimulus will immediately result in a junk rating causing even more pain for the country.