LatAm has not hit the bottom: S&P

NEW YORK (Reuters) - The Latin American economy will likely weaken further in the next few months, putting additional pressure on sovereign credit ratings across the region, Standard & Poor's managing director Jane Eddy said on Wednesday.

Some positive economic signs in Asia have been raising hopes that commodity-exporting countries in Latin America could also get an economic boost from renewed demand for raw materials, but Eddy said that impact is still not clear in the region.

"By large what we have seen in Latin America is that the impact happens with the lag of a couple of months, so I would predict that we have not hit bottom yet," Eddy told the Reuters Latin American Investment Summit in New York.

She noted some "positive and surprising" economic signs were visible in Mexico and Brazil, but warned that they could be the result of a build up in inventories rather that a real turnaround in production.

Since the crisis intensified in the second half of 2008, S&P cut the ratings of Argentina, Ecuador, Jamaica and Dominican Republic. It currently has negative outlooks on the ratings of El Salvador and Venezuela, while Trinidad and Tobago is on credit watch negative.

"We still have outlooks more on the negative than the positive" side, Eddy said. "The potential for more downgrades remain, for sure. Again, nothing dramatic."

Mexico currently has a stable outlook on its BBB-plus rating, but the country will need to broaden its tax base or rein in spending to maintain that status, according to Eddy.

Mexico will face a "tough challenge" next year, Eddy said, as oil revenues will fall dramatically in the absence of current price hedges, the economy will not pick up significantly, and the government will need to respond to social and security demands.

"The fiscal rigidity from the budget is hitting a real inflexible point," Eddy said, adding that a key issue for S&P is to see how the government will manage to maintain a deficit on the order of 2-3 percent of GDP.

Mexico forecasts a deficit of 1.8 percent of gross domestic product this year, partially supported by hedge operations for oil at $70 per barrel.

S&P is forecasting the Mexican economy will contract at least 3.0 percent this year. Eddy said the flu outbreak is expected to sap an additional 0.5 percent of this year's GDP, at least.

(For summit blog: blogs.reuters.com/summits/)