They warn about the imbalance to the country’s economy

Mexico City.- Moody’s Analytics has warned that internal and external imbalances have developed in the country’s economy which increase its vulnerability and may lead to sudden adjustments if they are not neutralized in time.

Alfredo Coutino, Latin America director of Moody’s Corporation analysis unit, said current imbalances exceed the levels that caused the last crisis at the end of a six-year term in late 1994, although current conditions are different.

Disequilibrium occurs when there is an imbalance between two variables, which shifts the economic system away from being at its equilibrium point.

The factors giving rise to these imbalances are: a consumption boom which led to an increase in domestic demand, excess monetary liquidity, the strength of the peso which led to an increase in imports, Coutino elaborated in an analysis on economic prospects for 2024. To Mexico. ,

He noted that in 2023, the economy performed at a very robust pace as a result of a sustained pickup in domestic absorption. Therefore, economic growth in the year was higher than the estimated potential growth of 2.5 percent.

“As a result, the economy has developed internal imbalances, expressed as an excess of internal demand,” he stressed in an analysis published this Thursday.

When an economy suffers from excess demand for a long time, national output is not able to meet internal demand, so the said excess accommodates both inflation and external imbalances, he described.

Therefore, he pointed out, it is not strange that inflation shows resistance to falling sharply and the volume of imports far exceeds that of exports.

He says the strengthening of the peso has also played a relevant role in increasing external imbalances, which reduces the price of imports.

He highlighted that the effect of exchange rate appreciation contributes to reducing internal inflation, so it is possible to expect that inflation will continue to decline gradually due to exchange rate effects and monetary restrictions, but at a higher cost than external inflation. Imbalance..

However he warned that the downside is that external imbalances increase the vulnerability of the economy and produce displacement effects on national output.

Coutino warned that the broad fiscal program approved for 2024 could add further fuel to domestic demand and lead to excess demand with greater consequences in widening external imbalances.

This could further increase the weakness of the Mexican economy.

Therefore, it is essential for economic, fiscal and monetary policy to redouble efforts to reduce the vulnerability of the economy and avoid the risks of hasty economic adjustment, he said.

(tagstotranslate)economy

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