Mexico City.- Moody's Analytics warned that the country's economy has developed internal and external imbalances that increase its vulnerability and may create conditions for a sudden adjustment if they are not defused in time.
Although current conditions are different, current imbalances have surpassed the levels that fueled the last crisis at the end of the six-year period in 1994, said Alfredo Cuttino, director of Latin America for Moody's Corp.'s analysis division.
Disequilibrium occurs when there are imbalances between two variables, far from their equilibrium point, changing the economic system.
Factors that led to these imbalances: the acceleration of consumption that led to excessive domestic demand, excess liquidity, the strength of the peso, which caused growing imports, Coutiño described in an analysis of economic prospects for 2024. .
By 2023, he explained, the economy was operating at an overheated pace as a result of continued acceleration of domestic absorption. Thus, the annual economic growth was higher than the estimated potential growth of 2.5 percent.
“As a result, the economy is experiencing an increase in domestic inequality,” he stressed in an analysis published this Thursday.
He explained that when an economy suffers from excessive demand for a long period of time, national output cannot meet domestic demand and therefore can accommodate both excessive inflation and external imbalances.
Therefore, he pointed out, it is not unusual for inflation to resist falling rapidly and for imports to outpace exports.
The peso's strengthening has played a relevant role in growing external imbalances, he says, lowering the cost of imports.
The appreciation effect of the exchange rate contributes to the reduction of internal inflation, so inflation can be expected to continue its gradual decline, but due to the exchange rate effect and monetary control, but at a higher cost of external disparity..
Although he cautions that the downside is that external imbalance increases the vulnerability of the economy and creates a displacement effect on national output.
Coutiño warned that the comprehensive fiscal plan approved for 2024 could add more fuel to domestic demand and increase excess demand with greater consequences in widening the external imbalance.
This could further damage the Mexican economy.
He said, therefore, it is necessary for economic, fiscal and monetary policies to redouble efforts to mitigate the impact of the economy and avoid the risk of a hasty economic adjustment.
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