News

They warned of economic imbalances in the country

mexico cityMoody’s Analytics warned that the country’s economy has developed internal and external imbalances, exacerbating its vulnerability and, if not eliminated in time, could create conditions for a sudden adjustment.

Alfredo Coutinho, head of Latin America at Moody’s Analytics, said that although the current situation is different, the current imbalances exceed the levels that triggered the previous crisis at the end of the six-year term in late 1994.

An imbalance occurs when there is an imbalance between two variables that is far from equilibrium and changes the economic system.

In his analysis of the economic outlook for 2024, Coutinho detailed the factors leading to these imbalances: accelerated consumption leading to excess domestic demand, excess currency liquidity, and a strong peso, which in turn led to an increase in imports. .

He explained that in 2023, the economy will overheat as domestic absorption continues to accelerate. As a result, full-year economic growth was higher than the expected potential growth of 2.5%.

“As a result, the economy’s internal imbalances are growing, manifested in excess internal demand,” he stressed in an analysis published on Thursday.

He said that when an economy suffers from excess demand for a long time, national production cannot meet internal demand, so the excess tends to accommodate both inflation and external imbalances.

Therefore, he pointed out that it is not surprising that inflation is difficult to fall quickly and imports far exceed exports.

He believes that the strengthening of the peso also played an important role in the growing external imbalances, thereby reducing import prices.

He emphasized that the effect of exchange rate appreciation helps reduce internal inflation, so it can be expected that inflation will continue to gradually decline due to exchange rate effects and monetary restrictions, but at the cost of greater inflation. External imbalance..

Although he warned that the negative impact of this is that external imbalances can increase the vulnerability of the economy and have a displacement effect on national production.

Coutinho warned that the expansionary fiscal plan approved in 2024 may further stimulate domestic demand and increase excess demand, leading to a widening of external imbalances.

This could further increase the vulnerability of the Mexican economy.

Therefore, it is necessary for economic, fiscal, and monetary policies to redouble their efforts to reduce the vulnerability of the economy and avoid the risk of hasty economic adjustment.

Source link

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *