By Ricardo Gallegos
A couple of weeks ago we ratified the rating of the United States of America at HR AAA, on a global scale, which is the highest possible rating in terms of credit quality. This ratification is based on several aspects: in particular, the behavior of the financial balance, the trajectory of the relative debt level and the performance of the economy in general. However, it is also worth raising some of the risks we identified in the short and medium term.
At a general level, the American economy showed great resilience, with growth in 2023 of 2.5%. This was one of the best possible results, since between the end of 2022 and the beginning of 2023, the possibility of the largest economy in the world entering a recession was seriously considered, which raised alarm bells in many economies around the world, including the Mexican.
This growth was achieved despite the restrictive monetary policy of the FED, which, to date, has not made cuts to the reference rate. Perhaps this process will begin during this year, but it will depend on the behavior of inflation, which has shown strong resistance to decreasing.
The deficit in fiscal year 2022 was 3.6% of GDP, which was a good result, and lower than what was shown in the last two fiscal years, when average deficit levels above 10% were reached, which was strongly motivated due to the countercyclical policy derived from the pandemic.
The cost of debt increased by 33%, after the increase in rates, which is a phenomenon that has impacted globally. In fiscal year 2023 the deficit was 5.1% of GDP, but we project that this will be reduced by 2024 to around 3%. The above, due to a combination of the strength of federal revenues and a reduction in expenses, particularly the discretionary component.
However, it is worth mentioning some of the short and medium-term risks that this sovereign faces. From the point of view of credit quality, one of the most important issues is the institutional rigidity that it suffers for the authorization of the debt ceiling. Although it is a condition inherent to its structure of checks and balances, it should not be a factor that, taken to the extreme, endangers the operation of the government and that, no matter how low the probability, causes issues of non-payment to be discussed.
Another aspect that will have a global impact will be the result of this year’s presidential elections. This electoral process, like many others, is immersed in a tense polarization of American society. Once the election is over, depending on whether the Republican or Democratic candidate wins, there will surely be a direct impact on public policies.
Geopolitical conflicts are also an important risk factor. In addition to those related to the war between Russia and Ukraine, others are also included, such as the tension in diplomatic relations with China over Taiwan or those associated with the conflict between Israel and Palestine.
The United States remains the largest economy in the world, and has the reserve currency by definition. However, adverse effects of both an economic and political nature have an immediate impact and global characteristics. At the time.
*Deputy General Director of Economic Analysis.
The complete EU qualification report can be consulted at: https://www.hrratings.com/html/Reporte/20240315/United_States_Sovereign_Debt_Rating_Report_2024.html