COVID-19: Autorities Forsee an Impending Economic RecessionBy Gabriela Mastache | Fri, 03/20/2020 - 15:16
The tangible presence of COVID-19 in the country is not only taking a toll on markets but also on the country’s growth perspectives. Also, the US border is about to implement restrictions to prevent further spreading COVID-19.
Check out what made the headlines over the week!
- Bank of America Securities (BofA Securities) announced on Thursday that it expects the Mexican economy to contract by 4.5 percent in 2020, leading to a second year in recession. According to BofA, the contraction will come from reduced US manufacturing, low oil prices and the COVID-19 outbreak. BofA Securities’ perspective is currently the most negative one. On Wednesday, Goldman Sachs stated that the Mexican economy would fall about 1.6 percent, while Credit Suisse announced its clients that the economy would fall by 4 percent.
- Mexico will not be the only one experiencing an economic recession. Christine Lagarde, President of the European Central Bank (ECB) said the bank expects the euro zone to face a considerable recession because of COVID-19. As part of the efforts the ECB is making to contain the recession, they have announced they will buy up to €750 billion (US$799.9 billion) of public and private debt. The Latin American region is expected to contract in 1.2 percent.
- Similarly to what happened at the US-Canadian border, President Trump has announced that the Mexico-US border will be closed for trips that are considered non-essential. However, he assured that this will not impact trade between the two nations. The measures will be put in place on Saturday, March 21. Both, the Mexican and the US government stated that the measures are not expected to impact the logistic activity between the two countries nor the movement of people that cross the border on a daily basis and that have work permits.
- Even though the Canadian government has already suspended activities, their last order of business before leaving was ratifying USMCA. The new treaty is expected to be enforced two months after the last country ratifies it. This means that during the second half of 2020, the three countries should be ready to start working under USMCA regulations.
- Despite the economic impact that COVID-19 will have on Mexican businesses, President López Obrador says that there will not be a reduction of taxes to businesses because of the emergency. However, he did commit to not increase companies’ fiscal contributions. However, the Ministry of Finance is working on a contingency plan for the Mexican economy which is expected to be presented next week. SHCP is working alongside the private sector and is preparing a plan that includes a temporary tax break, such as a 0 percent ISR tax and postponing capital payments on companies’ debt.
- As part of the efforts made to control the fall of the Mexican peso, the Exchange Commission, made up by Banxico and the Ministry of Finance, announced the auction of US$2 billion as exchange coverages. This after the US dollar reached MX$24 levels. Mexico’s international reserves fell US$952 million, mainly because of a different valuation of the different assets that compose them.
- Even though the general recommendation is to stay inside, the ABM informed that banks will maintain all their services available for the population. This includes the use of physical branches, ATMs and their phone lines.
- Recaredo Arias, Director General of AMIS, stated that the Mexican insurance sector is fully capitalized to respond to any pandemic or epidemic. According to Arias, the sector’s capitalization and solvency is 3.1 times above what is needed, even if the situation got to an extreme point.