Fears of Second COVID-19 Wave Trouble Economic RecoveryBy Miriam Bello | Thu, 10/29/2020 - 14:45
Exports and tax collection show signs of economic recovery. However, markets are at risk due to new contagions in Mexico, Europe and Asia. The FMI has released recommendations for Mexico to reach a sustainable recovery with no affectation to public finances. Meanwhile, President López Obrador asks banks to lower their interest rates to grant more credits.
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- A second COVID-19 wave threatens economic recovery and market flows. As Europe faces higher figures of COVID-19 contagion, Wall Street has registered its strongest drop since June. The Dow Jones Industrial Average fell 3.43 percent to 26,520 points, the S&P 500 index lost 3.53 percent to 3,271 units and NASDAQ fell 3.73 percent to 11,000 five points.
- The Minister of Finance and Public Credit called out banks in Mexico saying that they have not used the liquidity facilities that Banxico put in place during the COVID-19 pandemic. Luis Niño de Rivera, President of AMB, said demand for financing aid from banks is low, as uncertainty has made companies and people hesitant to ask for credit that they will not be able to repay later. President López Obrador exhorted Banxico to lower interest rate to activate credit demand.
- SAT informed that despite the pandemic, tax collection dropped just 0.9 percent in September. Economic certainty in Mexico improved in 3Q20. Head of SAT Raquel Buenrostro qualified this as a positive situation, comparing collection figures in 2020 of MX$2.4 billion (US$112.4 billion) against the MX$2.5 billion (US$117.1 million) of 2019.
- The FMI has proposed an economic plan for Mexico based on a sustainable debt trajectory. According to the document, Mexico needs to do more than responding to COVID-19, suggesting authorities to use 2.5-3 percent of the national GDP to support companies and workers in the informal sector. The fund says that if a lower fiscal stimulus for the informal sector is granted, the economic impact will end up affecting public finances.
- President López Obrador announced the expansion of the Border Free Zone to the south of Mexico. In the northern region of the country, the benefits of such programs reflect in gas prices, a higher minimum wage, 8 percent VAT and income tax at 20 percent. The proposal is to replicate this in southern states like Quintana Roo and Chiapas.
- After a six-month drop, exports finally recovered following COVID-19 limitations. According to INEGI, recovery was of 3.7 percent. Their strongest drops were in April (40.9 percent) and May (56.7). Oil exports were of US$37.7 billion, presenting an increase of 5.1 percent, the highest in five months. Manufacturing exports reached US$35.2 billion, an increase of a 4.3 percent within 6 months.
- Remittances have been one of the strongest economic supports during the COVID-19 pandemic. However, they are expected to slow down by 14 percent in 2021 due to a decrease in migration. Europe and Asia will see the largest drop in remittances income of 16 percent and 11 percent, respectively.