An Imminent Global Economic RecessionBy Gabriela Mastache | Fri, 03/27/2020 - 12:49
The world has entered a new economic recession that menaces to be just as bad as that of 2009. In the midst of it all, S&P downgraded Mexico’s sovereign rating and it is not the only one that changed its perspective on the country’s economic performance. Different banks have reduced the country’s growth expectations for 2020. Also, after a public consultation at the end of last week, the government announced the cancellation of the Constellation Brands brewery in Mexicali. Commercial banks are giving different payment facilities to their account holders and international governments have started to approve different relief packages for their economies.
In case you missed it, this is what made the headlines over the week!
- Kristalina Georgieva, President of the IMF, announced on Friday that the global economy has officially entered an economic recession that will be as bad or even worse than the one experienced in 2009. Though the IMF expects a considerable rebound in 2021, this depends on countries working to contain the COVID-19 pandemic and preventing liquidity problems.
- S&P reduced Mexico’s sovereign rating from “BBB+” to “BBB.” Though the reduction does not mean that the country is unable to pay, it questions its ability to pay in changing economic conditions. The downgrade also contemplates PEMEX and the Mexican peso. After the announcement, the Mexican peso experienced a 24 cents fall, reaching MX$23.42 per dollar.
- Different financial institutions have already reduced the country’s growth expectations for 2020. Though the financial consensus stands at a 3 percent fall of the GDP for 2020, JP Morgan anticipates a 7 percent fall. The shock that COVID-19 generates is magnified in “less prepared economies for attending the pandemic, whose institutional frameworks and rule of law are weaker,” said the bank. It also warns that the informality of the economy, as well as crime, act as a vicious circle that increases unemployment and reduces investment and consumption trust.
- In light of the upcoming financial crisis, different economies have already started to generate recovery plans for their economies. In Germany, the government has announced a recovery plan that accounts for over 15 percent of its GDP, while countries like Japan and the US are working on a plan that would account for 10 percent of their GDP. In Mexico, the government has yet to define a strategy to help the economy recover.
- Though the government has yet to announce measures to help the economy, the ABM has already developed a plan to help businesses and individuals with credits to ride out the current emergency situation.
- After a public consultation, the federal government announced the cancellation of the Constellation Brands brewery in Mexicali. The company had already invested over US$900 million in the construction and presented an advancement of over 70 percent.