Opening the Economy Early Could Lead to Bigger Catastrophe: BCE

A few days after BCE announced that rushing to open the local and global economy could lead to a W-shaped, rather than the awaited V-shaped recovery, the Mexican government presented a calendar for the possible opening of the country’s economy. The ABM said that any plan that is presented by the government for economic reactivation should consider the banking sector as a cornerstone. Due to jobs lost, the fall in economic growth and an increase in debt, IMF says that Latin America could experience another lost decade.

In case you missed it, this is what made the headlines over the week!

• After weeks of silence and in the midst of the most contagious stage of the COVID-19 pandemic in Mexico, the Ministry of Finance and Public Credit (SHCP), Arturo Herrera, has said that the current economic crisis the world is living is not yet a financial crisis. “In Mexico and in the world, there is a health crisis and an economic crisis, but we are not in a financial crisis. It is very important to prevent this from happening. The challenge is to avoid the liquidity crisis from becoming a solvency crisis. Every big crisis has been a solvency crisis.”
• Christine Lagarde, President of the Central European Bank (BCE) warned that the economic recovery could follow a W-shaped pattern, which would entail periods of recession and recovery interleaved. According to Lagarde, the second wave of contagion, alongside the looming trade war, could spur a second economic fallout for the global economy.
• President López Obrador presented this week a calendar for the economic reactivation of the country. According to the government, the national COVID-19 pandemic recovery plan will be a three-stage effort. The first stage is the resumption of activities in 269 municipalities starting next week, the second is a period to prepare for the “new normal” and the third is a four-color traffic light scheme that will detail how to fully resume activities.
• The Mexican Banking Association (ABM) said that it should play a key role in the economic reactivation of the country and that its priority was to provide liquidity to MSMEs. Luis Niño de Rivera, President of ABM, said that the organization was ready to reactivate the three engines of the national economy: consumption, investment and exports.
• The pandemic has led to growth in digital banking. The use of digital banking services grew in 1Q20 around 40 percent when compared to 1Q19.
• IMF acknowledged that even though 2021 is expected to experience economic recovery, 2015-2025 could be seen as another lost decade for Latin America. IMF has warned that it expects many businesses to go bankrupt in the stage of economic recovery, which will inevitably impact Mexico’s financial sector.
• Moody’s believes that the debt of Latin American countries will increase up to 7 points of the GDP, to reach an average of 54 percent of the GDP in the region. This is the result of harder financial conditions, the increase in payment of interest and the impact that the economic recession will have on countries’ fiscal goals.