Recession Revised and Defaults to RiseBy Peter Appleby | Thu, 10/15/2020 - 16:28
After many bleak months of bad news, IMF delivered some small respite to Mexico as its forecast for the country’s economic contraction in 2020 was revised up, albeit modestly. Meanwhile, the payment restructuring of debts and credits that banks offered clients following COVID-19 has been altered. The ending of the debt deferral may also increase defaults at banks nationwide, Fitch Ratings suggests.
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The International Monetary Fund updated its economic outlook for Mexico and other countries this week and suggested that the economic contraction the country is experiencing will not be quite as severe as expected.
According to IMF, Mexico’s economy will contract by 9 percent in 2020 rather than the 10.5 percent forecast in its previous report in June. Economic growth for 2021 has also been revised slightly up from 3.3 percent to 3.5 percent.
The improving horizon for Mexico’s economy is in line with the global economy, which IMF has also said will contract 4.4 percent rather than 5.2 percent as previously suggested.
However, weak health systems and a reliance on industries like tourism that were heavily impacted by the pandemic are reasons to proceed with extreme caution, the institute warned.
Bank clients that had been in the course of restructuring any debt or credit and had thought they had until September 2021 to do so, now only have until January, El Financiero reported this week.
The financial future of millions of Mexicans had been thrown into doubt by the ravages of COVID-19, as job losses and income reductions were widespread. Most major banks had offered a deferral on credit repayments of six months during the crisis – a timeframe that was considered reasonable for the Mexican economy to get back on track – but continued economic problems meant that clients required further help. A couple of weeks ago, the National Banking and Securities Commission (CNBV) and SCHP announced new debt restructuring plans following changes to financial regulation, but this has now been altered.
Fitch Ratings has suggested that the end of the debt deferral period that banks have offered and the uncertain economic outlook for Mexico, still grappling with COVID-19, could cause a rise in banks’ default rates, reports El Financiero.
However, Senior Director of Fitch Ratings Veronica Chau said that despite this, Mexico’s sovereign rating was solid and that there was unlikely to be any “short-term degradation” caused by this potential rise in defaults.