Retail the Most Impacted Economic Sector: OECD

According to OCDE, for every month that the economic activity is stopped to prevent the spread of COVID-19, countries’ GDP could lose up to 2 percentage points per year. José Ángel Gurría, General Secretary of the OECD, announced that many countries will experience an economic recession as a result of their continuous efforts to fight the pandemic.

Last week, leaders of the G-20 had a virtual meeting where they discussed possible relief solutions for the COVID-19 pandemic including the implementation of a fund of over US$5 trillion as part of the definition of special fiscal policies, economic measures and guarantee schemes for the economies of the group. However, the OECD urged governments to work in a more coordinated manner to protect people and companies from an economic recession.

According to the OECD, countries with a strong touristic activity are bound to be more impacted due to traveling restrictions. Though countries with strong agricultural, mining, and oil and gas sectors can experience relatively small impacts, their activity is bound to be affected in the long-term due to reduced global demand. However, OECD also acknowledge that the largest impact for economies is bound to be felt in the retail sector, as well as professional and real estate services.

In addition to implementing coordinated economic strategies, Gurría asked leaders to double investment in research and vaccine development, as well as to redirect budget to national health systems in order to prevent collapses.

The Mexican Insurance System Not Immune to the Crisis

Though public health systems are expected to be the first line of defense against the COVID-19 pandemic, insurance companies are also expected to be impacted. Because of this, in addition to downgrading Mexico’s sovereign rate, S&P also reduced the rating of six insurance companies in Mexico including AXA Seguros, Sompo Seguros, Chubb Seguros, Allianz México, GNP Seguros and Kot Insurance. Though Kot Insurance does not operate in Mexico, it is PEMEX’s reassurance company, so its rating downgrade goes in line with PEMEX’s rating downgrade.

Though S&P acknowledged in past days that Mexican insurance companies have an optimal capitalization level and that they are prepared to resist an increase in health related claims, the economic impact of the pandemic, including the possible economic recession for Mexico would lead insurance companies to a loss of clients and a reduction in their profit margins.