Weaker Economic Activity in Mexico and the USBy Gabriela Mastache | Thu, 04/30/2020 - 12:51
Alejandro Díaz de León acknowledged the difficult scenario the Mexican economy is facing and the need for liquidity. Moreover, the US and Mexican economies reported their steepest quarterly contractions since the 2009 financial crisis. However not all is bad news. USMCA is expected to be enforced on July 1, which will serve as an engine for both economies to reactivate production chains.
In case you missed it, this is what made the headlines over the week!
- Alejandro Díaz de León, Governor of Banxico, said that the economy is facing a very complicated scenario and will continue to do so in the next few months. According to him, the current environment could lead to a GDP fall of 5 percent in the first half of 2020. “We have identified an environment of economic contraction, uncertainty and risk aversion that can impact the economy’s credit channel when it is needed the most. Right now, both businesses and homes need financing.”
- According to INEGI’s estimations, the Mexican economy registered a 2.4 percent fall in 1Q20. Secondary and tertiary activities suffered a 3.8 and 1.4 percent contraction respectively. Only primary activities showed 1.2 percent growth in 1Q20. This is the fifth consecutive quarter that the Mexican economy experiences a GDP reduction.
- According to a Buendía & Laredo expectations poll with Credit Suisse’s institutional investors, Mexico could lose its investment grade before the AMLO administration comes to an end. Moreover, investors do not believe the government is doing what it can to protect the economy and 28 percent of those surveyed believe that it will take the country more than three years to recover.
- The US GDP experienced a 4.8 percent fall during 1Q20 compared to the same period in 2019. The fall brings the longest period of economic expansion in the US to an end. Economists expect a far steeper contraction for 2Q20 following a recession that started during the second week of March, when social distancing measures took place.
- The fall in the US GDP is also accompanied by unemployment figures. According to the US Department of Labor, in the week ending on April 25, unemployment figures reached 3.8 million, a decrease of 603,000 from what the Department of Labor registered the previous week. Meanwhile, the Commerce Department reported that consumption fell by 7.5 percent in March.
- Despite the current COVID-19 emergency, USMCA will be enforced on July 1. Despite existing doubts regarding Mexico’s readiness to comply with all the modifications that the treaty implies, Ildefonso Guajardo, former Minister of Economy and main negotiator of USMCA, believes that the treaty’s enforcement next July opens up the opportunity to better position Mexico in North American productive chains.