Could Phase 3 Lead Mexico into an Unprecedented Recession?

On Sunday afternoon, Hugo López-Gatell, Deputy Minister of Health, informed the population that at that time Mexico had 296 deaths due to COVID-19. He also reported that the country has 4,661 people infected with the virus. The data, not too worrying a priori, contrasts with the number of tests carried out in the country since the first patient was confirmed on Mexican soil. According to Reforma, Mexico is one of the countries in the world with the lowest number of tests performed: 159 per million inhabitants. Only India conducts fewer tests than Mexico and only India has fewer deaths than Mexico. In other words, without a diagnosis, there is no COVID-19, so the number of deaths from this cause also falls short in the official counts. In this context, and as announced by López-Gatell, Mexico will enter Phase 3 of the pandemic, the most dangerous of all. However, no specific date is projected, as each country depends on its own evolution and context.

Tests were key in the containment of COVID-19 in both Germany and South Korea, especially after it was discovered that a high percentage of those infected show no symptoms. Defining the number of infected and tracking their contacts was essential for successful containment and targeted confinement. Hence, on April 4, Mexico decided to increase the number of tests, which is still insufficient to map the virus as closely as possible.

According to data provided by López-Gatell during his press conference, of the confirmed cases of COVID-19 in Mexico, 66.4 percent were treated on an outpatient basis, 10.3 percent were hospitalized with mild symptoms, 19.24 percent were hospitalized with severe symptoms and 3.9 percent had to be admitted to an intensive care unit. As for the deceased, no deaths were recorded in the 0-25 year age range. There were 166 deaths in the 25-59 age range and 130 deaths in the over-60 age range.

“Phase 3 is coming, no doubt about it. It is the peak transmission phase, the one that offers the most contagion per day. It is also the phase that can put the national health system at risk,” said López-Gatell on March 26. On Sunday, he reaffirmed his words, although he did not announce a specific date to enter this phase.

Phase 3 is the one that has led Italy and Spain to collapse, the one that is complicating France’s economic future and the one that has put the UK and US economies at risk. But López-Gatell did not want to be pessimistic. “The opportunity to avoid hospital saturation is today. The aim is to ensure that space is available for patients who will require intensive care,” he said. According to the Ministry of Health, in Phase 3 the spread of the virus is more extensive, making it more difficult to interrupt the chain of contagion. This can lead to the collapse of the health system and increase daily infections exponentially. This situation could lead to an unprecedented economic recession. Those countries that entered Phase 3 forced the total closure of companies considered non-essential. In addition, an obligatory confinement of the population under the surveillance of the state security forces and the Army was decreed, bringing economic activity to its minimum expression.

According to projections made by UBS, Mexico’s economy will contract by 7.6 percent this year, with a peak in 2Q20 that will lead to a 13 percent drop as a result of declining consumption and job losses. “There are two keys that have driven our forecasts: the first is that our economists have reduced US growth for 2020. The second is that Mexico’s policy response to COVID-19 is one of the laxest in the world,” UBS said on Monday on its report. “We believe that the engines of consumption will come to a halt in 2Q20. The blow to employment is likely to be unprecedented in this crisis and we are predicting that the unemployment rate will rise above highs seen during the 1994 crisis,” the bank added. In addition, UBS is forecasting a 20 percent fall in gross investment in 2020 to add to the 4.9 percent fall in 2019.

Both Italy and Spain have become the mirror in which to look during this crisis. Measures taken by both countries, pioneers in stopping the spread of the virus, are key to trying to project what can happen in the rest of the world. According to the Italian National Institute of Statistics, half of Italian companies are on standby, as well as 7.4 million workers. “If this situation continues, Italy’s GDP will fall by 10 percent in the first six months of this year; that is about US$45 billion,” Matteo Pignatti, an economist at the Confindustria Study Centre (CSC), told the BBC.

In Mexico, according to consulting firm Mercer, 80 percent of companies have experienced a decline in sales and revenue since the first infection was confirmed, while only 43 percent had a contingency plan to deal with a situation like the current one. In his report ‘Navigating in times of crisis before the COVID-19’, Mercer said that 88 percent of companies operating in Mexico will be forced to implement cost containment, which in turn will cause 63 percent of companies to restructure their staff.

According to Mercer’s study, 56 percent of the companies surveyed predict that their operations will return to normal within 3 to 6 months. The downside? 58 percent believe they will not be prepared for the crisis if containment measures implemented by the government for Phase 3 last more than three months.