The Day at a Glance | April 30 2020

Mexico records its deepest contraction since 2009

INEGI estimates suggest that the Mexican economy contracted at a (-) 2.4% annual rate during 1Q20 (-1.6% quarter over quarter). With this, three consecutive quarters have recorded contractions (quarter over quarter, it would be five consecutive quarters), and the first quarter of 2020 recorded the largest annual rate contraction in the economy since 2009 (-5%). Primary activities expanded 1.2% annually (0.5% quarterly), while secondary activities (-3.8% annual, -1.4% quarterly) and tertiary activities (-1.4% annual, -1.4% quarterly) contracted. These figures reflect the virus`s emerging impacts, which forced to carry out social distancing policies towards the end of March. Nevertheless, the greater impact will be observed in 2Q20. Final 1Q20 figures will be published on May 26th.

European economy contracts; the ECB increases aid

The European economy recorded a record contraction in its first three months of 2020 (-3.3% annual, -3.8% quarterly), after the shutting down of activities due to the coronavirus in March. This is the deepest quarter over quarter contraction since 1995, when the block`s figures were only starting to be published. Contractions recorded in France (-5.8%), Spain (-5.2%), and Italy (-4.7%) were the most severe, which suggests that the economies most damaged were the ones who carried out stricter quarantine policies. In its monetary policy, the European Central Bank decided to increase support for the economy through a cut in interest rates in long-term loan programs in the banking sector, and in addition, it announced a new program to provide the sector with liquidity (PELTRO). The ECB assured its asset purchasing program will be maintained, at least until the end of 2020. The deposit rate maintained at -0.5%, which is a sign that the ECB still doesn’t consider taking interest rates deeper into negative territory.

April data suggests recovery in China

PMI`s for the month of April regarding the world`s second largest economy recorded expansion, once again, especially in its service sector. Data suggests the recovery in domestic demand has begun, even though manufacturing and the external sector continue to face challenges. The service sector PMI set at 53.2, an increase with respect to what was observed the month prior (52.3); meanwhile, manufacturing decelerated considerably (50.8 in April vs 52 in March), even though it`s still in expansion. It`s still too early to confirm China has returned to growing at a rate seen prior to the health emergency, or that it even is heading towards a definitive recovery. There has been an increase in unemployment regarding the manufacturing sector, as the rest of the world remains closed and has stopped its demand for Chinese exports. Moderating the increase in unemployment levels will be essential for China`s domestic market and the service sector in the medium term.

3.8 more people are unemployed in the US. Initial jobless claims increased in 3.8 million during the week, and points to an increase in unemployment beyond the sectors` impacted by the virus, according to the Labor Department. In total, more than 30 million people seek for unemployment benefits from the government, close to 18.4% of the economically active population. With this, it`s estimated the unemployment figure for April, which will be published next week, could reach 15%. Notwithstanding, it`s expected the figure will decrease quickly once the economy reopens, as the government has provided aid to workers that have been unemployed temporarily (people who will be able to go back to work once the quarantine is over).

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