OECD forecasts a strong global contraction
The Organization for Economic Cooperation and Development published its new global economic growth forecasts, with two scenarios that are just as likely to occur. One with a new COVID-19 outbreak that would force economies to close again towards the end of 2020, and another in which another massive transmission of the virus is avoided. Even in its most moderate scenario (in which a second wave of the virus is avoided) the OECD`s forecasts are the most pessimistic among international institutions, as it estimates a (-) 6% contraction, the loss of 5 years of growth in income and a 9.2% worldwide rate of unemployment. This contrasts with the World Bank`s estimate of -5.7% and the IMF`s -3%. Considering the scenario in which a second wave of the virus occurs, the OECD estimates a contraction of up to (-) 7.6% this year before recovering 2.8% in 2021. Unemployment would rise to 10% and there would be a substantial loss in the quality of life at a global level. From its perspective, considerable risks prevail. The OECD has warned about a sustained period of unemployment and an increasing number of bankruptcies in the most affected industries. The agency underlined the largest inequality that the virus has caused; it pointed out that the economic impact will be especially hard on young and low-skilled workers, and called to avoid what occurred in 2008-09 and not halt aid provided to workers and companies until the global economy is clearly in a state of recovery. For Mexico, a (-) 7.5% contraction is estimated with the possibility of seeing a larger contraction (-8.5%) in case there is a new outbreak. In general, emerging economies will face the virus`s challenges with limited health systems in addition to a fall in prices of raw materials, which suggests a scenario of recession and uncertainty.
The FED holds a meeting
Midway through the day, the Federal Reserve`s Open Market Committee will hold a meeting to make a monetary policy decision. It`s almost a fact that they will keep interest rates unchanged (0%-0.25%) and the agency is expected to endorse its commitment to stimulate the economy for a long period of time, despite the positive data regarding employment in recent days. However, all their attention will be focused on its members` new macroeconomic forecasts and signs of duration regarding interest rates being close to zero. The consensus doesn`t expect to see an increase in interest rates in the US until 2022, even though a large part of economists doesn`t estimate any changes until after 2023. Any announcement related to the possibility of implementing a control program on the sovereign papers` yield curve (especially for 2-5 year instruments) is not expected until after September. A statement will be released at 13hrs Mexico City time and Chairman Jerome Powell will hold a press conference at 13:30hrs.