The Day at a Glance | April 14 2020

Meetings start at the IMF and World Bank

This Tuesday, spring meetings will begin at the International Monetary Fund and the World Bank, with high expectations among markets concerning actions these institutions will take in light of the crisis caused by the coronavirus, particularly in vulnerable economies. It`s expected measures will be designed and announced in order to avoid a larger crisis in emerging and undeveloped economies, which are more than likely to face the face the health crisis in the following weeks, simultaneously facing a collapse in demand and a lack of fiscal room to counter negative economic effects. Both entities have warned this may be the worst crisis since the postwar era, and a response is needed to be carried out as soon as possible. The risks in emerging countries are considerable: The lack of robust health systems could lead to a humanitarian crisis, mass migrations and civil unrest; meanwhile, economically, a small fiscal margin in many of these countries will limit the ability to avoid a deeper crisis and could increase the risks of insolvency or unpaid debt. What also is cause for concern is the high levels of dollar-denominated debt in these countries, as the US currency is one of the most highly demanded assets at a global level during the contingency, which is something that has caused (along with a drop in raw material prices and current account deficits) an important devaluation regarding these countries` currencies. If emerging economies are unable to face the temporary setback, the worldwide economic recovery could be even slower than expected. The IMF has assured it counts on up to $1 trillion dollars for the external funding of countries that must face the virus, but more could be necessary. The FED has helped emerging economies with direct SWAP lines in dollars and has suggested the IMF could do something similar to provide the most vulnerable members with liquidity in addition to proposing suspending paying foreign debt (this has been announced in recent days regarding the poorest countries). G20 finance ministers and central bankers will lead today`s IMF and World Bank meetings in order to reach agreements this week.

Recovery in China

The most recent export and import figures show a recovery in the external sector of the economy in March, even though it`s expected to continue at a moderate rate given lower demand in the rest of the world. Exports contracted -6.6% (annual; -14% e.), an improvement with respect to (-) 17.2% contraction in January-February as exporting businesses are rushing to fulfill delayed deliveries in the quarantine period. Exports fell (-) 0.9% annual, above estimates (-9.5% e.), which reflects a substantial improvement regarding internal demand. However, the outlook does not suggest a vigorous and immediate recovery. It`s expected imports will be the first to recover, given the fact that internal demand is expected to recover more quickly than external demand; even though imports related to the exporting sector (intermediate goods and manufacturing inputs for exportation) could continue to show weakness. Concerning exports, these will be affected for the following months, with COVID-19 mitigation measures still being carried out in the majority of western economies, which keeps important markets closed to Chinese companies. 1Q20 GDP for the second largest world economy will be published on Friday, which is expected to show a quarterly contraction for the first time since 1992. Government policies in efforts to fight unemployment have been crucial in motivating a recovery in the internal market and to avoid a weak 2Q20; with expectations of seeing the exporting sector continue to work with less momentum for the rest of the first semester.