The Day at a Glance | April 2 2020

Initial jobless claims in the US continue to increase

A new record of initial jobless claims in the United States was reached last week, after recording 6.5 million new claims for government support because of unemployment in the week of March 23-28. Figures exceeded expectations once more and adds to concerns of larger impacts of COVID-19 on the US labor market. Figures for the week of March 16-21 were also slightly revised up wards (3.3M vs 3.2M prev.). The report shows the impact of unemployment goes beyond sectors such as hotels, restaurants, and extends to health, social assistance, factories, retail sales and construction. It`s expected this will be gradually replicated in unemployment statistics, as unemployment estimates reaching close to 10% in the following months and perhaps above what was recorded in the crisis of 2008-09. Tomorrow, more data regarding employment will be published, which is not expected to fully reflect the virus`s impacts because of the survey`s lag (the survey was carried out mostly in the first part of March), however, what is expected is to see the first contraction in new jobs since November of 2010.

The SHCP updates estimates for the Mexican economy in 2020

The Ministry of Finance and Public Credit (SHCP) revised its 2020 Fiscal Policy Assumptions, in which it adjusted Mexico`s growth for 2020 downwards to -3.9% / 0.1%, it eliminated expectations of seeing a primary surplus 0.7% of GDP and now considers a -0.4% deficit, in addition to a fiscal deficit -3.3% of GDP. Forecasts include expectations of a negative impact on the Mexican economy and on public finances due to the health emergency and the collapse of oil prices, which has led the government to work on public policy measures – in addition to those recently made public – in order to counteract its negative effects. With this, it`s expected Public Sector Financial Requirements will increase to 4.4% of GDP and the public sector`s indebtedness to increase to 52.1% of GDP (vs 45.6% prev.), reverting the inclination towards stabilization regarding public debt. However, the SHCP clarifies that funding will not come from issuing debt, but from Public Sector financial assets. Inflation was adjusted to 3.5% for 2020, with an exchange rate of $22.9 pesos per dollar and a price of $24 dollars per oil barrel (vs $49 prev.). What also stands out are expectations of a lower interest rate in 2020, with estimates of a 5.8% rate being seen at the end of the year, which would imply that the SHCP expects to see additional 75 bps cuts to Mexico`s Central Bank target interest rate. Lastly, oil production (1.85 mbpd vs 1.95 mbpd prev.) and oil exports (1.07 mbpd vs 1.13 mbpd prev.) were revised downwards, and it expects to see a -2% contraction in the US`s economy in 2020. Other than updating 2020 fiscal policy assumptions, it started setting a budget for 2021 with the year`s fiscal policy assumptions as well. It`s expected see a return to growth (1.5-3.5%) in 2021, along with a stable exchange rate ($21.4 pesos per dollar), a recovering price of oil ($30 mbpd, regarding mexican oil prices), and unchanged interest rates.

Vehicle sales in Mexico drop 25.5%

According to INEGI figures, automobile sales in Mexico dropped a little over 25% during March, compared to the same month of last year. This is the lowest volume of sales in the last 6 years, which responds to the slower economic momentum due to the spread of COVID-19 and mitigation measures. So far this year, the drop in sales is 10.9% compared to 2019, with a total of 295 thousand units sold; the deepest decline since the 2008-09 crisis. Information regarding the automotive sector matches recent general economic data. According to the IMEF, the fall in economic activity in the month of March expects a deeper recession in the Mexican economy, after leading indicators published by the institution recorded the largest contraction in the service sector in history (39.4) and the eleventh consecutive month of a contraction in manufacturing (45) during March.