Europe prepared to loosen fiscal rules
The European Commission declared it is ready to let fiscal stimulus be carried out in the region in case there is further economic damage due to COVID-19. The statement came shortly after Germany committed itself to increase spending as necessary to guarantee liquidity among corporations for as long as the sanitary crisis lasts. Olaf Scholz, the Minister of Finance, assured there would be no limit to available resources even if Germany needs to acquire new debt to do so. The European Commission committed to being flexible regarding fiscal rules that govern the block (annual fiscal deficits no larger than 3% of GDP) to support businesses and workers affected by the virus. Suspending these guidelines will allow liquidity to be injected in airlines, the tourism industry and increase spending in medical services. The Commission assures it counts on a €8 billion fund to grant 100 thousand small and medium sized businesses while Germans have proposed delaying tax payments and expanding credit among the government´s banking institutions.
China continues its recovery
According to Bloomberg calculations, the Chinese economy has seen a 80%-85% of its labor force back to work. As the economy approaches its maximum capacity, normalization becomes slower, especially in the last two weeks; however, the country continues re-establishing its activity. Foreign exchange market transactions, steel trading and mobility in cities suggest that activities are normalizing in the exporting sector as well as in construction. Service activities are the ones that show slowest reformation, while the economy´s largest companies and most developed regions lead the overall recovery. It´s expected a return to normality will be slower than previously estimated.
Austerity and development banking is Mexico´s economic response to the virus
Mexican President Andrés Manuel López Obrador assured his administration does not contemplate using international reserves in order to contain the peso´s devaluation and will allow it to fluctuate freely. Moreover, he discarded aggressive fiscal stimulus to boost growth in light of the virus´s risks, and assured that, in case budgetary problems arise, the government´s austerity measures would increase. The Treasury Secretary, Arturo Herrera, recognized the overall picture Mexico faces is extremely complex. He affirmed the government will bring forward previously planned spending as stimulus to counter a slowdown brought by COVID-19, and guaranteed that development banking will back the most vulnerable industries. It´s expected companies that already count on development banking credit will count on grace periods to repay loans, or even refinancing in case they face liquidity issues. Work with Nacional Financiera – designing credits that will back the economy – is underway, and fiscal incentives that will benefit companies in trouble are being discussed. Spending cuts are also expected to be carried out, and the banking sector has been asked to keep access to credit open, be open to refinancing, and define products to provide businesses with liquidity. Lastly, the Ministry of Finance and Public Credit assured they will revise their 2% Mexican economy growth estimates for 2020, figure way above the consensus estimate of 0.7%.