The Day at a Glance | March 24 2020

Worldwide economic activity collapses in March

The virus`s effects on the global economy have started to become evident after PMI`s were published in some of the world`s main economies. During March, economic activity came to an abrupt halt in Japan, Europe, and the United States, especially in the services sector. Manufacturing in Japan contracted for the eleventh consecutive month and reached its lowest level since 2011 (44.8), while services contracted even more (32.7), reaching its lowest level since the survey`s existence; bad news for the Japanese economy, whose recent decision was to postpone the Olympic Games in Tokyo. In Europe, the economy recorded its lowest rate of growth since 1998 (31.4), with manufacturing deepening its contraction (44.8) to its lowest level seen in the last 8 years, and services reached their lowest levels of activity since 1998. The plunge in activity exceeded what was seen after the global financial crisis and is consistent with a (-) 2% contraction in GDP during the quarter, with there being a risk of this slump deepening given the fact that many European countries had still not implemented quarantine measures during the period. Lastly, the strictest measures have also not been carried out in the US and its economy recorded its worst level in history concerning Markit PMI`s (40.5). Manufacturing returned to levels of contraction (49.2) and set itself at its lowest level in the last 10 years, meanwhile services recorded a new record level of contraction (39.1) during March. According to Markit, jobs are being cut at a rate not seen since the 2009 crisis and data corresponds to an annual (-) 5% contraction in the economy; with risks of seeing a greater contraction once restrictions on the movement of people reach their highest level.

Slight slowdown regarding inflation in Mexico

Inflationary figures for the first half of march have confirmed a slowdown regarding inflation in Mexico, according to data published by INEGI. At an annual rate, inflation stood at 3.71% (0.11% biweekly) and non-underlying inflation contracted (-0.01%). In fact, the underlying component confirmed a moderate downwards trend (3.6% annual), while energy resources (-0.01% biweekly; after a drop in oil prices) and fruits and vegetables (-0.04%) stopped contributing to the acceleration in prices. Data keeps the door open for more interest rate cuts in Mexico, especially if economic activity is expected to contract this year due to COVID-19`s effects at a global level. Nevertheless, however fast cuts in interest rates are carried out will depend on how strong the currency`s depreciation transfers to prices in the following months.

Wuhan`s quarantine comes to an end; the UK increases containment measures

China`s Hubei province, location of COVID-19`s outbreak, prepares to return to normality on April 8th, when Wuhan`s transportation services are scheduled to resume. With this, the city`s quarantine will come to an end after no new cases were recorded since March 19th. Xi Jinping is confident that the outbreak has now been controlled in the country, even though the virus`s spread continues in the rest of the world. The UK decided to join Italy and Spain yesterday in scaling containment and mitigation measures. Prime Minister Boris Johnson ordered new restrictions to be carried out that would prevent people from leaving their homes in the next two weeks to deter the virus`s spread. According to Chief of Cabinet Michael Gove, greater restrictive measures could be carried out if desired results are not reached in three weeks. The UK has decided to side with the rest of the world`s mitigation strategies after admitting a greater spread of the virus would surpass the nation`s health system and would entail the death of millions of people. Meanwhile, the World Health Organization warned the US could turn into the epidemic`s next epicenter, as it is now the country with the third most cases (+46 thousand) and its rate of acceleration is alarming. As China moves beyond the emergency and the virus spreading in the West, it`s unclear if restrictions on the movement of people can be swiftly eliminated: China runs the risk of another outbreak if it doesn’t control the entry of persons into its country.