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ECONOMY | 04.30.2020

Coronavirus: Financial analysis VII

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A new world “made in China” after COVID-19?

The coronavirus outbreak has highlighted the problems associated with the world’s near-monopsonistic relationship with China, due to its value chain integration. In 1990, China produced less than 3 percent of the global manufacturing output in value terms. Its share now is almost a quarter. According to Gonzalo de Cadenas-Santiago, Director of Macroeconomics and Financial Analysis at MAPFRE Economics, the pandemic could accelerate pre-existing plans to reduce dependence on China’s supply chain.

Mapping global risks in a post-COVID world

In its Outlook report, MAPFRE Economics updates the five risks threatening the global balance. While in January, a series of risks was expected to jeopardize the period of global economic growth experienced in the last decade, the threats to the economy could now lead to L-shaped recession recovery rather than U-shaped. This article considers global governance, debt, China’s macro-financial adjustment, climate change, and US economic policy.

COVID-19 measures lead to a deluge of debt

This is an unprecedented crisis that has also led to unparalleled shock-mitigation measures. It will also have very significant debt consequences, with estimates already pointing to double-digit increases (MAPFRE Economics expects a debt increase in the global GDP of between 15 and 25 basis points). This article provides an overview of the set of monetary and fiscal policy measures that have been taken to combat the virus, prevent economic collapse, and encourage subsequent reconstruction.

A joint response to save the euro

Many commentators believe that the coronavirus crisis is the eurozone’s greatest challenge since its formation. MAPFRE Economics forecasts a contraction in the eurozone economy of between 5.1 and 12.4 percent. In view of this situation, and although it has been a long time coming, the European Council has already made progress on a joint proposal for the bailout fund, which will form part of the revised draft of the multiannual budget for the next period (2021–2027) and which will be added to the 540 billion euros in liquidity for Member States already approved by the Eurogroup.

The Mexican economy, hit by two crises at once: COVID and oil prices

Mexico is being rocked by two simultaneous shocks: first, the global pandemic and, second, the increasing downward pressures on the crude oil market. “These phenomena,” the MAPFRE Economics Outlook report explains, “will impact the Mexican economy differently, given its enormous commercial and industrial integration with the United States, and its major fiscal and industrial dependence on the energy sector.” Thus, it forecasts a contraction of between 3.9 and 12.5 percent for this year.

Brazil is facing a deep recession, in the midst of a political crisis

Brazil is not currently one of the countries worst affected by the global COVID-19 pandemic, yet the virus has succeeded in politically destabilizing Jair Bolsonaro’s government. This institutional instability could not have come at a worse time, when the country needs to focus all its attention on combating the effects of COVID-19 and the economic recession projected for the Brazilian economy by all international agencies. This article analyzes the forecasts made by MAPFRE Economics, included in its latest Outlook report.

The effect of the virus on the world’s largest economy

The United States is currently the country most affected by the virus. And its effects on the economy will therefore be tremendous. MAPFRE Economics places the fall in US GDP this year in a range that could fluctuate between 4.1 and 10.8 percent (adverse scenario), with an unemployment rate of 4.4 percent following unprecedented job destruction. Support measures are aimed at avoiding this situation, however, they will come at a cost that will be reflected in the level of sovereign debt.

“The private investor must keep a cool head and get on board with the recovery plan”

De-escalation has started with great caution; and investors are likewise cautious when it comes to establishing positions. In an interview with Radio Intereconomía, Alberto Matellán, chief economist at MAPFRE Inversión, explains that private investors have an advantage in this context of uncertainty: “Unlike the institutional investor, who has to wait for a new scenario to be created in order to be able to invest, the individual investor already has this scenario available, which is his profile. Therefore, he must continue with his profile as a scenario and keep a cool head.”