Economics: Deep contraction after an inertia of stagnation
It is of fundamental importance to consider the differences that separate the current crisis from that of 2009 in terms of their consequences for income levels and, specifically, the percentage of the population that will be pushed into poverty as a result of this immediate experience.
Unlike in the 2009 crisis, the contraction expected in 2020 was preceded by a year in which the economy stalled and both industrial production and investment also fell. Those trends were further accentuated during the first two months of the current year despite the absence of any local impact from the emerging pandemic. For example, the construction sector was brought to a halt by the pandemic only following a year of intensely negative results that also inflicted a significant toll on income levels within a sector of the population that was already near the poverty threshold.
This stalling inertia is very significant because it was brought on in large part by government policies and signals that contributed to uncertainty and de-incentivized investment, which at the same time implies that once the pandemic is behind us we will remain in this same quagmire as the government’s attitude is not expected to change in any way that could contribute to a greater sense of legal certainty.
Under the assumption that a return to a “new normal” implies that diverse activities cannot be completely reactivated and that government actions will continue to pose obstacles to growth over the medium and long terms, we can consider the likelihood of potential GDP growth falling below the levels of the past 10 years. This would result on an inertia of stagnation or weak growth subsequent to the weaker starting level the economy will face once it bottoms during the second and third quarters of the current year. As a result, it will take more than two years to return to 2019 levels.
A very significant issue related to the contraction in household buying power is the price performance of goods for which consumption remained high during the current health emergency, a matter for which we have built a pandemic price index based on food, housing and health, areas on which consumption was unimpaired by the pandemic and social distancing and confinement policies. Consumer goods for which demand is expected to endure through the pandemic showed price increases of 4.6% and 5.2%, during April and the first half of May, respectively, which is to say roughly two times the rate of headline consumer inflation.
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