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The Covid-19 pandemic that escalated in the first quarter of this year will have a dramatic impact on the U.S. banking sector. The effects will range from direct and immediate to indirect and long-term that will only emerge in the wake of the crisis.
The headwinds from declining oil demand and increasing supply will delay the recovery of the Texas economy. Consequently, we expect Texas GDP to decline between -3.7% and -6.9% in 2020, that is, worse than the U.S. average. This would mark the worst recession since at least 1978.
The 2021 Pre-Criteria guidelines for economic policy emphasizes the need to keep fiscal discipline; we think this should be done from a structural perspective to make it possible to boost public spending alongside a credible fiscal reform proposal that increases tax revenue and comes into effect after the sanitary emergency
We expect headline inflation to post a mild 0.07% MoM increase in March (3.37% YoY, down from 3.70% in February), with core increasing 0.27% MoM (3.58% YoY, down from 3.66%).
March's employment report marks only the beginning of a period of unprecedented weakening in the labor market. The number of people reporting being temporarily laid off doubled to 1.8M while the number of permanent job losers increased from 177K to 1.5M.
Coronavirus hits 180 countries. In the US, the epicenter, strict measures may continue till June. In Europe, it is top priority on the political agenda. G20 announced a united front against the pandemic. Tensions between China and the US due to the virus are easing off. The oil price war triggered a major fall in oil price.
Consumer prices increased by 0.57% in March, higher than both the consensus 0.5% and BBVA Research 0.23%. Annual inflation declined to 11.86% from 12.37% in February, led by favorable base effects. Looking ahead, we expect the headline inflation to experience one digit levels as early as May and end the year at near 7.5%.
March’s employment report will not capture the bulk of the shock. However, if current trends continue, nonfarm payroll will decline significantly in April and the unemployment rate could reach more than 12%, which would outstrip the record-high of 10.8% in 1982.