This could further weaken demand, negatively affect growth and inflationary convergence, and require a stronger than expected monetary impulse. On the other hand, the picture of health risks looks more balanced than it did a few months ago. Cumulative experience, the prevention measures and the strengthening of the healthcare systems reduce the probability of repeating the worst episodes of previous months in the event of a resurgence of the virus. Thus, it is possible that the deconfinements will proceed a little faster, allowing activity and employment to rebound sooner, especially if a vaccine is developed more rapidly. In such a case, inflationary convergence would require a somewhat less prolonged monetary impulse. The possibility of more negative risk scenarios, especially associated with the economic wounds inflicted by the pandemic, is still present. The various measures have made it possible to maintain credit flowing in line with working and investment capital needs, breaking the pro-cyclical relationship of credit. Going forward the materialization of investments, productive adjustments in sectors that have been forced to make profound changes in their operation, and increases in activity levels, will require that this financing continue to be available. Therefore, it is essential to ensure a sustained flow of credit, ensuring that the financial system does not see its levels of capitalization and liquidity deteriorate, whether due to regulatory changes and/or a sharper deterioration in the repayment capacity of households and businesses.
In terms of activity, the percentage of GDP generated in quarantined areas has dropped from 65 to 45%. The relationship between quarantined territories and economic activity, however, is far from mechanical, depending on sector-specific characteristics, the intensity of the measures in place and the actual behavior of individuals (Figure 2). Looking ahead, the process of deconfinement is not exempt from the risk of setbacks, as has occurred in other parts of the world and in some areas of the country. Globally, the loosening of confinements and the increase in mobility have cooperated to draw activity above its lowest points of April and May. Production, sales, and expectations show improvements in some countries (Figure 3). It should be noted that in China the data for the second quarter were above expectations. Financial markets and commodity prices have been favored by these trends, as well as by the highly expansionary monetary conditions promoted by the major central banks. The price of copper has fluctuated around $ per pound and market volatility has seen significant reductions from its highs of March and April. This represents an important difference with respect to external shocks that have affected the Chilean economy on past occasions. Our country’s economy contracted by 14.1% annually in the second quarter, its worst record in several decades. The biggest month-on-month drop was in April, subsiding in May and recovering slightly in June and then again in July. The sharp initial contraction also occurred in a wide range of countries, although with some nuances (Figure 4).