The Day at a Glance | May 18 2020

Recovery could extend to 2021: Powell

In a ´60 minutes´ interview aired on CBS on Sunday, Jerome Powell, Chairman of the Federal Reserve, assured that the economy will recover from the pandemic but will perhaps do so at the end of next year, depending on the development of treatments and vaccines. “Assuming there`s not a second wave of the coronavirus, I think you`ll see the economy recover steadily through the second half of this year”, he said. For Powell, recovery largely depends on restoring confidence, which is tied to a vaccine`s existence. This could extend the period of time to reach recovery, especially if there are new outbreaks of the virus before a cure. Nevertheless, Powell reaffirmed that the FED is far from running out of resources for its loan programs and will be willing to do whatever is necessary to face liquidity issues regarding homes and businesses. Regarding negative interest rates, he reiterated his position: There is no evidence that negative interest rates back up an economy, they distort the financial system, which reduces its effectiveness.

SENER policies in the electricity sector rises concerns

On Friday, the Secretary of Energy, led by Rocio Nahle, published the ´Reliability Policy Agreement´ in the Official Journal of the Federation, which modifies the guidelines regarding renewable energy generating stations, permits for wind and solar power plants, and the construction of projects in congested places or with little transmission capacity. SENER`s argument is that it`s important to avoid overloads regarding the transmission of electrical power and help meet demand in a smooth manner during the health emergency. However, this has led to criticism on behalf of foreign governments and private businesses as it`s considered it infringes upon the legality, legal certainty, and economic competitiveness of the sector, which puts at risk investments of up to 30 billion dollars. For the Corporate Coordinating Counsel, this measure makes investors in Mexico lose confidence and could have negative effects on employment and on electrical projects in 18 of the country`s states. What is concerning is the fact that the approval of this measure did not require a Regulatory Impact Analysis, document that allows understanding the consequences of the rule change in the sector, regularly requested by the Commission for Regulatory Improvement. César Hernández, head of the Commission, has submitted his resignation amid the irregularities, news reports assure. Experts are concerned that the measure will concentrate the power generation market in the Federal Electricity Commission, limiting private participation. Canada and the European Union sent letters to the Mexican government over the weekend requesting a meeting with Nahle and showed concern regarding effect that the new rules will have on investments already made. The energy policy is one more that the new federal government has adopted during its administration in order to maintain state enterprises` predominance in the sector, which is a decision that undermines the confidence of private, foreign and domestic investors.

Japan enters recession

The Japanese economy contracted an annualized (-) 3.4% in 1Q20 and confirmed the start of an economic recession that could bring worse figures in 2Q20. Exports were the main factor that contributed to the economy contracting, as they recorded a 22% fall during the quarter and a lower level of domestic consumption due to social distancing measures. With the virus`s escalation in 2Q20, it`s expected to see lower levels of investment, employment, and production in addition to households spending less money on non-essential goods, which will lead the economy to contract 21.5% e. in 2Q20. The government plans to carry out new fiscal stimulus packages for homes and businesses, according to Minister of Finance Ysutoshi Nishimura – in midst of a risk of the virus having a more severe impact in the following months.