The Day at a Glance | July 23 2020

The Top

· Inflation in Mexico increases more than estimated: 0.36% in the first half of July (3.59% annually).

· Republicans will present a fiscal proposal.

· The Mexican government presents a bill to reform the Pension System.

· South Korea enters a recession after contracting 3.3% in the 2Q20.

· China will give Latin American countries millions of dollars in loans to have access to a COVID-19 vaccine.

· Economic indicators: Initial jobless claims in the US increased for the first time since March (1.42M vs 1.43M e.) and a slight improvement is expected in consumer confidence in Europe (-12e. vs 14.7 prev.).

Economic environment

Inflation in Mexico continued to rise in the first half of July and recorded a biweekly increase of 0.36%. At an annual rate inflation set at 3.59%, mainly boosted by commodity (0.36% biweekly) and energy prices (2.09%). With this, inflation is still at its highest levels since February. Underlying inflation also increased – to 3.84% annually – after a biweekly 0.25% rise. The rebound in inflation was greater than estimated by analysts, and if the figure is confirmed for the entirety of July, expectations of inflation for the end of the year (3.07% e.) could start to be revised slightly upwards.

The Republican party in the US could present the Senate with a proposed fiscal plan to extend the extraordinary aid offered to unemployed citizens in light of the pandemic. The proposal will work as a starting point to start negotiations with the Democrats. According to some sources, the proposal will include $105 billion dollars in aid for schools and $25 billion to increase the number of COVID-19 tests carried out among the population. Regarding weekly transfers to unemployed citizens, there are talks of a possible reduction from the current $600 dollars to a weekly figure between $400 and $100, with the objective of incentivizing people to return to work. A payroll tax cut does not seem to be included, which was a special request made by the President. A bill on the subject matter is expected to be approved as early as next week.

The Mexican government presented a bill to reform the Pension System, which seeks to avoid a crisis in the system. The bill proposes a greater contribution on behalf of employers, who currently contribute 5.15% of salaries for pensions, a figure that could gradually increase to 13.87% in the next 8 years. Employers will be the ones to absorb the increase, which is expected to go up from 6.5% to 15%, as the requirement necessary to reach a guaranteed pension will be reduced from 1,250 weeks to 750; it`s expected that the average employed person will increase their pension 40%. The bill is also directed at including workers of lower incomes, with changes to the minimum guaranteed pension that seeks to cover up to 95% of all workers. The proposal was well received, as it seeks to solve one of the Mexican society`s most important problems and merges opposing views. The bill will be discussed in September and its approval is likely to occur.