How will the future of globalisation play out?

While the downside risks of a global trade war are often overstated, we think the bigger concern is that the world splits into competing regional blocs that do not cooperate on trade or investment. This could cause global supply chains to splinter and technology transfer to seize up, ultimately leading to much weaker global growth. It would also be fertile ground for other unorthodox economic policies.
Andrew Kenningham Chief Europe Economist
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Emerging Markets Financial Risk Monitor

Turkey and frontiers in the firing line

The dramatic slump in the Turkish lira over the past month once again leaves the currency firmly in crisis territory. One crumb of comfort is that Turkish banks are in a better position to cope with large falls in the lira than they were during the 2018 crisis. Elsewhere in the emerging world, sovereign vulnerabilities look particularly acute in a handful of frontier markets, while longer-term banking sector risks loom in the UAE, India and Russia.

7 December 2021

Emerging Markets Economics Update

Disruptions no longer worsening, but Omicron a threat

November’s PMIs offered tentative signs that the worst of the supply disruption may have passed, but the bigger picture is that manufacturers in the emerging world remain stretched. And while it’s still too early to tell, the Omicron variant could exacerbate existing strains. The upshot is that supply constraints are likely to continue to weigh on industry for some time yet.

1 December 2021

Emerging Markets Trade Monitor

The impact of Omicron on EM trade

If the new Omicron variant leads to tighter containment measures across the world, that would probably prop up demand for pandemic-related goods to the benefit of Asian exporters. Meanwhile, oil producers are likely to see external positions deteriorate if the plunge in prices is sustained. But arguably the most clear point for now is that the new variant will lead to renewed slumps in tourism, adding to balance of payments risks in the likes of Tunisia and Sri Lanka.

30 November 2021

More from Andrew Kenningham

European Data Response

Euro-zone Flash HICP (May) & Unemployment (Apr.)

The jump in euro-zone inflation to 2.0% in May will not be the end of the upward trend, but we expect inflation to drop back sharply next year as temporary factors are reversed.

1 June 2021

European Economics Weekly

Drop back in bond yields takes pressure off ECB

The fall in sovereign bond yields over the past week may make things a little easier for the ECB Governing Council when it meets on 10th June. We think it is likely to replace its commitment to make “significantly” higher bond purchases than in Q1 with a less specific commitment to keep financing conditions favourable. Next week we expect to learn that inflation got very close to 2% in May (data on Tuesday) while the final PMIs for May will show a big improvement in Spain and Italy (Thursday). Retail sales data for April (Friday) will probably fall in m/m terms as a lot of shops were closed in France. Finally, note that the Capital Economics London “office” will be closed on Monday.

28 May 2021

European Economics Focus

ECB climate rhetoric to run ahead of action

The ECB will make a big splash about climate change when it concludes its monetary strategy review this autumn. In practice, it is likely to make progress in addressing climate-related risks in the banking sector. The Bank may also announce some steps towards “green QE”, but that is easier said than done and comes with many risks, so we think progress will be slow. That said, the ECB’s willingness to consider a form of directed credit could be a sign of things to come.

18 May 2021
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