This Update answers five questions we are asked most frequently on sovereign debt risks in Sub-Saharan Africa. While there are lots of factors at play, it seems likely that governments in much of the region (South Africa being a key exception) will …
26th May 2020
A surge in pharmaceutical production has provided a significant boost to Singapore’s economy over the past couple of months, but this is likely to prove temporary and will not prevent a massive contraction in the economy this year. April data show that …
Unlike the period after the global financial crisis, we doubt that we will see a widespread trend of austerity to reduce public sector debt ratios. Nonetheless, austerity will still be undertaken in a few isolated cases, primarily in emerging markets. And …
Although US equities still have a lot of lost ground to make up on long-dated Treasuries since the outbreak of coronavirus, we think that they will do so over time as the Fed engages in renewed financial repression. The underperformance of US equities …
22nd May 2020
The extended mortgage holiday scheme will cushion the blow for financially distressed households. Alongside the other financial support already available, it further reduces the chance of an immediate house price crash. But large downside risks to house …
At the time of writing, we still lack the detail on China’s policy plans. That said, the headline expansion in the budget deficit and plans to boost credit growth are unequivocally positive for commodities demand – particularly industrial metals, but …
The fiscal stimulus announced today at the National People’s Congress in China failed to make much of a splash in metals markets. Nevertheless, we think it will underpin stronger iron ore demand this year . Although infrastructure spending will be a key …
The move by China’s National People’s Congress (NPC) to impose a new security law on Hong Kong effectively overrides the “one country, two systems” framework that has allowed Hong Kong to prosper since 1997. The move will probably trigger protests and …
Q1 GDP data from Peru suggest that its lockdown is having a bigger impact on activity than measures elsewhere in Latin America. And with new infections in Peru surging in recent weeks, we are revising down our estimate for the fall in GDP this year from …
On the face of it, it might look like major economies have not yet reached the stage of debt monetisation. Where central banks are buying government bonds, it is on the secondary market, is supposed to be only temporary and the primary aim is not to fund …
The RBI has further stepped up its response to the collapse in economic activity from the coronavirus and containment measures in another emergency announcement today. The central bank has also left the door open for further loosening and, with the …
This Update summarises the key announcements from the National People's Congress. For in depth analysis, see this Focus . We had anticipated that the National People’s Congress (NPC) would lay out plans for a further ramp up in policy support and it did …
The Bank of Japan launched a new lending facility today to support bank lending to small businesses and we suspect its measures will now be sufficient to secure the financing needs of firms throughout the coronavirus crisis. As widely anticipated, the …
The government’s furlough scheme has prevented the UK economy from being engulfed by a tsunami-like first wave of unemployment. But a second wave will probably come once the reduction in the generosity of the scheme in August forces businesses to decide …
21st May 2020
Consensus downgrades suggest a more downbeat mood Forecasts for all indicators in 2020 have shown a marked deterioration since the interim year-end 2019 forecast published in January. While the consensus sector ranking is in line with our March forecasts, …
May’s Flash PMIs revealed a partial rebound, suggesting that the global economy is past the nadir. But, the recovery in advanced economies appeared slower than that in China, and the services sector remains particularly weak. With lockdown measures …
South African policymakers continued to cut interest rates today, taking the repo rate down by 50bp to 3.75%, but the end of the easing cycle appears to be on the horizon. At this stage, we expect one more cut, of 25bp, to 3.50%. With the eventual …
The relative resilience of consumer confidence in spite of the huge rise in unemployment is testament to the government’s fiscal rescue efforts and suggests the recovery will accelerate as fear of the virus eases . Headline measures of consumer confidence …
Indonesia is making much slower progress than others in the region in containing the spread of the coronavirus. This will hold back the economic recovery. We are cutting our GDP growth forecast for this year from -1% to -5%. Many countries in Asia appear …
Turkey’s central bank stepped up its monetary support for the economy with a 50bp cut in interest rates today and recent announcements of financial support from Qatar and Japan probably tips the balance in favour of further easing at June’s meeting. A …
Barring an eleventh hour deal out of the blue, Argentina’s ninth sovereign default will be confirmed on Friday and, while this event is unlikely to surprise many in the markets, it will up the ante on debt restructuring talks. For our part, we think there …
Rents in the major cities seem to be falling fast. With property investors basing their price expectations on the assumption that rents would instead keep rising strongly, this represents a big risk to house prices. There are few time-series for rents, …
Congress will probably agree to another round of fiscal support over the coming weeks, but we doubt that will make a huge difference to the economy, given that it appears set to be an order of magnitude smaller than the actions already taken . Congress …
Economic activity in Denmark appears to have clawed back about one-third of its virus-related fall since the government started to ease restrictions in mid-April, with activity probably about 7.5% below ‘normal’ levels. At face value, the Danish …
With policy rates close to the zero bound in Korea, Taiwan and Thailand, we think it is only a matter of time before central banks in these economies implement full-blown quantitative easing (QE) programmes. Malaysia may not be far behind either. But …
In April, single-family housing starts saw their largest month-on-month drop since records began in 1970. However, we are relatively optimistic that starts will recover as more builders are able to return to work. Admittedly, homebuilder confidence is …
20th May 2020
Saudi Arabia’s foreign exchange reserves are being depleted rapidly to protect the dollar peg, but we think that they would need to fall by more than $380bn to less than $100bn before the monetary authority could no longer commit to full convertibility …
A deep dive into Russia’s banking system provides comfort that, while there are pockets of vulnerability beneath the surface, the economy is unlikely to experience a financial crisis like it did in 2008/09 and 2014/15. Even so, the post-coronavirus world …
The continued rapid spread of the coronavirus through Brazil means that the economy will pull out of its slump more slowly than in many other emerging markets. And with the crisis challenging the government’s stability, the risks are skewed towards …
Our Tracker suggests that net capital outflows from EMs eased markedly last month. And daily data suggest that outflows have remained relatively modest so far in May. One country which is still experiencing major stress, however, is Turkey. With the …
With the economy in a massive slump and prices falling sharply, today’s decision by the Bank of Thailand (BoT) to cut interest rates by a further 25bp to a new all-time low of 0.50% came as no surprise. With the policy rate now not much above zero, the …
Investors are not increasing their demand for housing and even if they did, owner-occupiers account for 70% of overall housing demand. The upshot is that investors won’t prevent house prices from falling 5-10% in the coming months. Some commentators have …
Commercial banks left the Loan Prime Rate (LPR) on hold today. But the dovish tone of the PBOC’s latest monetary policy report and growing pressure on the central bank to do more, including calls for QE, suggest that this is a pause in, rather than an end …
The weaker-than-expected Q1 GDP figure, coupled with signs that Q2 is shaping up to be worse than we had initially thought, has prompted us to revise down our estimate for the fall in Colombian GDP this year. We now expect a contraction of 7.0% …
19th May 2020
The recent weakness in the pound has been driven by renewed concerns about Brexit and the prospect that the Bank of England will have to cut interest rates below zero to support the economy. As a result, there could be some upside for the pound if the UK …
Although uncertainty about the post-virus prospects for the global economy should continue to support the US dollar, we think that the ongoing recovery in risky assets and the fall in US interest rates will start to pull the currency down from its …
We think that Nigerian policymakers will have to allow the naira to weaken further in order to address mounting strains in the balance of payments. But hopes of a unified, flexible exchange rate regime will probably be dashed. Nigeria’s external position …
We think that the ECB could end this year owning 40% or more of the government bond markets in Italy, Spain and Greece. That would help to cap bond yields this year, but it could create serious legal and political challenges for the central bank further …
Bank Indonesia’s (BI) decision to leave interest rates unchanged today at 4.5% is a big surprise given the slump in economic activity and the rebound in the rupiah. We think it will cut interest rates again soon. Having cut interest rates by 25bp in both …
The €500bn EU joint fiscal package suggested by France and Germany would be a significant move towards fiscal union. However, the benefit to the countries hit hardest by the coronavirus crisis, notably Italy, would probably be little more than 2% of GDP, …
In recent weeks, all three major natural gas benchmarks have traded at more-or-less the same price. Rather than a structural shift in the market, we think this probably reflects regional prices simply collapsing in unison amid the virus-related collapse …
18th May 2020
Oman is one of the most vulnerable economies in the Gulf to a period of ultra-low oil prices but we think that financial support from its neighbours will avert the need to abandon the dollar peg. Even so, the government is ramping up fiscal austerity more …
Recent reports suggest that governments of some low-income countries are reluctant to restructure debts owed to private creditors for fear of losing market access and pushing up future borrowing costs. But history suggest that the “defaulters’ premium” on …
Most economies in Emerging Asia will experience falls in GDP of 10-20% in the first half of the year, which is similar to what we expect in most other parts of the world. However, with many in the region appearing to be containing the virus and with …
The final details of the stimulus package reinforce our initial take that, while helpful in limiting downside risks to the economy, it will do little to boost demand in the near term. With the lockdown also being extended again (until the end of May), a …
Despite a large share of Milan prime space being pre-let this year, we think that a sharp drop in net absorption will result in prime office rent declines. And we don’t expect rental growth to bounce back, which is consistent with the slow expected …
The 60% y/y contraction in goods exports and imports in April highlights the extreme weakness of external and domestic demand. This will probably mark the bottom as restrictions on activity are gradually pared back in India and the rest of the world, but …
In response to the rapidly worsening outlook for the economy, Pakistan’s central bank (SBP) today slashed its key policy rate by a further 100bp to 8.0%. With the economy in freefall and the authorities struggling to contain the spread of the virus, more …
15th May 2020
We don’t think that the recent outperformance of automakers’ equities will continue, even if the global economy starts to recover and equity markets recoup more of their coronavirus-induced losses. Taking a step back, the performance of auto shares has …
Easing movement restrictions, combined with government support and strong underlying demand will allow housebuilding to bounce back fairly quickly. But weak occupier demand and falling capital values mean the recovery in commercial property construction …
