The rebound in the EM manufacturing PMI in March offers little comfort as the survey masks the true weakness of industry. What’s more, the services sector may fare worse during this downturn. The rebound in the EM manufacturing PMI to 49.1 last month, …
1st April 2020
While the coronavirus epidemic will probably weigh on the US economy much beyond the end of this year, we suspect that the S&P 500 will start recovering in the second half of 2020. According to the NBER’s Business Cycle Dating Committee, there have been …
The past relationship suggests that the recent 10% to 50% fall in real estate equity prices provide an indication of the direction values will move in the direct market, but not the likely extent of the falls. Over the past month, real estate equity …
March’s small rise in the global manufacturing PMI was driven entirely by a rebound in China and masked sharp declines elsewhere. The survey already points to falls in global production, but it is probably understating the extent of current weakness and …
Elevated corporate bond yields suggest that property investors should be concerned about future cashflows. However, unprecedented policy support should help most companies stay afloat. And evidence from the start of the 2007-09 recession suggests that the …
EM central banks have acted swiftly in response to the coronavirus crisis, including adding bond purchases to their toolkit. These are aimed primarily at reducing credit spreads and stabilising the financial system rather than a QE-style loosening of …
Given how far they have fallen, we think EM equities in Latin America and EMEA will outperform their Asian peers once the coronavirus comes under control, even if the economic fallout in the former two regions is more severe. This would be similar to what …
In recent days several governments from across the region have announced shutdowns or tightened measures already in place. The economic impact of these measures will be huge, with service sectors set to bear the brunt. We think shutdowns will lower GDP in …
The combination of virus-related disruption and a crunch in cash flows for energy firms means that the Norwegian economy is more exposed than most at present. And with oil prices likely to increase gradually at best later this year, the post-COVID …
Although China’s official and unofficial PMIs improved in March, the underlying picture is that the economy remains weak and is unlikely to offer much support to commodity prices . The Caixin manufacturing PMI jumped from 40.3 in February to 50.1 in March …
Chile’s central bank suggested that, having cut its policy rate to 0.5% yesterday, rates will remain at this low level for an extended period of time. But given the scale of the economic hit from the coronavirus, we think that the policy rate will, …
While the worst may be yet to come for emerging market currencies, we expect that most will end this year stronger than they are now. Emerging market currencies have had a difficult year so far : our equal-weighted index of twenty large EM currencies has …
Brent crude is closing in on $20pb and, if there are no signs of a recovery in the coming months, the chances that Saudi Arabia pushes for fresh oil output cuts will grow. Meanwhile, we are approaching the point at which financial support for Oman needs …
31st March 2020
Policymakers in Peru and Chile have been quick to introduce economic policy and containment measures in response to the coronavirus, but peers elsewhere – particularly in Brazil and Mexico – have made less progress. This increases the risk that regional …
Deferring firms’ liabilities and offering bridging loans will reduce widespread debt defaults but, as many firms are already heavily indebted, such measures will not prevent bankruptcies and job losses altogether. The Canadian Federation of Independent …
We doubt that the coming explosion in government borrowing or the accompanying rise in government debt will push up gilt yields. Low growth, low inflation, and low interest rates mean that they gilt yields will remain close to their all-time lows …
Inflation will fall sharply across the region over the coming months as the effect of currency falls and supply-side disruptions are outweighed by the impact of falling oil prices and a slump in demand. A few countries are likely to experience deflation, …
The world is heading for the sharpest and deepest global slowdown since WW2. Assuming that the virus is brought under control within a few months, the subsequent rise in world GDP should also be sharp. However, it could still take years for demand to …
In the face of rapid capital outflows, EMs may turn to capital controls to stabilise balance of payments positions. Such measures might help to stave off crises in some countries (particularly if they come alongside external support), but strains in the …
Most of the high frequency indicators we track show how the coronavirus lockdown is significantly reducing activity. The exception is the activity of watching TV, which is surging. This too, of course, is a symptom of the plunge in normal economic …
The number of new confirmed Covid-19 cases in Italy has been on a downward trend, raising hopes that the lockdown is beginning to work. In this Update , we put the numbers in context. The latest data from Italy’s Health Ministry show that there have been …
The cost of the coronavirus will push Brazil’s public debt ratio up sharply this year, to about 90% of GDP, and policymakers will have their work cut out to stabilise the debt trajectory in the following years. One increasingly likely policy response is …
30th March 2020
While the SNB clearly favours using FX interventions to weaken the franc at present, persistent concerns about the size of its balance sheet would make it reticent to step in on an ever-greater scale. With no easy choices, we think that, if push came to …
The collapse in economic activity, spike in unemployment and slump in oil prices look set to push inflation down from 1.7% now to around 0.5%, with the risk that inflation falls to, or below zero. Either way, if activity and oil prices recover in …
The business surveys for March point to declines in activity at least as deep as during the global financial crisis. None of them will be perfect guides to GDP though. If anything, the economy seems likely to contract even more sharply than the surveys …
The latest leg-down in oil prices is not so surprising given that demand is collapsing at a time of rising supply. We think oil prices will only pick up if, as we expect, economic activity revives later this year . Oil prices slumped again in early …
Given the scale of ongoing global market turbulence, Moody’s decision to strip South Africa of its last investment grade rating will have less immediate effect than some had feared. That said, the country’s already grim debt outlook has deteriorated …
The impact of global measures to contain the coronavirus will result in a steep fall in EM GDP this year. And the collapse in output, spike in capital outflows and plunge in commodity prices could trigger balance sheet problems that make the downturn much …
The government assumes that around a quarter of all employees will benefit from the huge wage subsidy unveiled today. Indeed, we now expect the unemployment rate to peak at 12% instead of our previous estimate of 15%. But that still implies an …
The People’s Bank (PBOC) has taken another step to loosen monetary conditions by lowering the rate at which it lends to banks. But the central bank’s job isn’t done yet and we anticipate continued efforts to reduce bank funding costs in the coming months. …
Concerns over Japan’s rising debt burden may prevent the government from pulling all the stops if the coronavirus outbreak escalates much further. As such, the chance that the Bank of Japan will provide a helping hand by directly financing public …
The Monetary Authority of Singapore (MAS) loosened policy today by reducing the slope of its policy band, and even though the outlook for growth and inflation is very downbeat, we don’t expect further loosening in the months ahead, given the limitations …
In light of government advice to delay housing sales, we now expect a 70% q/q fall in house purchase mortgage approvals and transactions in Q2. Meanwhile, our base case is that low interest rates, government support and lender forbearance will prevent a …
27th March 2020
In our view, global equities are not as “cheap” as the recent falls in price/earnings ratios seem to suggest. That is because earnings expectations are likely to be revised down much further as the crisis unfolds. Although the selling pressure in stock …
Unlike in previous downturns, services are likely to underperform industrial sectors this time around. Consumer-facing services, such as leisure and hospitality, are suffering most already. As the shock ripples through supply chains, business services …
The collapse in home sales, and hit to households’ income and savings, means house prices will fall back. But lender forbearance and the fiscal package will prevent a surge in forced sellers, and with lending standards much tighter a repeat of the …
This coronavirus recession isn’t anything like a “normal” one. The fall in output will be sudden and vast. The huge policy response means the recovery should be much quicker than normal too. But the scale of the economic dislocation and the risk that the …
The precipitous fall in oil prices and virus-related plunge in demand is likely to push euro-zone inflation to a record low of -1% in the summer. While the risk of deflation becoming entrenched seems low, we forecast core inflation to average just 0.5% …
The coronavirus is disrupting global economic activity by much more than we had previously thought. As a result, we now expect global oil demand to fall by 6.5% in 2020 to just under 94m bpd . Measures to contain the coronavirus have reduced global oil …
The RBI has emphatically stepped up its response to the economic and financial market fallout from the coronavirus outbreak with another emergency announcement today. It has also left the door wide open for further monetary loosening. A similarly-bold …
We estimate that a lockdown that would limit activity to “essential services” could knock off as much as 30-40% from Australia’s GDP for as long as it lasts. A lockdown is imminent and our best guess is that it will last for around two months. The upshot …
This Update was originally sent to clients as a Rapid Response immediately after Rishi Sunak’s press conference on 26 th March. The government’s measures to support the self-employed during the coronavirus crisis will help prop up incomes and employment. …
26th March 2020
Property has generally been at the centre of the most severe economic downturns in recent decades. But this time it is different. Although we think the commercial market is likely to experience a sharp jolt in 2020, provided the spread of the virus can be …
We think there will be some permanent loss of commodity consumption in 2020 owing to virus-related disruption to activity, but we do see prices picking up later this year as economic growth starts to revive . Few would dispute that measures to contain the …
Measuring the economic fallout from the coronavirus is fraught with uncertainty, but the French statistics office estimates that economic activity is currently running a whopping 35% below normal. If so, the downturn in France, and presumably elsewhere, …
The Czech central bank followed up last week’s emergency interest rate cut with further easing today and opened the door to use other measures to support the economy and stabilise the financial system. With the economic damage from the coronavirus …
The Bank of Canada announced further credit easing measures this week and the government’s will expand its fiscal package to $109 bn, from $82 bn, but there are still widespread signs of stress in funding markets and there have been few direct measures to …
Today’s massive fiscal stimulus package won’t prevent Singapore from falling into a deep recession in the first half of the year, but it should ensure that the economy is well-placed to bounce back strongly when the global economy starts to return to …
