Financial conditions in advanced economies are now almost as tight as they were in 2009. So far, this has been the result of an economic shock rather than strains within the financial system itself and hence financial conditions are posing less of an …
23rd March 2020
Germany’s supplementary budget for nearly 5% of GDP sets an example that other euro-zone countries are likely to follow. However, we suspect that the costs will end up being much higher even than this. Media reports indicate that the German government …
The slump in the prices of commodities has hit hard the currencies of the countries whose fortunes depend heavily on them. (See Chart 1.) But if we are right and commodity prices eventually recover as the coronavirus pandemic is brought under control, …
The cost of the coronavirus crisis could push Italy’s public debt ratio up to 160% of GDP or more in 2020. This shouldn’t spark a crisis this year because the ECB will stand behind the bond market, but unless the euro-zone agrees more collective support …
The turmoil in Latin American currency markets will push up inflation, particularly in Brazil, Mexico and Colombia, and it already appears to have resulted in strains in corporate bond markets. One consequence is that the region’s central banks may not be …
Foreign portfolio flows out of India’s markets have surged over the past month to more than double the peak during the “Taper Tantrum” in 2013, which pushed India to the brink of a balance of payments crisis. Higher foreign exchange reserves and a smaller …
New Zealand is set to enter a near-total lockdown this week which will cause economic activity to all but stop. The RBNZ launched quantitative easing today, but we think that more monetary stimulus will be needed. We expect the Bank to cut the OCR into …
Australia is moving closer to shutting down a large share of its services sector and we now expect GDP to fall by 4% this year. The government is responding with a second, larger fiscal stimulus package that should prevent the recession from turning into …
This Update was originally sent to clients as a Rapid Response immediately after Rishi Sunak’s press conference on 20 th March. The Chancellor’s announcement this afternoon means that the government’s coronavirus-fighting economic package is now worth …
20th March 2020
Over the last month, industrial metals prices had been holding up on hopes that China’s economy was edging closer to a post-virus recovery. But that all changed this week. With what were once downside risks now morphing into our central scenario, we have …
Earlier this week, the virus-related economic disruption and the prospect of a surge in OPEC+ supply pushed the Brent-WTI price spread near to zero. Although it has since rebounded, we think the spread will disappear by the end of this year. And by 2021, …
While the ECB’s extra €750bn in bond purchases has reduced financial market stress, governments also need to deliver a large fiscal response without triggering a fresh sovereign debt crisis. In our view, a good way to do so would be to adapt the ESM to …
Our view remains that, despite policymakers’ best efforts, a sustained turnaround in equity markets will only come once the virus starts to fade. That hasn’t happened yet. So, we suspect that they will fall a bit further in the coming months, despite …
Our latest UK economic downgrades mean that it is now inevitable that there will be a big hit to commercial property values, which we expect to fall by around 10% this year. And while conditions are different to the GFC and the shock should be short and …
With the growth outlook deteriorating rapidly, the Bank of Thailand today became the sixth central bank in the region to cut interest rates this week. The 25bp emergency rate cut takes the policy rate to a new all-time low of just 0.75%. The decision to …
Banks will be slow to pass on the latest rate cuts, as the economic turmoil in Q2 puts them on the defensive. But as conditions start to normalise, mortgage interest rates will fall further, reaching 1.5% by the end of 2020. In response to the economic …
The Republican senators’ fiscal proposals would provide an immediate stimulus worth more than 2% of GDP and help to offset some of the damage to the economy from the coronavirus outbreak. That said, with layoffs already surging and a clear risk that the …
The Russian central bank’s decision to keep the policy rate unchanged at 6.00% today made it one of the few major central banks that has yet to cut rates to support the economy in response to the coronavirus. The central bank announced a series of …
The surprising weakness of Treasuries alongside the collapse in US equity prices recently seems to have been driven by fire selling, not worries about inflation or debt. However, even if further falls in the stock market mean there are more forced sales, …
The high frequency indicators we track show that the spread of the coronavirus is already having an impact on the economy. There is no doubt these activity indicators will deteriorate further as the government’s measures to contain the virus become …
We suspect that the fiscal stimulus package that will be unveiled over the weekend will focus on limiting the damage from the coronavirus outbreak rather than on providing a large boost to demand. Measures will include wage subsidies for employers and …
Commercial banks unexpectedly did not lower the Loan Prime Rate (LPR) today. Despite this, monetary conditions are still easing as the People’s Bank (PBOC) has been using a broad set of instruments to ensure that credit keeps flowing despite disruptions …
The big package of measures announced by the Bank of England today in its second emergency meeting in just over a week is designed to ease the stress in the financial markets and to support the recovery once the full economic hit from the coronavirus has …
19th March 2020
Prime Minister Modi’s address this evening seemed intended mainly to raise awareness of the threat posed by the coronavirus in India. With case numbers still low, the government has taken few measures to contain the domestic spread. But the difficulty of …
It now seems clear that the coronavirus outbreak will cause greater economic damage than we had initially thought – both globally and within Africa. Growth will slow across the region, with South Africa and tourist-dependent economies like Mauritius …
The proliferation of measures to curb the spread of the coronavirus as well as shifts in consumer behaviour will have a severe effect on retail, accommodation, recreation and transport sectors across the emerging world. Mexico and parts of East Asia are …
The Fed’s revival of financial crisis-era programs and a huge ramp-up in the pace of its open-ended Treasury purchases in recent days could help to stem some of the bleeding in financial markets. But with broader financial conditions still tightening, …
Governments in the developed world are unveiling major fiscal and monetary policy responses to try to stave off a financial crisis, and some EMs (notably parts of Emerging Europe and Emerging Asia) have the scope to ramp up their efforts too. That said, …
Efforts to contain the coronavirus outbreak look set to hit tourism sectors across the MENA region hard. The North African economies, as well as Dubai, Lebanon and Jordan, are most vulnerable and the direct hit will knock at least 2-3% off GDP this year. …
South African policymakers appear to have decided that the current grave economic situation requires a bold response, and have moved away from their traditional hawkishness. We expect that they will follow today’s 100bp cut with another 75bp of loosening …
The immediate effects of the coronavirus on the global economy are becoming increasingly clear and point to a sharp fall in output across the world. Recession looms. The effects over the longer term are less obvious. The most likely outcome is that …
Increasingly restrictive measures on people’s movement, and an imminent surge in unemployment, means we expect total home sales will drop by around 35% in the second quarter compared to the end of 2019. But the dip should prove short-lived. Assuming a …
Bank Indonesia cut interest rates today, but the slump in the rupiah in recent days means policymakers in the country will need to act more cautiously than other central banks in the region over the coming weeks and months. Today’s 25bp rate cut takes the …
OPEC+’s decision to abandon output constraint has been a factor behind the ongoing slump in oil prices. In our view, higher OPEC+ supply will weigh heavily on US shale output, prices and the risk premium in the oil price . With the oil market’s attention …
In response to the rapidly worsening outlook for the economy, Taiwan’s central bank (CBC) today cut its key policy rate today by 25bps to 1.125% and announced other measures to support the economy. However, with growth slowing sharply, further rate cuts …
While the Swiss National Bank left its key policy rate on hold at -0.75% this morning, it made all the right noises by making its exemptions to the banking sector from negative interest rates even more generous, and pledging to provide liquidity to the …
South East Asia and China are likely to be the worst affected countries by the current crisis, with some places likely to see GDP contract by up to 5% this year. Only a few economies in the region will record positive GDP growth in 2020. The outlook for …
The Brazilian central bank’s (BCB’s) statement accompanying last night’s decision to cut the Selic rate by 50bp was surprisingly cautious and suggested that further easing isn’t on the cards. With the effects of the coronavirus on Brazil’s economy likely …
The ECB announced late yesterday evening a new €750bn programme of bond purchases which is intended to contain borrowing costs for southern economies. This gives it a lot more firepower which should help to contain financial stress in the near term, but …
The Turkish lira has held up relatively well amid the coronavirus-related sell-off in EM currencies, but the country’s large external debts leave it vulnerable if external financing conditions continue to tighten. A sharper sell-off in the currency would …
The central bank in the Philippines is likely to ease further in the months ahead after opting to cut its main policy rate by 50bps today. The BSP has not yet introduced loan programmes or targeted support for financial institutions and businesses …
The RBA today announced a comprehensive set of measures to combat the disruptions to economic activity and financial markets caused by the coronavirus outbreak. If credit markets remain impaired for longer, the Bank may eventually have to purchase private …
The combination of the government responses to the coronavirus and the slump in economic activity will cause euro-zone budget balances to deteriorate by at least 10-15% of GDP this year. While this may be manageable for most countries so long as …
18th March 2020
The coronavirus outbreak has prompted interest rate cuts and fiscal support packages in several countries across Emerging Europe and we think that more easing lies in store. That said, Turkey’s easing cycle could grind to a halt and the sharp fall in the …
Our base case points to investment activity falling by 45% this year, with Q2 and Q3 seeing particularly weak deal volumes, before a decent recovery in Q4. From a historical perspective, this would be a sharper fall than either of those caused by the 2001 …
What were downside risks to the global economy just a few days ago are fast morphing into our central scenario. We now expect global GDP to fall by about 1% this year, which would be twice the decline seen in 2009. And while the rebound will hopefully be …
The crisis package outlined today by Prime Minister Justin Trudeau and Finance Minister Bill Morneau will help to cushion the blow from the disruption caused by the coronavirus outbreak. But given the scale of the disruption, the government still needs to …
We now expect the coronavirus to severely limit housing market activity this year, with transactions and house purchase mortgage approvals falling by 40% in Q2. That said, as long as any pick-up in unemployment is reasonably short lived, a house price …
