The economic slump in the euro-zone increasingly threatens to trigger a wider financial sector crisis. In order to head off the risks to the banking sector, the ECB will need to provide unequivocal support for sovereign bonds, allowing governments to …
18th March 2020
Financial conditions have generally tightened more in Latin America (particularly Mexico) than in the rest of the emerging world in recent weeks. This presents another reason to think that activity will weaken dramatically in the coming months, alongside …
Extremely dense populations in urban areas, poor healthcare provision, and limited ability to impose quarantine measures mean that countries in South and South-East Asia, as well as Egypt and Nigeria, look highly exposed to a large-scale coronavirus …
The rapid escalation of measures to contain the coronavirus outbreak suggests that the economic damage will be even larger than we anticipated only a few days ago, and we are now pencilling in a 10% annualised decline in GDP in the second quarter. For now …
Activity data from January suggest that the economy was already contracting before the coronavirus reached South Africa. The outbreak will add to economic headwinds. Policymakers are likely to spring into action by cutting their key rate on Thursday, but …
As commodity prices continue to flash red, this Update summarises how we think things will play out from here. In the near term, we suspect that further price falls are in store, regardless of policy support. Instead, it will be signs that the virus is …
With central banks already having used up most of their ammunition, we are now reliant on governments to prevent the global recession from turning into something even worse. We are optimistic that the lesson learnt from the global financial crisis was to …
The restrictive measures implemented by the authorities across Central and Eastern Europe to stem the spread of the coronavirus, as well as the spillover effects from the downturn elsewhere, will result in a sharp fall in regional GDP in Q2, of perhaps as …
The draconian coronavirus containment measures adopted by Australia’s government mean that we now expect GDP to fall by 2% this year. The Australian government is likely to respond with a larger fiscal stimulus package than the one announced last week …
The latest data point to a 20% q/q contraction in GDP this quarter (-16% y/y), even on the official figures. Given the shock to incomes and employment, the continued concern about the threat of further infections within China, and the growing disruption …
This Update was originally sent to clients as a Rapid Response immediately after Rishi Sunak’s speech on 17th March. While the large package of measures aimed to counter the economic effects of the coronavirus unveiled by the government today probably …
17th March 2020
With the euro-zone economy set to contract by 10-15% q/q in Q2 as numerous businesses come to a standstill, governments will have no choice but to provide support to businesses and households on an unprecedented scale. However, this would be far more …
In response to the rapidly worsening outlook for the economy, Pakistan’s central bank (SBP) today slashed its key policy rate by 75bp to 12.5%. With growth likely to slow sharply this year and inflation set to fall back further, more rate cuts are likely. …
We are now assuming a huge hit to GDP for the next eight weeks or so that results in growth of -10% annualised in the second quarter. But with policymakers acting quickly and working more closely together than in most places, there is a good chance they …
The Bank of England can’t prevent the economy from falling into recession. But like the Fed, we think it will soon throw everything in its policy arsenal at the coronavirus crisis to try to prevent the markets from seizing up and to reduce the risk of a …
The Fed promise to buy at least $200bn of MBS will support liquidity in the market and put some downward pressure on mortgage interest rates. But mortgage rates are also being pushed higher by lender caution and capacity constraints, with enforced home …
We now think that the economic effects of the coronavirus will result in GDP falling by around 15% q/q in Q2, that the Bank of England will soon launch £150bn of quantitative easing, and that the government will need to act as a backstop for banks and …
While the New Zealand government’s large stimulus package will soften the blow from the coronavirus outbreak, it will not prevent a recession. As such, we still expect the RBNZ to launch quantitative easing in the coming weeks. The government today …
Travel and tourism is clearly one of the hardest hit sectors in the coronavirus crisis. In a realistic scenario where travel and tourism dropped by 50% for four or five months, annual global GDP growth would be reduced by about 0.7 percentage points. …
Australian firms were in good shape on the eve of the coronavirus outbreak, but the impending collapse in foreign tourism and weaker retail spending will lift loan write-offs in those sectors. The banks aren’t as well prepared to weather those loan losses …
The broad-based tightening in EM financial conditions in recent days has been similar in scale to the onset of the global financial crisis. Conditions are now particularly restrictive outside of the BRIC economies, and is another reason to expect that …
16th March 2020
In recent years, industrial rental growth for Rest of South East has exceeded growth in Rest of UK. We think that this has been driven by land constraints and changing occupier demand patterns, which are unlikely to change in the near future and will keep …
The collapse in oil prices over the past week has put pressure on the Gulf’s dollar pegs, but we think that a wave of devaluations is extremely unlikely. Large foreign exchange savings provide substantial buffers and the likes of Bahrain and Oman, which …
Efforts to contain the coronavirus will weigh heavily on non-oil sectors across the MENA region over the coming weeks and months. Dubai is the most vulnerable and this could ultimately ignite fears over the Emirates’ large debt burden. The most obvious …
Last week’s ECB decision gave it more ammunition to combat the fallout from the coronavirus, but it will not be enough. We now think the Bank will soon make an explicit commitment to keep sovereign bond yields low for all governments at least for the …
The RBI announced some measures to boost bank liquidity in a hastily-arranged press conference today but disappointed the bond market by not lowering policy rates. With the coronavirus a growing threat to domestic activity, we think rates will be trimmed …
There is much more that central banks could do to ease any strains that appear in financial markets. But with interest rates now more or less back to their effective lower bound in the US, euro-zone, Japan and the UK, monetary policy appears to be …
The Fed’s decision to slash interest rates to near-zero won’t stop the economy falling into a recession, but the package of liquidity-boosting measures will help prevent credit markets seizing up, reducing the risks a deeper downturn. We expect the Fed to …
The Bank of Korea today finally responded to the coronavirus outbreak by cutting the policy rate by 50bp and introducing a number of other measures to ease financing constraints. Further measures, including the adoption of quantitative easing, are now …
The measures announced by the Bank of Japan today lack teeth and we still expect policymakers to cut the short-term policy rate over the coming weeks. The Bank of Japan brought forward the meeting scheduled to end on Thursday to today but decided not to …
India’s merchandise trade deficit narrowed to a one-year low in February and the collapse in oil prices since then should push the deficit even lower in the months ahead. As such, we now expect the current account to swing into surplus – a crucial …
New comprehensive restrictions on travel mean that both Australia and New Zealand are headed for recession. We expect the Reserve Bank of New Zealand to follow up today’s emergency 75bp rate cut with quantitative easing before long. And the Reserve Bank …
Judging by the bear markets of the past fifty years or so (see here ), the valuation of the US stock market can make a big difference to how far it falls and how long it takes before it reaches a floor. With that in mind, this note fleshes out what role …
13th March 2020
In the last few weeks, we have revised down our forecast for global economic growth this year owing to the hit to activity from the coronavirus. At the same time, we now expect looser global monetary conditions. As a result, we have revised up our …
The suspension of business rates for many retail, leisure and hospitality firms announced in the Budget is welcome, but unlikely to provide much relief to the retail sector. Indeed, the coronavirus will drag on the economy this year and the benefits of …
While the widespread re-introduction of border controls in Europe does not seem likely at present, it is possible that more governments turn to them as part of a wider policy response against the coronavirus. Any negative impact on cross-border workers …
The People’s Bank has taken another step to push down borrowing costs. China’s economy is still operating far below its normal capacity but, with only eight new infections reported nationally in the latest daily figures, the central government is now …
Downward revisions to our demand forecasts mean that we now expect all base metal markets to be oversupplied in H1 2020. Lower output should, at best, prevent these surpluses from growing too large. Therefore, inventories built up over the next few months …
The Fed has already slashed interest rates and flooded the markets with liquidity, but it will have to go further in the coming weeks, with a return to near-zero interest rates and a resumption of large-scale quantitative easing now likely . Following the …
School closures are one of the main ways in which government attempts to manage the spread of the coronavirus will dent economic activity. While parents can work around the closures to some extent, there is nonetheless likely to be a fairly sizeable hit …
The plunge in oil prices over the past week means there’s a good chance that India records a rare current account surplus over the coming quarters. This should help to ensure that the rout in local financial markets – trading on the Sensex had to be …
The direct economic impact of President Donald Trump’s European travel ban will be limited, but we now anticipate more aggressive measures to contain the pandemic over the next few days – with nationwide school closures, bans on large public gatherings …
12th March 2020
The measures unveiled by the ECB today were as substantial as expected. But, along with Ms Lagarde’s comments, they underlined that the ECB has little firepower left, that there has been no coordinated fiscal response, and that the Bank is reluctant to …
The new restrictions on economic activity in Manila will further weigh on the country’s outlook and mean the central bank (BSP) will almost certainly cut interest rates again at its meeting on Thursday, if not before. President Rodrigo Duterte on Thursday …
Any disruption the coronavirus has on housing market activity won’t be evident in the home sales data until late April at the earliest. But other metrics can give an earlier indication of the magnitude of the shock. Given they can be carried out from the …
While some of the large shifts in the FX market over the past weeks may unwind if the coronavirus epidemic fades, we have revised some of our forecasts to reflect the sharp fall in US interest rates and the price of oil. Before the global spread of the …
The collapse in oil prices will reduce current high rates of inflation in Central Europe and provide some respite for those oil importers with more fragile external positions (Turkey, Romania and Ukraine). However, it will do little to cushion the blow to …
Early signs suggest that economic conditions improved at the start of Q1, but disruptions caused by the coronavirus make it likely that output will have fallen later in the quarter and going into Q2. We expect that the SARB will cut its key policy rate …
While it is a given that GDP growth will slow sharply over the next few months as the economic consequences of the coronavirus are felt, some sectors will weather the storm better than others. We expect the recreation, transport and motor vehicles sectors …
