The large fiscal stimulus package unveiled today may be able to prevent a recession. But we still expect the RBA to cut rates to 0.25% and launch quantitative easing over the next few months. The fiscal stimulus package presented by the federal government …
12th March 2020
The fall in oil prices has increased default risk in Ecuador. But given the government’s track record of fiscal austerity and the possibility of further multilateral financial support, the likelihood of imminent default seems to be lower than markets are …
11th March 2020
The recent oil price shock has invoked comparisons with 2014-16, when prices fell to similarly low levels and large EMs – notably Brazil and Russia – entered crises. But this time around, we think that crisis risks are limited to the smaller EMs, and …
Some countries have managed to control the new coronavirus without large-scale quarantines or economic shutdowns. But they have achieved this by preventing the virus from spreading within the community in the first place. The only places that have so far …
The additional cuts in the Fed Funds rate that we expect to see in the next couple of months, as well as the government’s likely fiscal support, will help shore up investor confidence. Despite a mechanical improvement in valuations, investment activity …
The coronavirus poses a significant risk to euro-zone banks. Based on our current forecast for a 1% or so decline in GDP this year, loan losses would be manageable. But a much deeper recession may well force banks to reduce their lending and governments …
Coronavirus-related market trauma has not only caused a correction in equity and oil prices, but also pushed UK bond yields to new lows. This has created the potential for lower property yields, but in the current uncertainty, we still think they are …
The timeliest indicators show that fears about the coronavirus are yet to have much impact on domestic activity. But there are worrying signs for international trade and the energy sector, and with the number of cases set to rise we expect fiscal and …
Risk-off sentiment has already battered the rand, but we think that the Nigerian naira and Angolan kwanza will both fall further later this year when policymakers are forced to accept painful devaluations. The kwanza will probably fall furthest, adding to …
One of the few crumbs of comfort amid the turmoil in financial markets over recent days is that the global banking system does not appear to be in imminent danger. This reduces the risk that a severe global downturn morphs into a full-blown financial …
If the recent tightening of external financing conditions is sustained, it would result in severe balance of payments strains for the usual suspects (Turkey and Argentina), but also some of the smaller EM oil producers such as Angola, Bahrain and Oman. …
Further falls in yields coupled with robust, albeit slowing, rental growth point to Helsinki offices outperforming the rest of the euro-zone and its Nordic peers for total returns. Commercial property investment in Finland started the year on strong …
The rising number of new coronavirus infections in Asia beyond China has largely been confined to Korea and Japan. But poor healthcare provision, the density of population and high levels of internal migration in the early stages of the monsoon season …
The Bank of England’s 50bps emergency interest rate cut, from 0.75% back to the record low of 0.25%, and other measures aimed to support loans to businesses announced this morning is the first salvo in a day of coordinated action designed to cushion the …
We think that the coronavirus outbreak and the related disruptions in China and to tourism more broadly will push the New Zealand economy into recession. That’s why we expect the RBNZ to slash rates by 75bp to help offset the impact of the coronavirus …
It looks increasingly likely that the escalating coronavirus outbreak will be met with a larger fiscal response, which should help to offset some of the economic damage. With the number of US coronavirus cases continuing to rise, financial markets in …
10th March 2020
As central forecasts for GDP growth are less useful during times of high uncertainty, this Update illustrates some alternative scenarios of how the coronavirus could influence the UK economy based on the government and households using different measures …
Although the US high-yield credit spread soared on Monday to its highest level in nearly four years, we don’t think that the US economy is bound to plunge into another deep recession. Not surprisingly, the surge in the option-adjusted spread (OAS) of ICE …
As it stands, we think that the direct impact of the coronavirus on the Swiss insurance industry is likely to be manageable. However, the indirect impact from lower-for-longer bond yields will only add to the structural headwinds that have affected …
The recent fall in the ruble will help to cushion the hit to the Russian government’s revenues resulting from the plunge in oil prices, but it will come at a cost to corporates that have large external debt burdens. The ruble slumped by 8% against the …
The spread of the coronavirus to Europe means that it is household spending and tourism that are likely to be hardest hit in the coming months, rather supply chains and exports, which initially appeared most vulnerable. This means that southern euro-zone …
Malaysia’s new finance minister, Tengku Zafrul, faces the unenviable challenge of dealing with a rapidly deteriorating fiscal position at the same time as the economy is slowing sharply. While the budget deficit is likely to widen significantly this year, …
The fact that the fall in oil prices will cause Saudi Arabia’s government to run a large budget deficit has prompted suggestions that it might have to shift oil policy to prop up prices. But the current account deficit is likely to play a larger role than …
In the current circumstances, any economic forecasts come with a huge pinch of salt. But we now think the euro-zone economy will experience a deep slump in Q2 this year, causing GDP to decline by more than 1% in 2020 overall. Provided that the virus is …
Oil prices have crashed by about 40% since end-January owing to the coronavirus-related demand shock and the collapse of OPEC+ output restraint. Following previous oil price crashes (2008 and 2015-16), prices rebounded quickly, but we do not think that …
While the drop in oil prices will push inflation down in the near term, the bigger disinflationary risk could stem from the effect of the coronavirus on economic activity. Indeed, we said after the global financial crisis that the world was now one …
As a share of the population, Italy already has double the number of coronavirus cases as China, and the entire country is now in quarantine. (See Chart 1.) We think that this is likely to cause its economy to contract sharply in Q1 and Q2, and now …
Even before OPEC+ abruptly abandoned output cuts, oil had fared far worse than most other commodities. Some of this can be explained by oil’s greater use in the forms of economic activity most affected by virus containment measures, such as transport. And …
The fall in gilt yields into negative territory on Monday implies that investors think that the Bank of England will cut interest rates to emergency levels and keep them there for the foreseeable future. We expect a 25bps cut to 0.50% soon. But as the hit …
We suspect that Japan’s government won’t intervene in the foreign exchange market until the yen hits 90 against the dollar. The key point is that foreign exchange intervention probably won’t prevent the yen from strengthening if risk aversion intensifies …
As the world’s largest oil importer, China stands to gain from the recent fall in oil prices. But the boost to growth will be modest and won’t make up for the hit to Chinese exports from weaker global demand. Oil prices have fallen 20% this week, bringing …
This checklist helps clients keep track of the key economic and public finances forecasts announced during the Chancellor’s Budget speech at 12.30pm on Wednesday 11 th March and to provide some instant context. We will send a Rapid Response and a Focus …
In a moderate scenario where demand returns to pre-coronavirus levels by year-end, we estimate that the outbreak of the disease will knock off 1% from GDP growth this year. In a more severe scenario where the disruptions last beyond the end of the year, …
The latest fall in oil prices will aggravate Venezuela’s crisis and increase the risk of a sovereign default in Ecuador. Elsewhere, there is likely to be a hit to growth in Mexico and Colombia. And weaker currencies in both countries will take interest …
9th March 2020
The sharp drop in oil prices won’t cause major economic strains in Saudi Arabia or Russia, suggesting that they will raise output and oil prices will remain low over the course of this year. But external positions in other oil producers (Angola, Colombia …
Based on the continuing slump in stock markets and the global spread of the coronavirus, we agree with the view in markets that the Fed will cut interest rates to near-zero within the next couple of months. Fed officials would prefer to wait for evidence …
The plunge in global oil prices should be close to neutral for the US, but we suspect it will still knock a few tenths off annualised GDP growth in the second quarter, as the big hit to mining investment is not fully offset in the short-term by the boost …
On top of the rapidly spreading coronavirus outbreak, the slump in oil prices raises the risk of recession this year and suggests that the Bank of Canada will slash its policy rate to just 0.25%. Saudi Arabia’s decision to start an all-out price war, …
The sharp fall in oil prices today will push current account and budget positions into deficit across the Gulf, but these can be financed from large savings for some time. Dollar pegs should stay intact and the Gulf won’t backtrack on plans to raise …
The coronavirus will probably continue to spread in Africa, but the biggest economic hit will come from lower oil prices. Indeed, Angola may suffer a bigger fall in GDP than anywhere outside the worst-affected Asian countries. Predicting the future …
Against a backdrop of a coronavirus-related slump in demand, Saudi Arabia appears to have abandoned efforts to balance the oil market and is instead aiming to protect market share. Its pledge to significantly raise production from April will result in a …
While falling oil prices have historically been deemed a net positive for global demand, there are several reasons to think that the latest slump will only add to the immediate headwinds facing the world economy. In the past, economists have argued that …
The tailspin in global oil prices will push Russia’s current account and budget balances into deficit but shouldn’t create severe strains in the economy. It would probably take a steeper fall in prices, to $25pb or lower, to put a brake on plans to raise …
Against a backdrop of rising pressure on major central banks to loosen policy in response to coronavirus, we now forecast the Riksbank to cut its repo rate back into negative territory at its 28 th April decision, if not before. However, as in other …
Most countries in Emerging Asia are net importers of oil, so would usually stand to gain from a big drop in prices. But with the coronavirus continuing to spread and people increasingly avoiding public spaces, the windfall from lower oil prices is more …
The Bank of England has made it clear that policy action to cushion the economy from the coronavirus is on its way, the only questions are what, how much and when. In the face of today’s meltdown in the financial markets, the Bank may be forced to act …
Though the RBI’s takeover of Yes Bank is intended to reduce the direct threat posed by the failing bank to India’s financial stability, the measures that have been implemented could exacerbate systemic weakness in the banking system. This adds to the …
The news that Lebanon’s government won’t repay a $1.2bn Eurobond maturing has caused bond prices across the curve to fall and all eyes will now turn to the government’s plans to restructure its debts. A swift deal is looking increasingly difficult to …
China’s commodity exports collapsed in the first two months of 2020. In contrast, commodity imports held up relatively well, but this probably reflects the greater logistical challenge faced by outbound shipments. And with almost all high-frequency …
Manufacturers in Japan are on the whole less dependent on imported components than those in other major rich economies and so are less vulnerable to global supply chain disruption. But there’s a mounting risk that the spread of the coronavirus within …
