Manufacturing PMIs for April fell sharply, but the way the surveys are constructed means that conditions may be even worse than the headline figures suggest. Indeed, the sub-components of the surveys are consistent with global industrial output …
4th May 2020
Government debt will increase sharply across the region this year. For most countries this will not be a problem. The situation is most worrying in Pakistan and Sri Lanka where debt relief will be needed to put finances on a sustainable footing. Most …
In those EMs that were quick to control their coronavirus outbreaks (South Africa, Poland, Vietnam), lockdowns are being eased which will allow activity to gradually recover. But the damage from social distancing will last for longer in EMs which were …
Malaysia reopened most of its economy today following nearly seven weeks of lockdown, but with consumer behaviour unlikely to return to normal quickly and global demand very weak, the economy is still set to contract sharply this year. The decision to end …
The closure of the border will reduce Australia’s potential GDP growth by as much as 1% for as long as it lasts. What’s more, it seems likely that net migration will be lower than before the virus outbreak even if the border reopens. And by reducing …
The announcement that Lebanon will formally seek financial assistance from the IMF should help to avoid a more disorderly outcome from the country’s current debt crisis. However, we hold reservations about parts of the rescue plan set out by the …
1st May 2020
Tiff Macklem to take the wheel This Update was originally sent to clients as a Rapid Response immediately after the Bank of Canada’s announcement on 1 st May. The confirmation that Tiff Macklem will take over from Governor Stephen Poloz when he steps down …
The partial recovery in the S&P 500 suggests a return of investor risk appetite. But commodity indices have plumbed new lows. We think a couple of points are worth making about this apparent inconsistency, the most important of which is that it is largely …
While we remain of the view that the ECB will eventually step up to the plate and increase its purchases of government bonds, concerns about Italy’s debt sustainability and its commitment to the euro mean that we think that the BTP-Bund spread will only …
The statement accompanying the Colombian central bank’s decision to cut the policy rate by 50bp to 3.25% left the door open for more easing. Given the scale of the economic hit that we expect, the policy rate will likely be lowered by at least an …
As Germany cautiously eases its lockdown, despite the significant hit to economic activity, the tight supply picture should help support prime office rents across the four main cities this year. Preliminary data for Q1 showed that office take-up across …
Investment demand likely to dwindle While a surge in ETF inflows offset weak physical demand in Q1, we don’t expect this to be repeated over the coming quarters. After all, many of the factors that have boosted the investment appeal of gold are likely to …
30th April 2020
Next week, the Texas Railroad Commission could mandate measures to curb oil production in Texas for the first time since the 1970s. However, even if they do decide to curtail output, we think that the impact on oil prices will be minimal, in part because …
Based on the seven million CERB applications so far, we estimate that households have lost up to 40% of their combined wage income since February. CERB payments alone will close less than half of the gap. The government created two programs to support …
Strong new home sales in 2019 helped the under-35 homeownership rate jump to a nine-year high in the first quarter. But, with the disruption from COVID set to cut home sales in half in the second quarter, that impressive performance will come to a halt. …
The ECB’s failure to step up its asset purchase programmes at today’s monetary policy meeting will leave investors with nagging doubts about its commitment to underwrite government borrowing during the coronavirus crisis. Eventually, however, the lack of …
Despite reasonable levels of capital ready to invest and an expected loosening in credit conditions, the sharp deterioration in investor sentiment reinforces our view that euro-zone investment activity will drop by around 40% over the rest of this year. …
China’s official and unofficial PMIs dipped in April, almost entirely owing to weak export orders. A strong performance by the construction sector provides some relief for industrial metals prices, but there was little in the data to give much of a boost …
Since the Fed had already gone all-in on its monetary policy stimulus, it was little surprise that there no major policy announcements in today’s statement. Over the next few months the Fed will continue to expand its balance sheet toward $10trn, albeit …
29th April 2020
Latin American banks are generally in good shape, but the sheer scale of the fall in output and limited policy responses to protect incomes in parts of the region mean that the rise in bad loans could be much bigger than it was during the Global Financial …
We estimate that banks will have to absorb about £50bn of loan losses from corporate and household defaults as a result of the coronavirus crisis. If anything, the risks are for even bigger losses approaching the £80bn written off during the Global …
Income support and mortgage relief will reduce the chance that people are forced to sell homes. But with immigration slumping, house prices are unlikely to recover quickly from the 5% fall that we forecast. The plunge in GDP and surge in unemployment that …
Although restrictions are set to be lifted in the coming weeks, economic activity in the euro-zone will remain significantly below pre-virus levels for a long period. Consumers are likely to be wary of crowded places, some restrictions will remain in …
Uptake of home equity lines of credit surged during the financial crisis, as households made use of existing facilities to replace lost income. But, even as the unemployment rate reaches a record high, we doubt a similar increase will occur today. …
Unlike in previous downturns, residential property has not been the root cause this time. Even so, house prices will not escape this recession unscathed. If policy support proves effective, if lockdowns hamper property sales, and if demand rebounds later …
The incentives offered by China’s provincial governments will artificially boost demand for base metals, especially lead and zinc. As a result, smelters who may have cut supply or shut altogether may instead maintain or even increase output, which will …
With the reopening of the economy to be governed by the extent to which the coronavirus is brought under control and the burden being placed upon the NHS, there is still a lot of uncertainty about how long the current restrictions will remain in place and …
While we expect to see a sharp rebound in global activity once coronavirus-related restrictions are eased, GDP in most economies will still be below its pre-crisis path even after two or three years. (See here .) In this Update , we discuss which …
With Congress ramping up its fiscal stimulus rescue package, federal debt will rise above 100% of GDP this year, not far off the record high of 108% of GDP in the aftermath of WWII . That is not a concern for the next year or two, but it does raise the …
28th April 2020
Hungary’s central bank didn’t disappoint at today’s MPC meeting in announcing its bond purchase programme and it’s clear that policymakers have shifted their attention from keeping short-term rates low to pushing down long-term rates. But unlike bond …
One consequence of the current crisis is that bad loans in Nigeria’s banking sector are likely to rise sharply. While the government would surely respond to problems at individual banks with capital injections (as it did in 2009), this would add to the …
There is some room for cautious optimism on Italy, at least for the near-term. Daily new infections are falling, the government has begun to exit its lockdown, and bond spreads are narrowing. With this in mind, we answer five key questions about how the …
The coronavirus crisis is likely to cause unemployment rates to jump by 5%-points or so across most of the region in Q2 and we think the labour market fallout could be much worse in Turkey. However, most of the rise in unemployment should prove temporary …
This morning’s decision by the Riksbank to leave its repo rate and crisis-related policy settings unchanged did not come as a big surprise. Nonetheless, it kept the door open for a rate cut, and we think that a return to negative interest rates is likely …
Most of the fresh spending in PM Abe’s fiscal package will not provide meaningful support to employment. But as was the case during the financial crisis, the government’s employment adjustment fund should help ensure that unemployment doesn’t spike as …
We suspect that the recent underperformance of MSCI’s UK Index relative to its USA Index will peter out when the world starts to get back to normal after coronavirus. The MSCI World Index includes mid- and large-cap equities in 23 developed countries, …
27th April 2020
The shape of the economic recovery from the coronavirus crisis mainly depends on the spread of the virus, the effectiveness of the policy response and the extent to which consumers and businesses change their behaviour. This Update sets out how and why …
Relative to its performance in the GFC, the office sector should be fairly resolute in this downturn. However, the rapid growth of flexible office space poses a downside risk in some markets. What’s more, if the problems facing WeWork were to turn into a …
Brazil’s economy is better placed to withstand a twin political and economic crisis than it was during the Dilma impeachment of 2015-16. But the brewing political mess could leave long-lasting damage if it prevents policymakers from acting quickly enough …
Egypt has become the latest emerging market to turn to the IMF for assistance and one of the priorities for the Fund is likely to be for the central bank to loosen its grip on the pound. That said, there is unlikely to be a repeat of the 50% fall in the …
The RBI’s new special liquidity window should help ease redemption pressure on Indian mutual funds, which have come under strain since Franklin Templeton’s announcement on Thursday that it has been forced to close six of its debt schemes. But another …
The Bank of Japan today scaled up its measures to ease corporate and household financing strains significantly. However, the Board didn’t cut the policy rate even though all members expect a slump in activity. With our forecasts not miles away from the …
OPEC’s allies recently agreed to cut output from May. While compliance with quotas is usually sub-par, we think that adherence to the quotas will be greater this time, in part because oil prices are so low . Earlier this month, OPEC+ agreed to cut oil …
24th April 2020
While there are fewer concerns that this property downturn could bring problems for lenders than during the GFC, financial risks remain, especially on the landlord side. In past recessions, occupiers and landlords have always suffered . Firms cut jobs or …
Despite imposing less draconian measures than elsewhere, the economic impact of Sweden’s ‘lockdown’ is not far short of that in France, for example. Accordingly, Sweden’s experience pours cold water on hopes that lifting restrictions in other countries …
The Russian central bank abandoned its cautious approach to the coronavirus outbreak by cutting its key policy rate by 50bp, to 5.50%, today and the accompanying communications gave the clearest possible indication that further easing is on the cards. …
Jobless claims have reached 26 million, but by the end of last week the share of apartment tenants making a full or partial rental payment in April was down by just four percentage points compared to usual. That demonstrates tenants are still incentivised …
Remittances held up well during the Global Financial Crisis but the scale (and type) of job losses in the current crisis mean that they are likely to fall sharply in the coming months. A drop in remittances would dampen economic recoveries in the likes of …
We think that, for the industrial sector, any short-term gain from an increase in online shopping will be outweighed by the plunge in demand and subsequent collapse in global trade. While the industrial sector appears to be more insulated from …
Vietnam has started to lift some of the shutdown measures that were introduced to slow the spread of the coronavirus, but this won’t prevent the export-dependent economy from slowing sharply this year. The decision to relax some restrictions on the …
