The central bank in the Philippines (BSP) today cut its policy rate by 50bp at an emergence meeting, and with economic activity in the country collapsing, we doubt this will be the last move from the Bank. Today’s decision came unannounced, but it was no …
16th April 2020
Regional banks in Japan will face mounting loan losses due to the virus outbreak. But as their linkages with other financial institutions are small, this won’t precipitate a financial crisis. The risk posed by the virus to the liability side of Japanese …
The scale of job losses and falls in incomes caused by coronavirus containment measures across the world – but particularly in the US and the Gulf – is likely to weigh heavily on remittance inflows into Asia. A drop in remittances would increase the risk …
Although retailers in Sweden remain open, early indications suggest that the Stockholm retail sector will still be hit hard in Q2. In fact, we think that the virus outbreak will only accelerate falls in retail rents already expected as a result of the …
The collapse in both exports and imports in March highlights the extreme weakness of external and domestic demand. What’s more, the worst is yet to come as lockdowns to contain the spread of the coronavirus remain in place in both India and abroad. …
We suspect that the Bank of Canada will soon have to expand its newly announced corporate bond purchases, given that under current plans they would amount to just 0.4% of corporate debt outstanding. As the policy rate is already at what the Bank thinks is …
15th April 2020
Lockdowns have proved successful at limiting the spread of coronavirus in the likes of China, Korea and the Czech Republic, but they are likely to be less effective in poorer countries – notably much of Africa, India and Bangladesh – where households are …
The damage to Turkey’s economy from the coronavirus outbreak has led to suggestions that the government may turn to the IMF for a financing package, but the political backdrop means that this would almost certainly be a last resort. Policymakers would …
Adept handling of the current crisis has helped President Moon’s party to emerge from today’s National Assembly election with a majority, which should help breathe new life into his reform agenda. While the near-term economic outlook will depend on how …
The Bank of France floated the idea recently that the ECB could use “helicopter money” to channel funds to companies after the worst of the current crisis has abated. While this idea has some attractions, there would be substantial political and practical …
Different countries will adopt different approaches to ending shutdowns but a common theme is likely to be that restrictions are phased out gradually by sector and, perhaps, region. The extent to which this is accompanied by new mass testing programmes …
Australian banks have passed through the RBA’s recent cuts to some but not all of their lending rates and have tightened lending standards a bit. With banks now in better shape than during the global financial crisis, we think that lending standards won’t …
The People’s Bank (PBOC) has taken yet another step to help banks and borrowers weather the ongoing economic weakness and is preparing to lower interest rates further in the coming months. The PBOC has just cut the one-year rate at which it lends to banks …
The Paycheck Protection Program (PPP) of forgivable small business loans has come too late to prevent the huge initial wave of layoffs, but will be more useful in helping less directly affected firms stay afloat while limiting the rise in unemployment. By …
14th April 2020
It has become clearer to us that the economic legacy of the coronavirus crisis will last a number of years. Our new forecast is that the economy will be about 5% smaller (£100bn) at the end of 2022 than would have been the case if coronavirus didn’t …
The deal struck by OPEC and other oil producers to cut oil output sharply over the coming months will help to put a floor under oil prices, but the reduction in output simply adds to the reasons to expect a sharp downturn in the Gulf economies this year. …
The unprecedented 9.7m bpd output cut announced by OPEC+ will merely reduce the oversupply of oil in the second quarter. But assuming full compliance, and an involuntary drop in North American production, the market could fall into a deficit later in the …
While COVID-19 has forced consumers in southern Europe to shop online, we think that e-commerce penetration will remain lower for structural reasons, which is one reason why prime retail rents in these markets will be more resilient in the long-term. …
After collapsing in January and February, China’s commodity exports stabilised last month. But with economic activity outside China now in the doldrums, this is unlikely to last. Meanwhile, China’s imports of crude oil and copper remained reasonably …
Bank Indonesia (BI) today left interest rates unchanged at 4.5%, but the cut to the reserve requirement ratio (RRR) and dovish comments in the press conference suggest that further rate cuts are likely. The decision was a surprise. Having cut rates at its …
There is no doubting that governments have generally pulled out all the stops in announcing big fiscal stimulus programmes. But announcing them is one thing; quickly getting the money to where it is needed is quite another. There is a risk that logistical …
PM Modi’s decision to extend the nationwide lockdown that was due to end today comes as no major surprise given that coronavirus cases in India continue to surge. With many households having no savings buffers and large parts of the economy remaining …
The Eurogroup’s agreement on €540bn, or 4.5% of GDP, of support for responses to the coronavirus crisis falls a long way short of the large-scale joint fiscal boost which many euro-zone governments had argued for, and which would have done more to contain …
10th April 2020
The latest trade data show sharp contractions in gold imports by major consumers China and India, suggesting that gold jewellery demand has taken a battering. Until signs emerge that the spread of COVID-19 is easing, we expect jewellery demand for gold to …
9th April 2020
Economic activity in Spain has collapsed as a result of the measures to contain the coronavirus. And even if the government begins to lift some of the restrictions next week, as it has suggested, the recovery will be very slow, particularly in the …
Non-performing loans are likely to climb in many EMs as output and incomes collapse, potentially forcing policymakers in some countries to step in and recapitalise banks. The risks are greatest in Brazil, Mexico and India, where policymakers’ reluctance …
The 27% drop in the price of residential REITs since late February is not a sign that house prices are set for a significant fall. The past relationship with house prices has been poor and on an annual basis single-family REIT prices are down by only 2%, …
We won’t know until the future whether or not the Bank of England has launched helicopter money as it depends if the rise in the money supply is temporary or permanent. But more important is whether it leads to much higher inflation. The markets don’t …
Social distancing measures have accelerated the shift to online spending in recent weeks. But the upside of increased online spending is limited to a few occupiers, most notably supermarkets, and is unlikely to be sustained in the longer-term. Indeed, …
If, as we expect, the global economy starts to recover in the second half of the year, the yields of core government bonds are likely to rebound a bit further. But we think that weak inflation and continued ultra-loose monetary policy will keep yields at …
Timely indicators on electricity demand, vehicle production and air quality strongly suggest that industrial activity has fallen off a cliff since the nationwide lockdown began on 25 th March. These indicators will be worth watching closely when the …
South Africa’s ongoing three-week lockdown means the statistics agency won’t be publishing or collecting data during this time. In this Update , we explain what other data we should look at, what would happen if the lockdown is extended and the …
Economies across Emerging Europe are heading for a sharp contraction in output, but one crumb of comfort is that vulnerabilities are drastically lower than they were in the run-up to the Global Financial Crisis. Large balance sheets strains are unlikely …
We think that most EM governments will increase the size of their fiscal support packages, which will cause public debt ratios to jump. For many of the poorest EMs, this will be supported by concessional financing and/or offset by debt relief. Among the …
The Bank of Korea’ (BoK) left rates on hold at 0.75% today and announced plans to purchase government bonds. There is scope for quantitative easing to have an impact, but there are limits to how effective it can be. As such, the role of supporting the …
There is huge uncertainty about the outcome of Thursday’s OPEC+ meeting. For what it’s worth, we suspect that a large and unconditional output cut is unlikely. Even if we are wrong, we think a sizeable output cut would merely put a floor under prices …
8th April 2020
We think that the earnings of firms in the MSCI EM Index will fall sharply this year as the coronavirus pandemic reduces world trade by a fifth and commodity prices only recover slightly. But with much of this outcome probably already discounted, we think …
With the Central Bank of Chile’s policy rate at its effective lower bound, we think that its next easing measure would be a quantitative easing programme aimed at flattening the long end of the yield curve. Chile’s central bank has eased policy …
Although energy commodities have substantially underperformed global equities in recent months, we think that the returns from both will be broadly similar over the remainder of 2020 if, as we expect, risky assets in general recover. While risky assets …
The ECB is using its balance sheet aggressively to provide cheap funding to banks and support peripheral government bond markets. But there is no guarantee that banks will maintain their volume of lending to the real economy, and there is a risk that the …
Egypt’s central bank is intervening to prop up the pound, but the experience from the previous decade is that such efforts ultimately prove futile. If policymakers try to support the pound for an extended period, this risks repeating the problems that, in …
The significant increase in unemployment insurance payments included in the recent fiscal package means that many claimants could end up being paid close to what they previously earned. This suggests that the unprecedented wave of layoffs in recent weeks …
The nearly 40% peak-to-trough fall in US REIT prices points to a fall of around 5%-10% in direct real estate capital values, providing this proves to be a relatively short-lived recession. At a sector level, deeper falls for the retail sub-sector REITs …
Although real estate investment trusts (REITs) were clobbered during the recent market turmoil, their performance over short periods is often comparable to that of equites, which were also hammered. With this in mind, we expect REITs to stage a sustained …
Given the concerns about public health and the impact of the national lockdown, the current rate of inflation should not constrain the actions of policymakers. Further ahead though, the likelihood that inflation remains low will allow policy to be kept …
Export restrictions and stockpiling associated with the coronavirus may continue to support the price of Thai rice for the next few months. However, we expect that prices will fall back by the end of this year as the virus containment measures are lifted …
Although property valuations and rental prospects remain supportive, the higher risk premium associated with CEE markets means that property yields are likely to increase more in the near term and to unwind more slowly than in Western European markets. In …
Iron ore prices have been supported so far this year by China’s steel mills, which have continued to churn out metal. But with demand in China still subdued, and the virus-related disruption yet to peak elsewhere, much of this steel is being stockpiled. …
The number of business insolvencies could reach the same level as in the Global Financial Crisis over the next few years, keeping the unemployment rate high and holding back the economic recovery. The number of business insolvencies will be a key …
The coronavirus-related recession will lead to a marked increase in defaults on bank loans but, while that will hit earnings and justifies the sharp sell-off in banking stocks, the greatly improved financial health of banks means that we don’t believe …
7th April 2020
