Deferring firms’ liabilities and offering bridging loans will reduce widespread debt defaults but, as many firms are already heavily indebted, such measures will not prevent bankruptcies and job losses altogether. The Canadian Federation of Independent …
31st March 2020
We doubt that the coming explosion in government borrowing or the accompanying rise in government debt will push up gilt yields. Low growth, low inflation, and low interest rates mean that they gilt yields will remain close to their all-time lows …
Inflation will fall sharply across the region over the coming months as the effect of currency falls and supply-side disruptions are outweighed by the impact of falling oil prices and a slump in demand. A few countries are likely to experience deflation, …
The world is heading for the sharpest and deepest global slowdown since WW2. Assuming that the virus is brought under control within a few months, the subsequent rise in world GDP should also be sharp. However, it could still take years for demand to …
In the face of rapid capital outflows, EMs may turn to capital controls to stabilise balance of payments positions. Such measures might help to stave off crises in some countries (particularly if they come alongside external support), but strains in the …
Most of the high frequency indicators we track show how the coronavirus lockdown is significantly reducing activity. The exception is the activity of watching TV, which is surging. This too, of course, is a symptom of the plunge in normal economic …
The number of new confirmed Covid-19 cases in Italy has been on a downward trend, raising hopes that the lockdown is beginning to work. In this Update , we put the numbers in context. The latest data from Italy’s Health Ministry show that there have been …
The cost of the coronavirus will push Brazil’s public debt ratio up sharply this year, to about 90% of GDP, and policymakers will have their work cut out to stabilise the debt trajectory in the following years. One increasingly likely policy response is …
30th March 2020
While the SNB clearly favours using FX interventions to weaken the franc at present, persistent concerns about the size of its balance sheet would make it reticent to step in on an ever-greater scale. With no easy choices, we think that, if push came to …
The collapse in economic activity, spike in unemployment and slump in oil prices look set to push inflation down from 1.7% now to around 0.5%, with the risk that inflation falls to, or below zero. Either way, if activity and oil prices recover in …
The business surveys for March point to declines in activity at least as deep as during the global financial crisis. None of them will be perfect guides to GDP though. If anything, the economy seems likely to contract even more sharply than the surveys …
The latest leg-down in oil prices is not so surprising given that demand is collapsing at a time of rising supply. We think oil prices will only pick up if, as we expect, economic activity revives later this year . Oil prices slumped again in early …
Given the scale of ongoing global market turbulence, Moody’s decision to strip South Africa of its last investment grade rating will have less immediate effect than some had feared. That said, the country’s already grim debt outlook has deteriorated …
The impact of global measures to contain the coronavirus will result in a steep fall in EM GDP this year. And the collapse in output, spike in capital outflows and plunge in commodity prices could trigger balance sheet problems that make the downturn much …
The government assumes that around a quarter of all employees will benefit from the huge wage subsidy unveiled today. Indeed, we now expect the unemployment rate to peak at 12% instead of our previous estimate of 15%. But that still implies an …
The People’s Bank (PBOC) has taken another step to loosen monetary conditions by lowering the rate at which it lends to banks. But the central bank’s job isn’t done yet and we anticipate continued efforts to reduce bank funding costs in the coming months. …
Concerns over Japan’s rising debt burden may prevent the government from pulling all the stops if the coronavirus outbreak escalates much further. As such, the chance that the Bank of Japan will provide a helping hand by directly financing public …
The Monetary Authority of Singapore (MAS) loosened policy today by reducing the slope of its policy band, and even though the outlook for growth and inflation is very downbeat, we don’t expect further loosening in the months ahead, given the limitations …
In light of government advice to delay housing sales, we now expect a 70% q/q fall in house purchase mortgage approvals and transactions in Q2. Meanwhile, our base case is that low interest rates, government support and lender forbearance will prevent a …
27th March 2020
In our view, global equities are not as “cheap” as the recent falls in price/earnings ratios seem to suggest. That is because earnings expectations are likely to be revised down much further as the crisis unfolds. Although the selling pressure in stock …
Unlike in previous downturns, services are likely to underperform industrial sectors this time around. Consumer-facing services, such as leisure and hospitality, are suffering most already. As the shock ripples through supply chains, business services …
The collapse in home sales, and hit to households’ income and savings, means house prices will fall back. But lender forbearance and the fiscal package will prevent a surge in forced sellers, and with lending standards much tighter a repeat of the …
This coronavirus recession isn’t anything like a “normal” one. The fall in output will be sudden and vast. The huge policy response means the recovery should be much quicker than normal too. But the scale of the economic dislocation and the risk that the …
The precipitous fall in oil prices and virus-related plunge in demand is likely to push euro-zone inflation to a record low of -1% in the summer. While the risk of deflation becoming entrenched seems low, we forecast core inflation to average just 0.5% …
The coronavirus is disrupting global economic activity by much more than we had previously thought. As a result, we now expect global oil demand to fall by 6.5% in 2020 to just under 94m bpd . Measures to contain the coronavirus have reduced global oil …
The RBI has emphatically stepped up its response to the economic and financial market fallout from the coronavirus outbreak with another emergency announcement today. It has also left the door wide open for further monetary loosening. A similarly-bold …
We estimate that a lockdown that would limit activity to “essential services” could knock off as much as 30-40% from Australia’s GDP for as long as it lasts. A lockdown is imminent and our best guess is that it will last for around two months. The upshot …
This Update was originally sent to clients as a Rapid Response immediately after Rishi Sunak’s press conference on 26 th March. The government’s measures to support the self-employed during the coronavirus crisis will help prop up incomes and employment. …
26th March 2020
Property has generally been at the centre of the most severe economic downturns in recent decades. But this time it is different. Although we think the commercial market is likely to experience a sharp jolt in 2020, provided the spread of the virus can be …
We think there will be some permanent loss of commodity consumption in 2020 owing to virus-related disruption to activity, but we do see prices picking up later this year as economic growth starts to revive . Few would dispute that measures to contain the …
Measuring the economic fallout from the coronavirus is fraught with uncertainty, but the French statistics office estimates that economic activity is currently running a whopping 35% below normal. If so, the downturn in France, and presumably elsewhere, …
The Czech central bank followed up last week’s emergency interest rate cut with further easing today and opened the door to use other measures to support the economy and stabilise the financial system. With the economic damage from the coronavirus …
The Bank of Canada announced further credit easing measures this week and the government’s will expand its fiscal package to $109 bn, from $82 bn, but there are still widespread signs of stress in funding markets and there have been few direct measures to …
Today’s massive fiscal stimulus package won’t prevent Singapore from falling into a deep recession in the first half of the year, but it should ensure that the economy is well-placed to bounce back strongly when the global economy starts to return to …
If the Bank of England is going to build on the unprecedented policy support it has unleashed in recent weeks to counteract the economic effects of the coronavirus, it won’t be because of concerns over how far inflation or GDP will fall. Instead, it would …
Euro-zone policymakers’ plan to offer precautionary credit lines to some governments is a step in the right direction, but it is too small and not the best tool for the job. It stops well short of fully mutualising the cost of dealing with the virus – …
In this Update , we answer some key questions about the fiscal stimulus underway in advanced economies. In short, government deficits are set to soar, probably rising by more than after the financial crisis. This is not an immediate problem, given that …
Tokyo Governor Yuriko Koike is mulling a lockdown for the capital in response to a rise in coronavirus cases. Taking into account the composition of Tokyo’s economy, we estimate that a lockdown in the capital would reduce national output by 5% for as long …
A surge in the unemployment rate to 12% in the second quarter will put upward pressure on the mortgage delinquency rate, but an additional $600 week in unemployment insurance should keep the rate under 7%. Moreover, given the temporary nature of the …
25th March 2020
The coronavirus crisis means that the government’s budget deficit will soon explode to above the 10% of GDP peak seen in the financial crisis and debt could spiral from about 80% of GDP now to over 100%. However, if we are right in thinking that the …
It now seems likely that euro-zone policymakers will exploit the European Stability Mechanism’s lending capacity to offer financial help to all member states to tackle the hit from the coronavirus. This should be fairly easy to do, but on its own it is …
Several producers outside China have reduced operations in the past week, most notably in Latin America. But much like policy support, lower supply will do little to boost prices so long as measures to contain the coronavirus keep demand comatose. In any …
Mexico’s economy is likely to suffer a similar fall in output this year as it did during the Tequila Crisis and the Global Financial Crisis. Despite its reticence, the government will ultimately have to do much more to prevent this from causing a sharp …
Stockpiling and labour shortages associated with the coronavirus have supported the prices of some agricultural commodities, particularly the grains, in recent weeks. However, once the virus-related containment measures are lifted, we think that their …
The economic hit from the coronavirus will cool rental demand, while social distancing measures will tip market dynamics in favour of renters. We have downgraded our forecast for rents and now expect them to fall by 1% this year. But rents should recover …
The UK’s current account deficit is the main reason why the pound has fallen by more than other currencies against the US dollar over the past fortnight. The same was true in the Global Financial Crisis, and the pound never really recovered. But the pound …
With the number of COVID-19 cases in the US skyrocketing and a rising share of the population under lockdown, we need to revise our macro forecasts quite significantly: We now expect second-quarter real GDP to fall at a 40% annualised pace, with …
Governments across the Middle East and North Africa have taken increasingly draconian steps over the past couple of weeks to contain the coronavirus outbreak and, as a result, there will be much more economic damage than we had previously thought. We now …
The measures to contain the spread of the coronavirus announced by PM Modi last night will be hard to fully implement but will still have severe economic repercussions. We now expect the economy to grow by just 1% this year, the weakest pace of annual …
The $2trn stimulus package agreed by Congress will include a permanent fiscal expansion worth up to 5% of GDP and, in conjunction with the new lending facilities announced by the Fed, could channel up to $6trn in temporary financing to consumers and firms …
