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 …
10th March 2020
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 …
Most central banks that have introduced quantitative easing in recent years have done so by pledging to buy a certain amount of government bonds. Our base case is that the RBA will do the same when it launches QE over the coming months, but a yield target …
Korea’s position as a key supplier of high-tech intermediate goods means it plays an important role in regional supply chains. Extended factory closures due to the spread of the coronavirus would cause significant disruption to the global electronics …
The recent market meltdown reflects concerns about the economic impact of the COVID-19 virus. This will inevitably hit commercial property, but in our view, the downside is likely to be relatively modest. The spread of the coronavirus from Asia into …
6th March 2020
Lebanon’s government is set to decide tomorrow on whether to repay a $1.2bn Eurobond maturing on Monday. Whatever the decision, a debt restructuring inevitably lies in store and the government will probably try to concentrate losses on holders of …
If, as we expect, worst fears about the coronavirus outbreak don’t materialise, global stock markets will probably generally recover. However, we doubt that this will be the case for equities in Emerging Asia, which feeds into our view that MCSI’s EM …
Coronavirus fears will cut short the housing market recovery, and we have reduced our forecasts for house price growth in response. What’s more, the risks to the market – particularly housing transactions – are now firmly on the downside. Recent months …
The response by policymakers, households and firms to the spread of the coronavirus looks set to take a heavy toll on Italy’s economy. We suspect that GDP will contract in both Q1 and Q2, and that over the year as a whole it will shrink by about 0.5%. It …
5th March 2020
Our current working assumption is still that the number of coronavirus cases in the US is restricted to the low tens of thousands which, in a country of more than 325 million, would represent an infection rate of less than 0.1%. Furthermore, we suspect …
China is easing monetary policy and lining up fiscal stimulus measures worth at least 2% of GDP. The impact will be muted as long as the workforce is still facing major disruption. But these measures should help restore output to a normal level in the …
The Brazilian real has fallen to a record low and, while our central view is that it will recover some lost ground in the second half of the year, it will remain much weaker than most currently anticipate. The real has now weakened by 12% against the …
We expect the Treasury to announce only a small fiscal package of around $2bn in response to the coronavirus outbreak. With economic activity slowing sharply and revenues undershooting expectations, that should be enough to thwart the government’s aim of …
The Central Bank of Sri Lanka (CBSL) left interest rates unchanged today, and while it kept the door open to loosening, high inflation and the CBSL’s concern over the rupee limits the scope for further cuts. Having cut rates three times since last May, …
Headline consumer price inflation is likely to have dropped sharply in February, in large part due to a moderation in food inflation. This should further embolden the RBI to follow its global peers and cut interest rates over the coming weeks in response …
The prospect of stronger demand stemming from stimulus in China, alongside recent supply disruptions, means that we now expect the deficit in the iron ore market to deepen this year, rather than shrink. As a result, we have revised up our year-end …
4th March 2020
With the coronavirus outbreak spreading across Europe and its disruption to economic activity likely to mount, we think that the Polish central bank will ease policy this year. But the tone of the MPC’s post-meeting press conference today suggests that …
Given the rapid spread of the coronavirus and the Fed’s emergency rate cut, we are revising down our end-2020 forecast for the US 10-year Treasury yield from 2% to 1.25%. The continued increase in new virus cases across the world suggests that the …
The growing risk of COVID-19 to the outlook suggests that the Bank of Canada will follow today’s 50 bp cut in interest rates with an additional 25 bp cut in April. Given the Governing Council’s lingering concerns that looser policy will boost an already …
Given the uncertainty about how the coronavirus will evolve, and how governments will respond, it is easy to envisage ways in which the hit to global GDP will be larger than the 1%-pt we have now built into our forecasts. However, in these more …
Joe Biden’s comeback to win most of the Super Tuesday states means he is now the front-runner for the Democratic nomination, and his campaign could gather further momentum in the coming days if Mike Bloomberg pulls out. That makes a market-friendly …
The continued spread of the coronavirus and the Fed’s emergency rate cut will result in more aggressive loosening in EMs than we previously envisaged. We expect central banks in much of Emerging Asia to continue cutting interest rates, and have now …
The rapid global spread of the coronavirus has prompted us to lower our 2020 GDP growth forecast for India to 5.3%, from 5.7% previously. And there is now a high chance that the RBI follows the lead of other central banks by cutting interest rates in …
The spread of coronavirus outside China and its possible economic effects has prompted us to revise down our GDP growth forecasts across the region by 0.2-0.5%-pts. The scope for monetary easing is limited, but we think that central banks in Poland and …
In a change to our previous forecast, we now think that the economic effects of the coronavirus will result in GDP growth slowing to just 0.7% this year and will soon prompt the Bank of England to cut interest rates from 0.75% to 0.50%. That said, we …
3rd March 2020
The spread of the coronavirus has prompted us to lower our 2020 GDP growth forecasts for the MENA region by 0.5-2.0% and the risks remain skewed to the downside. The UAE is the most vulnerable economy and the fallout threatens to ignite concerns over …
In a dramatic turnaround from last week, when even the most dovish of Fed officials didn’t appear to support any additional policy loosening, the Fed announced an emergency inter-meeting 50bp rate cut this morning – lowering the fed fuds target range to …
A sharp reduction in mortgage interest rates over 2019 increased the benefit of refinancing for recent borrowers, and as a result the median age of refinanced mortgages dropped to just two years in the third quarter, a 16-year low. That cut available …
Today’s G7 statement about likely measures to tackle the effects of the coronavirus fell short of hopes of a major coordinated policy response. This raises the risk that central banks will disappoint markets’ expectations in the months ahead. The …
The spread of the coronavirus has prompted us to revise down our forecasts for the global economy . This Update sets out the revisions to our views for Latin America in more detail. Policymakers generally have limited scope to respond, but we have …
It is now likely that the central banks of major developed markets (DMs) will follow Australia in loosening monetary policy to help their economies weather the impact of the coronavirus. But there is a limit to what this can achieve; more effective will …
