Given the way outstanding amounts of equity and debt are valued[1] in national financial accounts[2], debt ratios calculated using these figures can give a distorted picture of the financial structure of non-financial companies. In contrast, capital increases and self-financing give a reliable approximation of changes in company capital. Our calculations suggest that French companies went into the pandemic in a strengthened financial position. Thus, the unprecedented increase in financial debt in 2020 (EUR 206 billion, with nearly EUR 130 billion in the form of government-guaranteed loans) was preceded, between 2015 and 2018, by a marked rise in capital, as the result of a significant increase in equity issues
Japanese exports rose by 16.1% year-on-year in March 2021, after declining by 4.5% the previous month. This has been the biggest increase since November 2017. Although this strong performance partially reflects a positive base effect – Japanese exports were hard hit by the pandemic in spring 2020 – it was nonetheless much higher than the consensus expectations, which anticipated a 11.6% growth. Broken down by destination, Japanese sales abroad increased in the large majority of countries worldwide, especially in China, its leading trading partner, where Japanese exports were very buoyant last month (+37.2% year-on-year in March). Globally, the strong performance of Japanese exports takes place in a context of international trade improvement and of a strong rebound of the Chinese economy
Nigeria’s economy contracted by 1.8% in 2020 due to the pandemic and the downturn in oil prices. The prospects of a rebound are slim, with growth expected at 2.5% in 2021 according to the IMF. The lack of visibility over the evolution of exchange rate regime is one of the main factors curbing growth. The Finance Minister recently declared that the government was going to use the Nafex rate, the market’s benchmark exchange rate, implying a 7.5% devaluation of the official exchange rate. The Governor of the Central Bank denied this announcement, but pressure is growing. Unifying various exchange rates is one of the conditions for unlocking financial aid, which would ease the external liquidity pressures generated by the drop-off in oil exports
On 17 March, the US Federal Reserve (Fed) raised the ceiling on transactions under its Reverse Repo Program (RRP). Each eligible counterparty* can now take, on each trading day, up to USD 80 billion in Treasuries held by the Fed on repo, from a limit of USD30 billion previously. Introduced in the autumn of 2013, one year before the ending of QE3 (the Fed’s third quantitative easing programme) and two years before the beginning of the post-crisis monetary tightening, this facility saw high levels of participation by money market funds (with interest rates of between 0.01% and 0.07% up to the end of 2015) and helped establish a floor for short-term market interest rates
In the northern European countries, the economic impact of the Covid-19 crisis in 2020 was one of the mildest in the European Union, with GDP contracting only about 3% in Sweden, Denmark and Finland, compared to a Eurozone average of more than 6%. To what extent has this enabled the economic agents of the Nordic countries to have greater confidence than their European neighbours? According to the latest European Commission surveys, the economic sentiment index picked up strongly in March 2021, a trend that can be seen in most of the European countries
The significant increase in US Treasury yields in recent months has not yet led to a widening of the spread between US Treasuries and the global emerging bond market index. This index covers USD-denominated traded bonds & loans issued by sovereign and quasi-sovereign borrowers in a large number of developing economies, whereby a distinction is made between investment grade (IG) and the lower quality speculative grade (SG) issuers. The absence of spillovers coming from the United States is a relief. Admittedly, emerging market yields have moved higher, in line with US yields, but they have been spared from a spread widening, which would have made financing conditions even more onerous. Things have been different in the past
Since dropping below 0% in 2015, the average deposit rate applied by Danish banks to the country’s non-financial companies (NFC) has continued to slide into negative territory (-0.47% in January 2021) as the banks recover the deposit facility rate applied by the Danmarks Nationalbank[1]. At the same time, the almost continuous increase in Danish NFC deposits outstanding was amplified in 2020 by public support measures to boost the liquidity of Danish companies during the health crisis. Similar measures were observed in the Eurozone member countries. The share of Danish NFC deposits with negative rates increased to 81.5% in October 2020
Proponents of debt cancellation programmes sometimes argue that public debt will never be paid off, but that is not the question. In France, public debt denominated in euros (or in euro-equivalent francs before 1999) has increased constantly throughout the post-war period, without anyone dreaming of cancelling it. The high growth and inflation rates of the Thirty Glorious Years worked their magic. Between 1945 and 1975, debt outstanding increased about 10-fold, with the franc’s depreciation bolstering the external component, while the debt ratio plunged from over 100% of GDP to less than 20%. In 2021, following a series of crises (the financial and euro crises, and then the Covid-19 crisis), debt has soared to peak levels again (117.8% of GDP according to European Commission estimates)
In Q4 2020, the third quarter of the 2020/21 fiscal year to 31 March 2021, India officially came out of recession. Real GDP was 0.4% higher than in Q4 2019. The recovery has been driven by an increase in government investment and a rebuilding of business inventories. In contrast, consumer spending – the biggest component of GDP – fell, whilst inflationary pressures have eased since November. Activity in the services sector was still down by 1%, while the agricultural and construction sectors recorded an acceleration, as did manufacturing, albeit to a lesser extent. Economic indicators for January remain on the right track
While the first repayments of State-Guaranteed Loans should take place at the end of March 2021, the amounts granted reached a cumulative sum of EUR 132.2 bn as of 12 February 2021 according to the Banque de France. Since their introduction, the SGLs have benefited more broadly the branches most penalised by the COVID-19 pandemic. Unsurprisingly, the accommodation and food service activities, which are still subject to administrative closures, are thus among those that have made the most intensive use of SGLs[1] in terms of amounts granted and number of beneficiaries. Our graph illustrates the general observation that the greater the drop in value added in 2020, the greater the use of SGLs
World merchandise trade has recovered much quicker from the steep fall at the outbreak of the Covid-19 pandemic than anticipated. In March and April 2020, at the height of the crisis, trade was almost 20% lower than a year earlier. Despite the continuation of the lockdown restrictions and distancing rules in large parts of the industrial world, world trade has continued to expand. In November 2020 (latest data available), merchandise trade was back at the level at the end of 2019. After the financial crisis in 2008, it took more than two years for trade in goods to return to the pre-crisis level. The reason for the quick recovery in goods trade is due to the special nature of the shock, which affected in particular services such as retail trade and the catering industry
Almost a year ago, the pandemic triggered a financial shock that shook the emerging countries. Since then, monetary and financing conditions have largely returned to normal. Portfolio investment even soared to record levels in the second half of 2020 in a context of a massive support from the Fed. Under this environment, for the majority of the major emerging countries, government borrowing costs in local currency are equal or lower than they were at year-end 2019. And yet swelling fiscal deficits have driven up public debt to unprecedented levels. The low cost of government borrowing can be attributed largely to the widespread easing of conventional monetary policy via policy rate cuts, and to the securities purchasing programmes adopted by many EM central banks
Since March 2020, exceptional measures to bolster liquidity have resulted in a significant expansion of banks’ balance sheets. Fearing that leverage requirements could hamper the transmission of monetary policy and affect banks’ abilities to lend to the economy, the authorities have temporarily relaxed such requirements in the US (until 31 March) and in the eurozone (until 27 June). In the US, although the temporary exclusion of reserves and Treasuries from leverage exposure (the denominator of the Basel ratio) is automatic for large bank holding companies, it is optional for their depository institution subsidiaries. The latter can only make use of the exclusion if they submit their dividend payment plans (including intra-group dividends) for supervisory approval
INSEE’s composite business climate index improved slightly in January, gaining 1 point to 92, whilst Markit’s Composite PMI saw a marked 3-point drop, to 47. These two surveys often move in opposite directions in the same month. Which should we believe this time around? We favour the INSEE index. In general terms it gives the more reliable signals. And in current circumstances its relatively positive message – given a still worrying health situation – also looks likely to be more accurate. In particular, it is in line with the stability of the Google Residential Mobility indicator for January compared to December (monthly averages). This indicator is one of the new arrivals helping with closer monitoring, in real time, of the impact of the Covid-19 crisis on economic activity
In 2020, the Brazilian main equity index – the B3 Ibovespa – recovered swiftly from the commotion caused by the pandemic. After hitting record highs in January, the index lost 50% of its value in March before ending the year on a 3% gain. The year also ended with a record number of initial public offerings (26 IPOs and nearly USD 8 bn in funds raised – the highest level since 2007). The proceeds of these offerings were used to acquire assets or equity interests, cover working capital needs, pay down debt and invest in infrastructure – in that order. Global factors have facilitated this rapid bounce back. Liquidity injections and record low interest rates across the globe in addition to vaccines development helped spur an increase in risk appetite
In force since 30 October 2019, tiering seeks to limit the cost of negative interest rates (-0.5%) for eurozone banks by excluding part of excess reserves from the charge[1]. This approach saved eurozone banks a charge of EUR 4.3 billion in December 2020, leaving a residual charge of EUR 9.8 billion. The cost of negative interest rates has nevertheless grown steadily since April 2020, and particularly in the second quarter of 2020, due to sharp increases in excess reserves. These increases result in part from the expansion of outstanding Targeted Longer-Term Refinancing Operations (TLTRO III), the terms of which were temporarily relaxed (from June 2020 to June 2021) in response to the Covid-19 pandemic
The world is rapidly warming up. Between 2010 and 2020, the average temperature increased by around 0.3°C, taking the global warming up to 1.2°C since the pre-industrial time. At this pace, global warming will exceed the Paris objective of 1.5°C before the end of this decade. The impact of global warming has already been felt in many parts of the world: devastating fires in California and Australia, inundations of coastal areas, and prolonged droughts in already dry places. An annual average of 21.5 million people have been forcibly displaced by weather-related sudden onset hazards – such as floods, storms, wildfires, extreme temperature – each year since 2008 (Source: UNHCR). This number could reach 150 - 200 million by 2050
In first-half 2020, a massive sell-off of treasury bills by non-resident investors (-USD 12 bn starting in March 2020), combined with a decline in tourism revenues, albeit to a lesser extent, triggered a drop-off in the central bank’s foreign reserves. In May, foreign reserves declined by USD 9 bn to USD 36 bn. At the same time, the net external position of commercial banks swung from a surplus of USD 7.2 bn to a deficit of USD 5.4 bn. At the end of May, foreign currency liquidity in the banking system was still at an acceptable level, since official reserves still accounted for 5.8 months of imports of goods and services
Due to the lengthening of the health crisis, the European Banking Authority decided on 2 December 2020 to reactivate its guidelines on legislative and non-legislative moratoria on loan repayments. This decision aims at easing credit instructions criteria for granting moratoria. Moratoria granted in relation to the COVID-19 pandemic before 31 March 2021 will not automatically be considered as a forbearance measure. However, such moratoria must have benefitted a sufficiently large set of borrowers and their granting must have been based on a criterion other than solvency. The beneficiaries of moratoria that aim at preventing a default will no longer automatically be considered in default
Although the second wave of the epidemic appears to have peaked in mid-November, the economic outlook, particularly for the labour market, is worrying in Greece as it is in other countries. The consumer unemployment expectations index, published by the European Commission, is deteriorating again, and posted in November its worst reading since August 2013. The hard unemployment data from the Greek statistical service are traditionally lagging: the latest data are for August. Despite managing relatively well the epidemic, the Greek economy has taken a sizeable hit due to the steep decline in tourism, a slowdown that could extend beyond the epidemic phase and hold back the recovery in 2021
New cases of Covid-19 have been rising again in Korea, with more than 300 cases per day on average since mid-November (349 on Nov 24). The number of new infections had remained stable (under 100 new cases per day) since mid-September. The government reinforced social distancing measures twice (on Nov 19 and 24), raising the level of alert to 2 (on a scale of 5) in the Seoul area, the main seat of recent infections. Provided it remains contained, this beginning of a new wave should not call into question the gradual recovery initiated in Q3 (+1.9% q/q, after -3.2% in Q2). The social distancing measures will weigh on domestic demand in the last quarter of 2020, but the effect should remain limited, as observed in August-September (when the level of pandemic alert was also raised to 2)
While Italy's real GDP fell by 12.8% q/q in the second quarter of 2020 (after -5.5% in the first quarter), the non-performing loan (NPL) ratios of sectors of activity that have been subject to administrative closures, in particular, continued to decrease. Surprising as it may seem, this development can be explained. On the one hand, public guarantees on new loans have contributed to increase the outstanding amount of "healthy" loans to these sectors[1], diluting NPL ratios. On the other hand, sales of NPLs continued in 2020 (albeit at a slower pace than in 2019), which reduced the outstanding amount of NPLs and contributed to the cleaning up of bank balance sheets
According to the INSEE flash estimate, private payroll employment in France rebounded by 1.8% q/q in Q3 2020, after dropping 2.5% in Q1 and 0.8% in Q2. France has recouped a little more than half of the jobs losses in H1 (345,000 jobs out of a total of 650,000). Employment is now 1.5% below its pre-crisis level, compared to 4% for GDP. Job variations have been remarkably smoother relatively to GDP, both on the downside and on the upside. This reflects the massive use of job-retention schemes enabled by the government’s decision to strengthen the system as part of emergency measures taken last spring to cushion the shock of lockdown. Employment is expected to decline again in Q4, in the wake of the economic activity relapse under the impact of the new lockdown
The Covid-19 crisis has hit an economy that had already been in recession since mid-2019. In Q2 2020 (which was the period when lockdown measures were the tightest), real GDP collapsed by 16% q/q seasonally-adjusted. Activity contracted sharply across all sectors in April before reviving slowly. The economic growth rebound from H2 2020 is expected to be difficult. Real GDP is projected to contract by 8.5% in 2020 and should increase by a mere 2.5% in 2021. Economic growth will remain constrained by South Africa’s very low potential growth, resulting notably from deep structural brakes such as weak human capital and deficient transport and energy infrastructure. The social context, with very high levels of poverty, income inequality and unemployment, is worsening further this year
On 20 October banking regulators finalised the transposition into American law of the Basel Net Stable Funding Ratio (NSFR)* liquidity requirement. This requires banks to maintain a stable funding profile with regard to the theoretical liquidity of their exposure over a one-year period (in order to protect their capacity to maintain exposure in the event of a liquidity crisis). The final rule differs from the Basel standard, by allocating a nil stable funding requirement to high-quality liquid assets (such as Treasuries) and short-term loans guaranteed by such assets (reverse repos)**
Weekly charts highlighting points of interest in the world economy
