Having been hit particularly hard by Covid-19 (more than 126,000 Britons have died so far), the UK is now one of the countries vaccinating most rapidly. With 31 million doses administered since the beginning of the year, coverage of the population has reached 46%...
Before the onset of the Covid-19 pandemic, the United Kingdom had already begun to come out of the “age of austerity”, to borrow a phrase from former Prime Minister David Cameron. The massive intervention of UK authorities to support the economy through the Covid-19 sanitary and economic crises has significantly strengthened this trend. The government deficit ran at almost 20% of GDP in 2020, and the ratio of government debt to GDP increased by twenty percentage points to nearly 100%. Once the crisis is over, some adjustments will be needed. That said, the Treasury’s eagerness to bring public finances back under control rapidly could be counterproductive if it stifled the economic recovery
Unlike major European Union (EU) countries, UK still has not released its GDP for the fourth quarter of 2020. Nevertheless, the monthly indicator of the Office for National Statistics (ONS) gives a foretaste of how the economy fared during this period. In November, GDP contracted for the first time since April, falling by 2.6% as a second lockdown was imposed in England. This drop is due to the services sector, as the index for the production sector stagnated and the one for the construction sector increased...
In third-quarter 2020, Turkish GDP had already returned to pre-Covid levels. Turkey’s economic recovery can be attributed to massive policy support – both fiscal and monetary –, which also involves risks. Inflation is significantly above 10%, and unlike many other emerging countries, the current account swung into a deficit again, which triggered a sharp depreciation in the Turkish lira. Faced with rising tensions, President Erdogan voiced to change the direction of economic policy. It should now have two pillars: a more rigorous policy mix, with a monetary policy that targets a lower inflation rate and greater attractiveness for non-resident investors
Norway was not hit as hard by the Covid-19 pandemic as most its European neighbours. Moreover, the economy has been able to count on considerable support from the fiscal and monetary authorities. In its draft budget for 2021, presented in October, the government has pledged to maintain an expansionist policy, even if spending will logically not be as high as in 2020. What’s more, faced with an upturn in Covid-19 cases and tighter restriction measures, the central bank has adopted a more conciliatory tone.
Since late spring, Turkey has enjoyed a rapid, buoyant recovery. This is rather typical for an economy regularly hit by external shocks that are magnified by capital outflows. Turkey has managed to bounce back yet again thanks to strong economic policy support. The bad news is that it is accumulating several imbalances, including another significant current account deficit and a sharp increase in credit growth, which is accelerating faster than during previous recovery phases. These two factors, which put downside pressure on the lira while driving up inflation, signal a deterioration in the quality of growth and imply higher debt ratios.
Not only was Norway affected by the Covid-19 pandemic, but the country also had to face a big fall in the price of its main export: oil. Nevertheless, these two shocks have been cushioned by the structure of the Norwegian economy and the authorities’ fiscal and monetary response. The country’s economy is now one of the best positioned to return to its pre-pandemic levels. Indeed, it is already showing signs of improvement.
After the deepest recession in recent history, economic activity is turning up again due to the gradual easing of the lockdown measures in Switzerland and the neighbouring countries. The exceptionally accommodative monetary and fiscal policy stances are also contributing to the recovery. SMEs have made use of the special loan programme and employees have benefitted from the short-time work scheme. Nevertheless, the recovery is likely to be slow, and economic activity is unlikely to return to pre-crisis levels before end 2022. The government is confident that the Covid-related debt can be repaid without raising taxes.
Our Pulse for Turkey shows good resilience of the economy until February/March. So far, the government has not imposed a generalized lockdown therefore the supply shock is less severe than for other European economies. Besides, the Central Bank has lowered its policy rate by 200 basis points since mid-March and one third of the support program announced by the government (2.3% of GDP) has been already spent at mid-March. We expect recession to be limited to -2% for 2020 as a whole.
The Turkish economy is facing problems of a sort it has dealt with in the past: a global crisis, that will trigger a sharp fall in exports, coupled with a contraction of external financing. Unlike in 2018, Turkey’s economy does not appear to be overheating, whilst the fall in oil prices and the emergence of a current account surplus are two factors that will reduce the risk. That said, the relatively weak levels of currency reserves, the high level of external debt and the recent rise in non-performing loans are all significant risk factors. In front of the current shock, the economic policy response will have to address foreign currency liquidity needs properly in a context of dwindling capital flows.
With the coronavirus epidemic and its impact on oil prices, which are plummeting, the Norwegian economy is heading for a contraction in 2020. Exports, which account for 41% of GDP, are likely to be hit first. Norway’s central bank cut its key rate to nearly zero and has considerably increased NOK and USD lending, injecting liquidity into the economy while supporting the currency. The government has introduced fiscal measures to buffer the shock for companies and households.
Our indicators show a rather resilient Turkish economy given the global slowdown and uncertainties linked to the military operation in Syria. Indeed, real GDP rebounded markedly in Q42019 (+5.9% yoy compared with 1% in Q3) thanks to a sustained private consumption. Moreover, business confidence has recovered. Household confidence has deteriorated with the rise in unemployment but consumer credit has skyrocketed as a result of very attractive borrowing conditions offered by public banks in the wake of monetary easing (the policy rate has been lowered to 10.75% from still 24% at end-July)
The Norwegian economy is expected to report robust GDP growth through the end of 2019, thanks to dynamic oil sector investments in Norway and abroad. Growth is expected to slow thereafter in a less favourable international environment. Moreover, investment in the Norwegian oil sector is expected to ease up in 2020. However household consumption should continue to grow at a relatively sustained pace, buoyed by wage acceleration. The central bank of Norway will not opt for any further rate increases in the quarters ahead. Inflation should hold near the central bank’s target of 2%, while external risks are on the rise.
Mired in stagflation, the Turkish economy might have to forego its “stop and go” tradition given the need for deleveraging in the private sector and a less favourable international environment. Disinflation continues but remains vulnerable to bouts of forex volatility. (Geo)political risks and the dollarization of the economy make monetary policy management more complex. A swelling public deficit and uncertainty about the direction of fiscal policy are sources of concern. Reducing the current account deficit will not suffice to reassure investors since capital inflows and foreign exchange reserves are both diminishing faced with the country’s substantial external refinancing needs.
After a precipitous 42% decline against a euro-dollar average between January and August 2018, half of which occurred in the month of August alone, the Turkish lira (TRY) rebounded by 15% in September-December, following a massive interest rate hike by the Turkish central bank (CBRT). Nonetheless, the TRY has depreciated again by 10% over the past two months amid stagflation. FX volatility has spiked owing to uncertainty about the true level of “free” FX reserves. Net outflows of non-resident portfolio investment in local currency amounted to USD 1.4 bn in March-April as non-resident investors pulled out of the local equity market and, above all, the local bond market. They now hold only 12% of domestic public debt (vs. more than 20% through 2014).
With the approach of municipal elections on 31 March, which will be another key test for the government, major manoeuvres have been launched on both the macroeconomic and geopolitical fronts to stimulate activity and advance a foreign policy agenda (notably in Syria) at the expense of diplomatic tensions with the US. The financial strain has soothed since the currency crisis in August 2018, but cyclical conditions have deteriorated. We seem to be heading for a recession scenario lasting several quarters, with the financial weakness of many non-financial corporates being a main concern. The rapid narrowing in the current account deficit and the disinflationary process initiated in recent months attest to the scope of the macroeconomic currently underway.
Economic growth in Serbia has accelerated since 2017, fuelled by consumption and investment. Inflation is still mild thanks to the appreciation of the dinar. This favourable environment has produced a fiscal surplus that gives the government some flexibility. The public debt is narrowing, even though it is still relatively high and vulnerable to exchange rate fluctuations and the appetite of international investors. Several factors continue to strain the potential growth rate of the Serbian economy, including unfavourable demographic trends, the slow pace of public sector reforms, and a tough political environment.