Conjoncture

Conjoncture

    Conjoncture - 23 July 2021
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    The Covid-19 crisis has deeply affected our economies. Although the rebound observed in recent months seems to have been confirmed, uncertainty persists over their capacity to fully recover. This article will look at how the G7 economies reacted during post-recession phases in the past, in terms of GDP, private consumption and investment. How quickly did GDP in these economies catch up with pre-crisis levels and trends? What were the most dynamic components of aggregated demand during recovery phases? Given the specific characteristics of the Covid-19 crisis, can it really be compared with previous shocks? These are some of the questions that we will discuss in this article while highlighting current sector disparities. 
    The Covid-19 crisis did not spare India, and like many of the emerging economies, the country’s economic and social situation has deteriorated sharply. Yet India’s situation had already begun to deteriorate well before the onset of the pandemic, which only accentuated the country’s weaknesses. The very sharp contraction in GDP triggered by the Covid-19 pandemic highlights the economy’s structural vulnerabilities, especially the large number of workers without social protection. With the nationwide lockdown in April and May 2020, 75 million Indians fell below the poverty line, and there is reason to fear that the second wave could have a similar impact. In fiscal year (FY) 2021/2022, GDP growth should rebound vigorously, although forecasts are likely to be revised downwards due to the expected contraction in FY Q1 (the second quarter of the current calendar year), following the outbreak of the second wave of the pandemic. In the medium term, growth might fall short of 6% unless there is a significant easing of the structural constraints that are restricting the employment of regular workers and private investment. If growth does not exceed 6%, the government would have to face not only a possible downgrade of its sovereign rating by the rating agencies, but also increasing social risk. 
    Conjoncture - 25 June 2021
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    In the wake of the Covid-19 crisis, bank deposits, which represent the main component of broad money, have seen extremely rapid growth in both the eurozone and the USA. The origins of this newly created money have frequently been imperfectly identified, and the same goes for the possible factors for its destruction. The European methodology for monitoring money supply nevertheless offers a valuable basis for analysis. In this article we will apply this to US data. We learn that between them, the amplification of the Federal Reserve’s securities purchasing programme and the Treasury-guaranteed loan scheme to companies are sufficient to explain the rapid rise in the rate of growth in bank deposits. We also note that the extra money created will not evaporate suddenly once the pandemic is over or nonconventional monetary policies come to an end.
    The Covid-19 pandemic has had a significant impact on the Moroccan economy. After an unprecedented 6.3% decline in GDP in 2020, the first signs of a recovery are still fragile, even though vaccination campaigns are progressing in both Morocco and Europe, by far the country’s biggest trading partner. This is mainly due to the sluggishness of the tourism industry. It is thus vital that the authorities continue to provide support this year. Despite the rise in public debt, fiscal consolidation is unlikely to start before 2022. The rating agencies S&P and Fitch have downgraded the country to speculative grade. For the moment, however, macroeconomic stability is not a major source of concern. But tight fiscal manoeuvring room could become problematic in years to come. It seems to be more crucial than ever to intensify reforms given that the slowdown in growth and its feeble job content was already a source of concern before the crisis.
    Conjoncture - 02 June 2021
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    The economic shock caused by the Covid-19 pandemic has resulted in a sharp increase in banks’ cost of risk. This has been particularly steep for the Spanish, Italian and Portuguese banking systems, which are notably oriented towards retail banking and have relatively high levels of exposure to the sectors most affected by the pandemic. Moreover, the effects of the sanitary crisis on the cost of risk have been exacerbated by the forward-looking approach of the IFRS 9 impairment model for financial instruments, which has been in force since 1 January 2018. Under this accounting standard, it is not the defaults themselves that give rise to the recording of provisions for impairment, but the mere expectations of such defaults. Banks have therefore recorded more provisions at this stage of the economic shock than they would have under the superseded IAS 39, which might not necessarily be the case throughout the entire economic cycle. This said, the increase in the cost of risk in southern Europe has been limited, to some extent, by the margin of appreciation left to the banks’ discretion, coupled with governmental support measures and their preferential accounting treatment. Thus, the Covid-19 pandemic has represented a baptism of fire for the accounting principles embodied in IFRS 9. Despite an internal capacity to generate capital that has been reduced by the squeeze on financial profitability, due to decreasing revenues and increasing costs, southern European banking systems have, overall, sufficient loss-absorbing capacity to enable them to withstand a possible increase in credit risk, provided that the health situation remains under control.

On the Same Theme

Fed adapts forward guidance, will ECB do the same? 9/6/2021
In the early phase of QE, financial markets perceive central bank forward guidance on asset purchases and on policy rates to be closely linked. This generates a mutual reinforcement of both instruments. At a later stage, there may be mounting concern that the signalling works in the other direction as well. Scaling back asset purchases could be interpreted as a signal that a rate hike will follow soon once the net purchases have ended. In the US, Jerome Powell has been very clear that tapering would not signal a change in the outlook for the federal funds rate. In the Eurozone, both types of guidance are explicitly linked. This may complicate the scaling back of asset purchases in view of the impact on rate expectations. On the occasion of the decision on the PEPP, it might be worth to consider revisiting the link between APP guidance and rate guidance.
PMI: beyond the peak 9/6/2021
The global manufacturing PMI has eased further in August and is now about two points below the peak reached in June. The levels remain very high in the developed economies but the latest country dynamics show considerable divergence with the index moving higher in Canada, Greece, Hong Kong and Indonesia. It jumped in South-Africa after a plunge in July. In most countries, the PMI is stabilising of trending lower, like is the case in the US and the Eurozone. In China, it has moved below 50. Vietnam saw another big drop. 
The number of new Covid-19 cases around the world is stabilising. 9/6/2021
After rising for almost two months, Covid-19 infections are stabilising globally but remain high. In the week of 25-31 August, 4.6 million new cases were reported (chart 1), similar to the previous week’s figure. However, the trend varies between the world’s regions, with cases rising in North America (+4.6%) and falling in South America (-15.2%) and in Africa (-6.4%), while the situation is stabilising in Europe (due to declines in France and Spain – see chart 4) and in Asia. The vaccine rollout is continuing to accelerate around the world. According to Johns Hopkins University, more than 5.4 billion vaccine doses have been given worldwide (chart 2).
Growth hits speed limit 8/30/2021
Judging by recent survey data, it seems many advanced economies are hitting against their speed limit in terms of economic growth. This has several consequences. It creates upside risks to inflation, something which is acknowledged by the Federal Reserve and the ECB. Labour shortages can cause faster wage growth but they should also underpin consumer confidence and spending. Supply bottlenecks should boost company investments. However, when growth is at the speed limit, future economic volatility may increase. Finally, it also creates an analytical challenge in understanding whether softer business surveys are demand or supply driven.  
Despite the high level of new cases in several countries, mobility indicators remain at a high level 8/30/2021
According to the latest figures published by Johns Hopkins University, 4.6 million new Covid-19 cases were recorded worldwide between 19 and 25 August, up 1.2% on the previous week. Cases increased in both North America (10.8%) and Europe (3.5%). Conversely, decreases were logged in South America (7.7%), Asia (4.0%) and Africa (1.9%) over the same period (chart 1). In addition, vaccination drives have continued to make progress around the world, especially in the European Union where the pace of vaccination remains very high (chart 2). 
Uncertainty continues to decline, but for how long? 7/26/2021
Our different uncertainty gauges are complementary, in terms of scope or methodology, yet, based on the latest readings, all but one show an ongoing decline in uncertainty. It reflects the combination of the vaccination campaigns, the lifting of restrictions and good economic data.
International trade: towards peak growth in trade? 7/26/2021
Although the momentum remains strong, world trade volumes could begin to taper off this summer, judging by the results of recent opinion surveys. The global PMI index declined 2 points to 56.6 in June, pulled down by the drop in the manufacturing “new export orders” component. 
Mobility is still favourable despite the pandemic’s rapid spread 7/19/2021
The number of new Covid-19 cases continues to rise worldwide. The surge is due to the Delta variant, which is much more contagious than the other variants. It has now spread to more than 110 countries. The number of daily cases passed the half million mark on July 13 and 14.
PMI: Loss of growth momentum 7/12/2021
The global manufacturing PMI has eased slightly in June but this is masking diverging dynamics. The index was stable in the US, there was a small improvement in the euro area, the UK, Japan and China were weaker. India dropped below 50 and the decline in Vietnam was even bigger. In a nutshell, the levels remain very high in the developed economies but there is a loss of momentum. In the emerging countries, the picture remains very diverse, both in terms of level and change versus May. 
The Delta variant spreads its web over the world 7/12/2021
The Delta variant is on its way to becoming the dominant strain of Covid-19 and has now been found in some 105 countries. Despite the health situation, visits to retail and leisure facilities remained strong, returning to their summer 2020 levels and marking a return to something close to normal in all advanced economies.

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