Our nowcasting model shows that US GDP might fall by -29% in 2Q 2020 and that unemployment might take up to three years to return to its pre-crisis levels. These results cast additional shadows over the assumption of a V-shape recovery for the US economy, which has already been abandoned by the Federal Reserve.
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EM (ex-China) Commentary: Increased dispersion amidst an uncertain outlook
the economies of Mexico, Brazil, Russia, India, Indonesia, South Africa and Turkey have all been hit by the coronavirus crisis. EM currencies, equities and bonds have been particularly impacted by the global market fallout that occurred in February-March 2020. As has been documented by the IIF, Global investors pulled out their funds at record speed during that acute episode of market stress. Since then, the volatility of DM and EM markets has somewhat receded and the general sentiment toward risky assets has improved, not the least because the world’s major central banks committed trillions of dollars to support the markets and to put a de facto backstop on assets valuations . However, EM assets remains vulnerable to new waves of volatility and risk aversion that would trigger additional capital outflows.
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US Commentary: Minutes of the FOMC April 28 meeting and Chair Powell testimony before the Senate.
TThe FOMC April 28 meeting minutes provide some glimpse into the Federal Reserve’s early assessment of the crisis triggered by the coronavirus pandemic, the outlook for the US economy over the coming months and quarters. Fed Chair Powell testimony on May 19 before the US Senate Committee on Banking, Housing and Urban affairs offers additional insights into the Fed’s current thinking and options to contain the economic impact of the coronavirus crisis and to speed-up the recovery of the US economy.
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China Commentary: Economic policy between the hammer and the anvil
the main focus for observers of the Chinese economy n the coming months and quarters should not be on the overall size of the stimulus package but on the nitty gritty details pertaining to the allocation of government-backed funds across sectors and geographic areas. In the context of an intensifying trade and technological war, a significant part of the effort could be geared toward insuring that productivity gains will be preserved in the post-Covid era by investing in Industry 4.0 and high tech ventures. Another area of focus is the need to reduce social inequalities – a subject that has been taboo for years if not decades in the wake of China’s transition to a market based economy – and supporting the build-up of an ambitious and comprehensive social safety net – targeting the rural population and migrant workers – that could increase social cohesion and preserve political stability in the years to come.
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Euro Commentary: “Karlsruhe vs. Frankfurt”: An analysis of the May 5 ruling by the German Constitutional Court and its potential impact on the ECB and economic policymaking at the EU level.
There are at least two ways to read the decision rendered by the German Constitutional Court – BundesVerfassungsGericht or BVerfG – on May 5, 2020 (BVerfG, Urteil des Zweiten Senats vom 5. Mai 2020), in the case opposing the ECB to a group of complainants claiming that the Frankfurt-based monetary institution went beyond its legal mandate, when it decided in March 2015 to launch a large scale asset purchase programme (APP) targeting first and foremost government bonds. We can read it through the lenses of an Economic Policy or through the lenses of a Constitutional law and Politics. From both perspectives, the ruling contains useful insights that clarify some complicated institutional questions and shed light on economic policy options available to the ECB and to EU/Eurozone Member States. The fact that this ruling comes in the midst of an unprecedented global economic crisis, stemming from the radical measures enacted all over the world to combat the coronavirus pandemic, makes it even more critical for investors to understand its rationale and contending claims.
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Euro commentary: Why a Pandemic-OMT (POMT) might be triggered sooner than later by the ECB
A Pandemic OMT – P-OMT – might well be the most appropriate solution in the current context – and perhaps the only one that is available, especially if discussions around a common Eurozone fiscal package fail to produce meaningful results – in order to support individual Eurozone member countries, while preserving the overall financial stability of the Eurozone and the autonomy and credibility of the ECB.
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The long view: Why there is no end in sight for the oil war
A temporary production reduction agreement under current conditions is not necessarily in the interest of all stakeholders in the global oil industry
This deal will not solve the huge oversupply that is currently still building-up
The oil war is not due to misunderstandings or ego plays but to the intrinsically different strategies and motives of the key players at hand.
For all these reasons, an OPEC ++ coalition cannot not be sustained over time and its impact on oil prices is likely to be marginal and disappointing.
Oil commentary: Will OPEC++ stabilise the oil market ?
Will a compromise between OPEC (KSA), Russia and the United States stabilise the oil market? Interview on RT.com and further analysis
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The long view: Apocalypse now? The outlook for the global economy after the Covid-19 pandemic.
Willl the Covid-19 reshape the global economy? What are the most important hotspots and the blindspots revealed by this crisis? We tackle this issue in this article. Beyond the handling of the health crisis and the exceptional support measures designed to ensure that hundreds of millions or even billions of people around the world do not lose their livelihoods overnight, the most worrying concern are the medium- and long-term consequences of the crisis for the global economy.
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Oil commentary: Is Saudi Arabia’s “oil put” strategy reasonable ?
Alexandre Kateb was interviewed on RT International about Saudi Arabia’s “oil put” strategy following the Kingdom’s decision to flood the market with cheap oil in order to squeeze the other major oil producers.
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