12 May 2020

Monthly Economic Update

Every month, our economists study the macroeconomic situation. They analyse the events that have had an impact in recent months, and discuss possible consequences.

Discover the analysis of Julien Manceaux.

Entering the next phase

This is still the mother of all fast-moving environments. While the latest economic data paints an even clearer picture of the depth of the crisis across the world, some European countries have already entered the next phase of the Covid-19 pandemic: the gradual easing of lockdown measures. Other countries, including the US, are likely to follow in the coming weeks. This loosening of restrictions is taking somewhat longer than initially expected and is also more gradual. It is too soon to expect a smooth transition back to normal life and a temporary, partial return to lockdown measures cannot be ruled out.

Plans to reopen suggest that the worst of the economic downswing might be behind us. However, available data shows that the damage from the crisis has been even worse than expected. Most Western countries will see the sharpest contractions in their economies since the 1930s. With the latest information, we expect declines of more than 10% in the developed world and have consequently had to revise down our estimates for GDP growth in 2020.

US: the long road home

  • While there are glimmers of hope as a re-opening tentatively gets underway, the damage wreaked on the economy will take a long time to repair

Eurozone: this is big

  • With the lockdown measures lengthened and only phased out very gradually, the eurozone economy is likely to shrink by around 8% this year. The European Central Bank will continue to do the heavy lifting in terms of measures to soften the blow, though the verdict of the German Constitutional Court, questioning the legality of QE, certainly doesn’t help

China: challenges shift from supply chain to global demand

  • China‘s economy is recovering from the damage caused by Covid-19. The broken supply chain is not the top issue anymore. Weak global demand is. As a result, companies within China may focus more on the domestic market given stimulus from the “New Infra“ scheme. But the risk of a new trade and technology war is returning

Asia: Lockdowns work, they also hurt

  • There is a really wide spectrum of experience for Asia in terms of the Covid-19 outbreak, the responses, the state of the economy and the proximity to a reopening of the economy where it has been closed

Central and Eastern Europe’s fiscal and monetary response to Covid-19

  • What is behind the magic of high numbers of anti-crisis programmes to combat the economic fallout from Covid-19? Some CEE countries can afford policy responses like developed markets as their central banks kickstart QE support programmes

Rates: Taming the supply monster

  • The size of government deficits built to finance the Covid-19 induced lockdown are nothing short of staggering. Now they must be financed. That means lots more government bond issuance. Had it not been for central bank buying, the impact would be for much higher rates. We should see curves steepen. But market rates will not be let rocket higher

Asset Markets: Which asset class has got it right?

  • Equity markets have retraced around 50% of their Q120 sell-off and are focusing on the recovery. Credit markets are also performing well. However, sovereign debt, commodities and to some degree FX markets are still pricing recessionary levels. Which asset class has got it right?

Negative oil prices may be behind us

  • Oil markets made history in April, with NYMEX WTI trading into negative territory for the first time. While much of this was technical in the lead up to the 20 May contract expiry, it also reflected the state of the physical oil market, where we have seen significant demand destruction. But we think the worst is behind us now

Mapping the global lockdown

  • An index based on Google mobility data indicates which economies have so far been more or less affected by the lockdown. While differences are large, one thing stands out: this is truly a global symmetric shock like no other

Asia: What can we learn from Asia’s pandemic?

  • Asia is really diverse, so it will come as no surprise that we have learned very different things from different economies during the Covid-19 pandemic

US versus eurozone: ‘I did it my way’

  • In this article, we compare the US and eurozone policy response and explore potential differences in the recovery phase

The rising risk of an asymmetric eurozone recovery

  • Judging from mobility data, the lockdown measures in the eurozone seem to have different impacts across countries. With some countries easing the lockdown measures, while others remain locked down for longer, the risk of an asymmetric recovery increases

Will the eurozone survive this crisis?

  • The highly emotional debate on coronabonds, the discussion on a pan-European fiscal response and the cumbersome negotiations on a recovery fund has brought back speculation about a return of the euro crisis and a potential break-up of the eurozone
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