In focus

Economic and Strategy Viewpoint - February 2020

Could the coronavirus derail the global recovery? 

  • Concerns over the spread of the coronavirus are escalating as the death toll rises. The disruption to demand caused by the coronavirus outbreak is significant for China, but for the global economy, the disruption to supply chains is at least as important.
  • If the outbreak continues for a significant length of time, the levels of disruption will negatively impact trade partners and where central banks still have room to manoeuvre, they may be called upon to ease policy further.

Can the UK economy rebound after Brexit?

  • As the UK looks forward to life after Brexit, we discuss the transition period and the prospects of a trade deal with the EU and its coverage.
  • Meanwhile, the economy could enjoy a rebound in activity. Early signals from private business surveys suggest the mood is improving, which could help lift business investment. However, high levels of inventories must be rundown before growth can return to above trend levels.
  • An ongoing recovery in sentiment and activity will depend on how the government approaches negotiations as well as the progress it makes. If it can avoid headlines of looming tariffs, then there is room for optimism as the majority of investment professionals surveyed expect further delays.

Has the yen lost its safe haven status?

  • We find that the historical relationship between the yen and the US equity market suggests the yen keeps its status as a safe haven.
  • The yen carry trade is less attractive now relative to history, pointing to lower repatriated flows from an eventual unwind. Having said this, the fundamentals underpinning the yen’s safe haven broadly remain intact.

Inflation bump should not dislodge EM central banks

  • Emerging market (EM) inflation has been declining for a long time, but there are signs it may be reversing.
  • A trend reversal would have material consequences for monetary policy and investors, but we think the drivers are temporary, and EM will continue to experience lower for longer inflation.

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Economic and Strategy Viewpoint - February 2020 19 pages | 717 kb