Macro Presentation : Looking beyond the storm
Head of Macroeconomic Research
Summary: This is my first macro presentation to clients since the coronavirus outbreak. I think it provides a clear assessment of what have been successfully done by policymakers since early March, what are the challenges lying ahead, and how should investors proceed in this very unusual bear market rally.
If you want, you can also skip the slides and go directly to the conclusion:
We are facing an unprecedented crisis: Almost 100% of businesses are affected the COVID-19 outbreak vs 60% in a « normal » recession.
Our baseline macroeconomic scenario is that we have entered into the worst recession since 1929 that will be followed by a U-shaped recovery. However, there are many downside risks to growth to keep in mind: weak global aggregate demand due to the hysteresis effect, tourism will not get back to normal before 2021-22 (it represents more than 15% of direct GDP contribution in Spain, Portugal and Greece), the risk of solvency is increasing fast in the service sector paving the way to a wave of bankruptcies.
Policymakers will implement new policy innovations to mitigate social discontent (UBI), deal with the increase in debt (MMT, monetization and YCC – Yield Curve Control to limit the appreciation in interest rates) and will also resort to old tools (such as higher taxation).
We are at the beginning of a regime shift back towards the 1950s characterized by “big government” and ultra-loose monetary policy (“lean against the wind” monetary policy). Higher inflation is becoming a real long-term risk that could be amplified by de-globalisation forces, debt monetization and the redirection of value chains.
Governments will stop using nominal GDP and will refer to well-being indicators.
Quarterly Outlook Q2 2022
Quarterly Outlook Q2 2022: The End Game has arrived
- Shocks from covid and the war in Ukraine have forced the global financial and political world to change, but what will the end game be?
Productivity and innovation have never been more importantAs the world economy hits physical limits and central banks tighten their belts, could equities be facing a 10-15% downside?
The great EUR recovery and the difficulty of trading itIf the terrible fog of war hopefully lifts soon, the conditions are promising for the euro to reprice significantly higher.
Tight commodity markets – turbocharged by war and sanctionsWith supply already tight, commodities keep powering on. But will it last for yet another quarter?
Between a rock and a hard placeGeopolitical concerns will add upward price pressures and fears of slower growth, while volatility will remain elevated.
The Great ErosionInflation is everywhere and central banks try to combat it. But will they get it under control in time?
Australian investing: Six considerations amid triple Rs: rising rates, record inflation and likely recessionWhile global financial markets are struggling in an uncertain world, the commodity-heavy Australian ASX index is poised to keep a positive momentum.
Cybersecurity – the rush to catch up with realityWith the invasion of Ukraine, governments and private companies are rushing to reinforce their cyber defenses.