A trade and tech war comeback?

Tensions over the Coronavirus add to the long list of disputes between the US and China. But major actions against China are unlikely before the election, as US policymakers will be focused on the ailing economy. After the election, a serious decoupling shock is a rising risk, particularly if the economy has recovered.

United States: Don’t pick a letter

for this cycle

Rather than attempt to mold this cycle to a typical “letter” path, we recommend viewing the trajectory in three phases. Phase 1 is the shutdown, which was painful but over. We are squarely in Phase 2, the transition as the economy finds the bottom. Phase 3 is the recovery which will be one of fits and starts, driven by three variables: path of the virus, degree of offsetting stimulus and residual economic damage.

German debt

We look at German debt trajectories - if all goes well, Germany could get back to pre-shock debt levels by 2030. An incomplete Euro area recovery could challenge German fiscal discipline. Debt ratios could rise for most of the decade. To increase the chances of complying with national rules in future, a big (Euro area) stimulus may be needed.

China - higher deficit

We expect a significant rise in headline fiscal budget deficit ratio in 2020, to 4.8 percent of GDP from budgeted 2.8 percent in 2019. We forecast augmented fiscal deficit to rise to 15.5 percent in 2020 from 7.8 percent in 2019.?

Emerging EMEA

The finalized government reform plan has launched the process of negotiations on an IMF program. Our main takeaways from the draft reform plan remain valid; we supplement our analysis with some additional observations.

Latin America

Available data suggests early economic hit. Record low confidence and unemployment up. Expect very negative activity data ahead. We revise up our ‘20 unemployment forecast to 14 percent. Lockdown length key to labor market impact & demand recovery.