Tuesday 31/03/2020

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Monthly economic outlook

Chief Economist

Confidence indicators suggest the global economy remains highly fragile. Uncertainty has increased now that the UK has chosen to leave to the EU (although it’s not 100% sure that the UK will effectively leave the EU at the time of writing). While the outcome is highly unwelcome and the impact is negative, a catastrophic scenario looks set to be avoided for now.



  • The European economy has been recovering over the past year against the back of important cyclical tailwinds (lower euro exchange rate, lower interest rates, lower commodity prices and less budgetary tightening). But until now, this has never been convincing and the labour market situation, while recovering,  is still hugely disappointing. Brexit obviously doesn’t help and confidence indicators look set to be hit, potentially quite significantly. We identified two axes of uncertainty here.
  • May’s weak job report and the Brexit vote mean that the United States will not see a second interest rate hike this summer. Monetary policy is still in wait-and-see mode against the back of modest growth and underlying inflation. Meanwhile, productivity growth remains sluggish and the outlook for investment is still weak. On the other hand, leading indicators suggest that consumer spending should hold up.
  • Emerging markets are still going through difficult times even though the acute pressure has eased since the beginning of the year.  That said, the USD remains fairly strong and commodity prices are still well below the levels seen in recent years. This means the background for emerging markets remains challenging. Moreover, risks in debt-fuelled China are still elevated so that hard landing fears are likely to pop again sooner or later as explained here.