30.04.2020 34

Thematics Views - May 2020

Published April 30, 2020

> 10 minutes

> 10 minutes

Don’t underestimate the multiplier effect

Over the last few weeks, significant stabilisation plans have been announced across advanced economies and in addition true stimulus plans are now under consideration. Recent empirical studies show that fiscal multipliers could be much larger in the current depressed context than during normal times. We believe this could boost the recovery path of corporate dividends going forward, in Europe in particular.

Emerging markets, navigating among several shocks

When we analyse emerging markets in the context of the Covid-19 pandemic, we need to assess not only the impact on growth and the policy mix in place to drive its recovery, but also the vulnerabilities that the same policy mix is breeding, through capital outflows and currency depreciation. The following analysis will help to navigate the different situations in a number of emerging markets, and will offer a more granular country view.

Fed’s QE: the next phase

The Federal Reserve has bought US Treasuries at an unprecedented pace since it started its QE programme on 16 March. As volatility and liquidity on Treasury markets continue to improve, the Fed is expected to slowly taper its purchases that were aimed at maintaining proper market functioning. However, uncertainty around the extent of the recession the Covid-19 has caused and strong Treasury issuance to fund the fiscal stimulus could discourage the Fed from slowing the pace of purchases too rapidly. In particular, if the supply shock in the Treasury market triggers liquidity tensions, the Fed will increase its pace of purchases. On top of this, the Fed is likely to fine-tune its management of financial conditions
with yield curve control (YCC).


To find out more, download the full paper

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