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Macroeconomic picture - October 2020




Developed Countries

Emerging Countries

Macro and Market forecasts

Disclaimer to our forecasts



October 2020


Octobre 2020






  • United States: Q3 economic rebound exceeds our expectations on GDP, prompting an upside revision to our August forecasts. Yet, the deceleration in late Q3 of several indicators is keeping us from extrapolating Q3 momentum into Q4. After some softening in 2020 H2, headline inflation will move along a gradual upward trend, stabilising around 2% from mid-2021 with possible temporary overshooting. As November 3 approaches, policymakers’ focus is shifting, with an increased risk that 2020 fiscal policy will become more diluted than expected, and with little visibility on the Phase 4 deal in particular. 
  • Eurozone: After staging a strong rebound in early Q3, the recovery curve for Eurozone economies has flattened while the virus resurgence from September in several countries poses concerns on economic momentum moving into Q4. We therefore expect a gradual pickup in both domestic and external demand, supported by extraordinary easy monetary policy and counter-cyclical fiscal policies. Inflation will remain subdued in the near term, moving gradually higher into 2021, yet remaining quite below target. Temporary extensions of furlough schemes may prevent severe distress in the labour market. 
  • Japan: The second Covid-19 wave left its mark on the economic recovery, with household spending turning sluggish moving into Q3 and mobility remaining flat. Business sentiment was mixed in September: while the manufacturing outlook improved on autos, non-manufacturing was dragged down by the retail sector. We maintain our view of a soft recovery ahead and do not expect the economy to return to pre-Covid levels in 2021. The slow closing of the output gap will depress inflation.
  • United Kingdom: The economy continued in summer to bounce back from its Q2 dip, albeit at a slower pace in September amid a Covid-19 resurgence and new restrictions that will likely impact Q4 economic momentum. The labour market remains under pressure, with a possible unemployment surge should furlough schemes (ending in October) not be extended. This outcome would make a new round of fiscal support more likely, together with some easing on the monetary front later in the year as additional Brexit downside risk looms.
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  • Fed: The Fed revealed the new forward guidance associated with the recent changes to its Longer-Run Goals and Monetary Policy Strategy. The current rate will be maintained “until labour market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time”. The new economic projections show that rates will stay at zero at least through the end of 2023. For the moment, the Fed thinks that the policy setting is appropriate. It made no changes to the asset purchase program and showed no urgency in transitioning to a more traditional QE that tilts purchases toward longer maturities. The QE will remain at the current pace “over the coming months”. 
  • ECB: The ECB appeared comfortable with its current monetary policy stance, but stands ready to adjust all of its instruments. It will carefully assess incoming information, including developments in the exchange rate, with regard to its implications for the medium-term inflation outlook. Christine Lagarde emphasised the positive result of the last round of stimulus. TLTRO, which aims to stimulate lending to the economy, has been successful. Indeed, the annual growth rate of loans to non-financial companies stood at 7% in July. PEPP still has around €850bn of unused firepower 
  • BoJ: The BoJ left its monetary policy unchanged on 17 September, one day after the launch of Suga cabinet. Governor Kuroda stressed that the central bank would maintain coordination with the government under PM Suga. This was reaffirmed at a meeting between the two on 23 September. Indicating he would serve out his term until April 2023, Kuroda reiterated that there is no change in the central bank’s target to achieve the inflation target (2%), amid the latest yen strengthening. 
  • BoE: As broadly expected, the Bank of England voted to keep its policy settings unchanged. The BoE also recognised the risks to future economic growth posed by recent pandemic trends and by the Brexit outcome. The BoE is still expected to move to an extension of QE before year-end, when current programme is projected to end. In the short-term, the policy package of QE and forward guidance is likely to remain the preferred one vs other tools, despite the recent decision to explore the negative rates option in the future.
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  • China: We expect China’s sequential growth to normalize down towards trend in H2 2020, while headline YoY growth will continue to firm up to around 6%. The latest data shows a more balanced recovery, with private capex and services consumption picking up at a quicker pace. Meanwhile, we expect food inflation to ease and CPI to drop further in Q4, as sow stock recovers. Services and core inflation began to stabilize in August, thanks to improving demand and a steady rebound in the services sector. 
  • Argentina: Economic activity is picking up from a highly depressed level and in line with rising mobility, due to falling compliance with lockdown measures. GDP is still to contract by low double digits this year. The highly challenging macro story also has to digest a more unorthodox policy stance now, as authorities have tightened capital controls to prevent depletion of (net liquid) FX reserves at the expense of growth and credibility. A positive catalyst in the form of a debt restructuring agreement with the IMF still possible, however, thanks to the IMF’s more realistic view of Argentina’s struggles. 
  • Indonesia: The Jakarta governor announced and enforced a stricter lockdown for the metropolitan area. The lockdown started on the 14th of September and has to be renewed every two weeks. We expect it to be renewed for the coming weeks, due to hospital capacity and Jakarta’s weight in Indonesia’s GDP (about 20%), which is increasing the downside risks to growth. BI stayed on hold in September, confirming its commitment towards the debt monetization process. The monetary policy stance was confirmed dovish, and pressure for easing has increased due to the new risks to growth. 
  • Turkey: the central bank raised its rates by 200bp, with a one-week repo rate at 10.25%. This decision was driven by a “rapid recovery achieved in the economy with strong credit momentum”, “developments in the financial markets” (the ongoing slide in the lira), and the fact that “inflation followed a higher course than expected”. The lira inched up only slightly on this announcement. While this is welcome, it is not enough to restore credibility to the policy mix, as the market is hoping for a return to positive real rates.
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  • PBoC (China): The PBoC left one-year LPR unchanged at 3.85% for the fifth consecutive month on 20 September. In the interbank market, we believe policy neutralization is mostly completed. Key market rate DR007 has reached 2.2%, the rate PBoC charged on its own liquidity injection tool with the same seven-day tenor. Looking ahead, we expect the central bank to guide DR007 to hover around 2.2% by nimbly adjusting the liquidity injection amount. We expect credit growth to stabilise at current levels and do not expect credit tightening to go beyond the targeted property sector. 
  • RBI (India): After pausing in its MP easing in early August (with the Repo Rate kept at 4.0%), the RBI is expected to pause at its October meeting, as well, due to persistent high inflation (6.7% YoY for August). As inflation is struggling to take a convincing disinflationary path, we see very little room to ease further ahead. Q4 inflation figures could offer more space for easing. In the meantime, the RBI is conducting Special Open Market Operations (OMOs) of government bonds to ensure the orderly functioning of financial markets; this was last announced on the 24th of September. 
  • BCB (Brazil): The central bank kept interest rates on hold in September at 2%, in line with our expectations, and is determined to keep rates at highly accommodative levels until inflation expectations converge sufficiently close to the target. Future actions will, however, depend on fiscal developments and continued fiscal prudence. In its 3Q Inflation Report, the CB revised growth higher and confirmed its benign outlook for inflation going forward. All in all, we expect lower-for-longer to stay in place for at least a year, as long as the authorities keep fiscal risks in check. 
  • CBR (Russia): Following the 25bps cut in July, the Central Bank of Russia (CBR) left its policy rate unchanged at 4.25% at its September 18th meeting. The reasons for the pause were slightly higher than expected inflation, due to the revival of consumer demand, weaker rouble and a more volatile external environment. The CBR has reached almost the end of its cutting cycle. It is likely to remain cautious and watch both geopolitical developments, and inflation expectations and dynamics before preceding to the last 25bps cut before year-end.
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The uncertainty around the macro forecasts is very high, and it triggers frequent reassessments any time fresh high frequency data are available. Our macroeconomic forecasts at this point include a higher qualitative component, reducing the statistical accuracy and increasing the uncertainty through wider ranges around them.

A global recession is our base case today

1. How deep?

  • The deepness depends on the virus longevity in the countries affected and the consequent gradual to complete lockdown in most of them. Downturn is evident in domestic demand (across its components at different degree) and in trade dynamics. We assume the largest downturn in the lockdown quarter and a milder downturn to follow. We monitor outbreak developments and lockdown/resumption of the economic activity.

2. How long?

  • The timeline depends on the deepness of the economic disruption together with the credit conditions and the rise of corporate default, magnifying the financial markets turbulence and therefore the impact on the economy.
  • The timeline of the shock has extended, and overall a peak is expected by May to June 2020. The global economy was showing signs of growth stabilisation during the 4Q2020.
  • The timeline is also a function of the specific developments of the outbreak together with pre-existent fragilities

3. The fiscal impact

  • The impacts of micro and macro fiscal measures are not included in our forecasts but it’s fair to assume a normalisation in the financial and liquidity conditions driven by Monetary Policy authorities

Financial targets

  • Financial targets are reviewed on the same line and include policy actions implemented on a daily basis.


Bandeau methodology
  • Scenarios

The probabilities reflect the likelihood of financial regimes (central, downside and upside scenario) which are conditioned and defined by our macro-financial forecasts. We use the k-means clustering algorithm to our enlarged macroeconomic dataset, splitting the observations into the K cluster, where K represents most of the variability in the dataset. Observations belong to one cluster or another based on their similarities. The grouping of the observations into the k clusters is obtained by minimizing the sum of squared Euclidean distances between observations and clusters centroids i.e. the reference values for each cluster. The greater the distance, the lower the probability to belong to a given regime. The GIC qualitative overlay is finally applied.

  • Risks

The probabilities of risks are the outcome of an internal survey. Risks to monitor are clustered in three categories: Economic, Financial and (Geo)politics. While the three categories are interconnected, they have specific epicentres related to their three drivers. The weights (percentages) are the composition of highest impact scenarios derived by the quarterly survey run on the investment floor.


Amundi Research
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Macroeconomic picture - October 2020
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