Our Turkish Lira fair value has been unchanged at $/TRY 7.50 since the middle of last year, but latest Global Macro Views makes another adjustment to reflect the evolution of the balance of payments, lifting our fair value to $/TRY 9.50.
🔒:
NEW Global Debt Monitor: Global debt hit $246T in Q1 2019, nearly 320% of GDP.
Debt by sector, Q1 2019 (as % of GDP):
🔹Households: 59.8%
🔹Non-financial corporates: 91.4%
🔹Gov't: 87.2%
🔹Financial corporates: 80.8%
Many U.S. firms are not generating enough
#earnings
to cover interest expense—despite still-strong earnings growth. With growth expected to slow in 2019 and rates still rising, the problem could get worse.
Turkey’s CDS spread and bond spreads have risen nearly 350 basis points—the highest level seen since the peak of the Euro Area debt crisis. Higher refinancing costs will put further strain on government budgets and corporate borrowers (a risk for the Turkish banking sector).
From our real-time flows tracker: Cumulative EM capital outflows since Jan. are already 2x as large as during the 2008 financial crisis and also dwarf other stress episodes like the taper tantrum and the 1997-98 Asian financial crisis.
ICYMI: Turkey’s CDS and bond spreads have risen nearly 350 basis points – the highest level seen since the peak of the Euro Area debt crisis. Higher refinancing costs will put further strain on government budgets and corporate borrowers (a risk for the Turkish banking sector).
The global debt-to-GDP ratio surged by 35 percentage points to over 355% of GDP in 2020, well beyond the upswing seen during the 2008 global financial crisis.
More in our new Global Debt Monitor:
Turkey’s challenging external financing and inflation outlook calls for tighter policies, especially considering that global liquidity conditions are set to tighten further in the period ahead.
Now above 322% of GDP, global debt-to-GDP is now 40 percentage points higher than at the onset of the 2008 financial crisis. More in the new IIF Global Debt Monitor, out today:
#Inflation
in EMs has come down significantly in recent decades and is increasingly synchronized; median inflation in a sample of 46 EMs is now below 3%.
Deposit dollarization in
#emergingmarkets
offers some cushion for high FX
#debt
levels, but could reduce the capacity of central banks to control liquidity.
Weekly Insight: Surging Global Debt - What’s Owed to China?
Global debt is expected to exceed $325 tn by 2025;
#China
has accounted for 40% of the increase in global debt since 2007.
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Turkey: Assuming meaningful drop in current account deficit, healthy rollover rates, and no domestic capital flight, there could still see reserve losses ahead.
Venezuela’s economic collapse is almost unprecedented in recent history. Zimbabwe in the last 20 years and the collapse of the Soviet Union are the only comparable episodes.
Emerging markets saw a record-breaking $83.3 bn in portfolio outflows in March. Outflows in Jan/early Feb. had primarily been contained to EM Asia, but the latest IIF Capital Flows Tracker registers large outflows across EM.
IIF downgrades growth forecasts amid COVID-19 scare:
🇨🇳 China: From 5.9% to ~4.0%
🇺🇸 US: From 2.0% to 1.3%
Global growth could conceivably approach 1.0% this year, down from 2.6% in 2019.
Full analysis from
@RobinBrooksIIF
,
@genemaIIF
, &
@econchart
:
Stronger
#USD
= trouble for
#emergingmarkets
. Big debt buildup in recent years has left
#EMs
more sensitive to currency movements—a 10% USD appreciation would push EM debt/GDP ratios higher now than it would have in 2009.
Portfolio flows to
#emergingmarkets
slowed to just $7.7 billion in July, as EMs remain vulnerable to uncertainty around COVID-19,
#Fed
tapering.
Read more in our July Capital Flows Tracker, new today:
Global manufacturing PMIs have lost ground since their 2018Q1 peak, indicating weaker manufacturing sentiment. We forecast EM growth of 4.5% this year and 4.6% in 2019, driven mainly by China and other Asian economies.
Expect Turkey's current account to be in surplus next year because of compressed imports. Nonresident outflows from banks will continue, albeit at a lower pace. External vulnerability won’t be the most pressing issue. The output cost of sharp external adjustment will be in focus.
Current levels of EM outflows exceed those seen during the 2013 taper tantrum and the 2008 global financial crisis. More on "sudden stops" in
#emergingmarkets
& the global economy amid
#COVID19
from Chief Economist
@RobinBrooksIIF
:
#EM
portfolio outflows in recent weeks have been largely concentrated in South Africa, where the current account deficit and political risk are seen as vulnerabilities.
Many
#Eurozone
banks are now more exposed to domestic sovereign
#debt
than they were in 2010—this linkage could once again prove problematic if
#bond
market strains intensify.
#Argentina
financing post-restructuring: External financing will be comfortable if the IMF rolls over its exposure into a new program, but financing a widening fiscal deficit presents new challenges. More from
@mcastellano44
,
@SergiLanauIIF
,
@econchart
:
March's "sudden stop" in flows to
#emergingmarkets
is over: Massive Fed easing has helped stabilize EM and pushed Q2 non-res. flows back into positive territory, notes Chief Economist
@RobinBrooksIIF
and team in new Global Macro Views:
Spillovers from Turkey impact trade partners: Weaker TRY will reduce Turkey's imports. This may weigh on economic activity in countries that have relatively large trade linkages with Turkey.
External vulnerability can be most acute where large current account deficits exist, especially when those deficits are widening rapidly, as is the case for Argentina and Turkey.
Escalating trade tensions have triggered a reversal in EM flows, with nearly $3 billion in non-resident outflows leaving EM so far this week; total since last Thurs. is $6.8 billion.
10 years following the Great Recession, the Euro zone recovery has lagged the US, by 10 percent in absolute terms and 5 percent in per capita GDP terms.
New Economic Views examines
#emergingmarkets
external financing needs in 2021. Total gross financing needs appear manageable for most, but buffers are thin in South Africa, Turkey, and Ukraine.
IIF members can read full report:
Turkey: With the 1-year lira swap rate rising by 160 bps since the end of June, the market is pricing in a sizable interest rate hike from the central bank at its next MPC meeting on July 24.
Today, we're announcing that
@AnaBotin
, Group Executive Chair of
@bancosantander
, will become the next Chair of the IIF — elected unanimously by the IIF Board of Directors today during its annual meeting in Washington, D.C. Full announcement:
Even in the most optimistic recovery scenario, full-year tourist arrivals are set to be down at least 60% YOY, presenting economic challenges for large EMs where
#tourism
contributes significantly to employment and GDP:
NEW TODAY | Global debt reached a new all-time high of 322% of GDP in Q3 2019, with total debt nearing $253 trillion.
Access the Global Debt Monitor report and database here:
Investment growth is down to zero across EM, with especially pronounced weakness in
#Turkey
,
#Argentina
, and
#Mexico
.
Read the latest in
@RobinBrooksIIF
's EM secular stagnation series: