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Global Economic Weekly

  Global Economic Weekly: Unstable news, stable forecast

•  After a period of volatility, both our and consensus forecasts for growth have stabilized over the past few months.
•  This is because we now have a better understanding of the feedback look between the virus, policy and the economy.
•  Additionally there have been offsetting revisions, and it's become clear which emerging markets would be hardest hit.
Global Letter: Unstable news, stable forecast

Both our and consensus forecasts for growth have stabilized over the past few months. We see three reasons for this. First, we have a better understanding of the feedback loop between the virus, policy and the economy. Second, there have been some offsetting revisions. Third, most of the downward drift in global GDP forecasts came as it became clear which emerging markets would be hit the hardest.

United States: Housing has a strong immune system
The shining star in the economic recovery has been the housing market. We identify 5 reasons for relative strength including record low mortgage rates and evidence of pandemic-related relocations. Housing activity should remain robust into the fall but then moderate once pre-COVID-19 levels have been reached.
Euro Area: We have a deal!
The recovery fund was finally approved. Its strong political message still trumps its economic power. The Euro area still lacks proper cyclical/stabilisation tools. National governments have to deal with that on their own. The ECB is not off the hook, the governance structure can easily lead to volatility.
China: China - Local property restrictions 
Several cities introduced new property restrictions recently, raising the question whether a new wave of tightening is coming. Our analysis shows property market has not overheated as a whole, and thus top-down policy shift is unlikely.
Emerging EMEA: CEE - EU budget winner
EU budget deal a success for CEE as total grants for 2021-27 likely stable vs 2014-20. Poland largest beneficiary in absolute terms, followed by Romania. Rule of law conditionality may be weakened but not eliminated.
Latin America: Panama - Glass half full
Given the nosedive in Q2 and the prolongation of the lockdown, we are revising our GDP forecast for 2020 to -10%. We are constructive for 2021. Growth prospects remain favorable and the sovereign will likely retain its IG credit rating.