We estimate that Ukraine’s debt should stabilize at around 55%. The exchange rate depreciating roughly in line with inflation is key, as about two-thirds of Ukraine’s debt is issued in foreign currency. A 2014-style FX shock would bring the debt-to-GDP ratio to 100%. We are more concerned about the financing gap in 2020 than debt.
Please find our latest U.S. Regulatory Update, covering the Federal Reserve’s Semiannual Monetary Policy Report, Congressional Libra Hearings, Stress Testing and CCAR results, and Capitol Hill updates, among other topics.
Following his testimony at the US Congressional hearings on Facebook’s proposed Libra digital currency, Professor Chris Brummer joins FRT to discuss the top takeaways and the potential implications for other initiatives in the digital currency landscape (with Brad Carr & Conan French)
Labor shortages and fragile investor confidence will constrain output growth. Policies will likely become more accommodative, thanks to a dovish ECB and Fed. The external financing and inflation outlook will remain challenging for some. Slow progress in addressing structural problems will intensify vulnerabilities.
The IIF has summarized key themes that emerged from the Facebook Libra hearings before both the Senate Banking Committee and the House Financial Services Committee this week in Washington.
Our EM Growth Tracker came in at 3.5% (3m/3m SAAR) in June, 0.3pp lower than the month prior. The deterioration in our tracker was mainly driven by weaker hard data (explaining more than half of the decline) but exacerbated by business surveys and financial variables.
Low rates may boost short-term growth—but will discourage deleveraging even as debt continues to pile up; Incoming EC President Ursula von der Leyen puts climate change and sustainable finance top of the policy agenda; LIBOR transition update: focus on risks for asset managers; Venezuela: estimated total debt of over 200% of GDP, with external debt accounting for 80% of total debt
Despite the shift in the Fed's stance, the Dollar has refused to fall versus the rest of the G10. One reason is that other central banks are also shifting dovish, which limits the scope for interest differentials. Another is that the importance of rate differentials as a driver of FX has fallen, such that the dovish Fed shift now carries less signal for the Dollar. The Dollar is “stuck,” a dilemma for policy makers who want a weaker currency.
Growth differentials across EM are large. Asian EMs outperformed in the long-run, mostly due to higher productivity growth. Low productivity explains low growth, in Brazil, Mexico, and South Africa.