While climate change is now top of the policy agenda in the U.S., broader environmental issues are also in the global spotlight; Developed markets score higher on environmental protection: France, Germany and Denmark lead the way; Emerging markets tend to fare less well on environmental protection: India, China, and Turkey score lowest. That said…;
…mature markets can “export” environmental threats by importing goods and services that harm the environment elsewhere

The rapid pace of technological innovation has quickly overtaken the open banking models that we see today. The combination of current digitalization trends (amplified by the experiences of the COVID-19 pandemic) and the blurring of traditional sectoral boundaries presents challenges for policymakers and market participants alike, such that open banking needs further renewal, even as it is still taking hold.

The growth rebound will likely be modest, with positive spillovers from the US reflecting primarily on the current account. The government remains committed to fiscal austerity, increased global financial volatility could impede further monetary easing, and major institutional changes are unlikely.

Foreign investors are aggressively buying Chinese bonds but are concentrated in sovereign and quasi-sovereigns. Bond inflows in 2020 were driven by index inclusion, attractive local yields, and a strengthening RMB. This note discusses the allocations of foreign investment and the type of inflows.

EM are traditionally exposed to swings in global risk sentiment and reflation concerns. However, the recent increase in DM rates has had a muted effect on EM credit so far. This is in stark contrast to the taper tantrum when EM spreads reacted more strongly. We also acknowledge that the current taper tantrum-like episode is still in an early stage. Most exposed are EM with large funding requirements and shallow domestic markets.

2020 saw a record number of sovereign bond defaults: Argentina, Belize, Ecuador, Lebanon, Suriname, and Zambia; However, most low-income economies continue to roll over their debt obligations successfully; To date, only 18 low-income countries have asked to suspend debt repayments for H1 2021—down from 44 in 2020  ; For help beyond the DSSI, a few countries have turned to the G20 Common Framework; questions about the process remain

In its 2021 budget, the government cut deficit targets relative to last October’s MTBPS. As a result, it expects public debt to peak at a lower level of 88.9% of GDP in FY25/26. We see risks to underlying revenue and spending projections, in particular the wage bill. In our estimate, larger deficits will cause debt to peak at a higher level of 92.9% of GDP.

Measures to contain the pandemic combined with the drop in oil prices triggered a deep recession. The large twin deficits will narrow significantly in 2021 supported by higher oil and gas prices. We see foreign reserves declining further to levels well below conventional adequacy metrics by 2023.

The output contraction in 2020 was less severe than expected. Fiscal consolidation should improve the medium-term outlook. Demand pressures will likely keep inflation at elevated levels. We think the BNR’s next move will be to tighten its policy stance.

How carbon-reliant are emerging markets? More so than developed markets, but with a lot of variation; Brazil, Turkey, and Chile are most carbon-efficient, with less reliance on energy consumption per unit of GDP; In contrast, the UAE, Saudi Arabia, Singapore, South Africa, and Russia score low on carbon efficiency.

Activity recovered faster than expected in 2020H2, driven mainly by manufacturing. EU funds should support public investment ahead of next year’s parliamentary elections. The MNB’s monetary policy stance is expected to remain largely accommodative in 2021. But we think service sector reopening poses a greater inflation risk than markets predict. Rising inflation expectations and weaker HUF could bring forward the tightening to 2021.