Concerned with the economy's already-high debt levels and RMB stability, the PBoC was the least dovish major central bank this year. The PBoC has begun to suspend even this moderate pandemic emergency stimulus as China’s economy recovers and as concerns about financial froth increase.

A recent PBoC survey revealed information regarding Chinese household balance sheets. Chinese households’ net worth is surprisingly large thanks to high savings rates and rising home values. The under-allocation in financial assets means poor liquidity yet great potential for diversification. 

We examine currencies in the MENA region with large secondary market discounts, the biggest of which are in Lebanon, Syria, Iran and Sudan. The divergence of official and parallel FX rates in these countries reflects decades of economic mismanagement, public corruption, and international sanctions. 

We analyze the impact of COVID-19 via early activity indicators. Tourism and remittances receipts are key vulnerability drivers. Despite shrinking services surpluses, falling goods imports have kept external pressure contained. Monetary policy has eased markedly, while fiscal space is more limited. 

The COVID-19 response will improve medium-term growth prospects for the CEE-4. Stronger government finances provided countries with room for stimulus measures. The ECB’s response has also allowed authorities to cut rates and start bond purchases. Finally, the EU’s proposed recovery fund would improve growth prospects markedly.

Exchange rate flexibility has eased the adjustment to COVID-19 in most large countries. However, “fear of floating” is still high across Central America and the Caribbean. While local market financing is increasing, countries have largely had to borrow in hard currency to help withstand the shock.

The Supplementary Budget Review shows higher deficits and quickly rising debt. Nonetheless, foreign investors returned in May and yields have fallen sharply. A credible consolidation strategy is needed in October to sustain investor interest. Plans hinge on cuts to non-interest spending that will be difficult to implement.

Growth will slow down sharply to 0.9% in 2020 as a result of the global recession. Lower oil prices will help offset a decline in exports and collapse of tourism revenues. Support from multilaterals should keep reserve losses manageable at around $1.5 bn. The main downside risk for external financing is a sharp rise of oil prices in 2020H2. Furthermore, a steeper decline in non-resident FDI would be a source of concern.