Natalia Gurushina, Chief Economist, Emerging Markets Fixed Income Strategy
May 13, 2020
India announced a new stimulus package worth 10% of GDP. Turkey’s current account deficit shows no signs of correction despite the weaker currency.
Just as we thought that the era of big stimulus packages was over, India made an impressive announcement worth 10% of GDP. OK, “only” half of it is new money, but this is still a big amount. Details released so far indicate that the government will focus on small and medium-size enterprises, additional liquidity injections, and changes in pension contributions. One thing we are eager to learn more about is what’s behind the government’s new “self-reliance” motto – in particular, whether this will lead to additional protectionist measures. India can benefit greatly from a post-COVID re-design of global supply chains, and it would be a pity to lose this advantage.
We feel bad lambasting Turkey after every data release, but they are not giving us any other option. To wit, today’s balance of payments numbers looked ugly. First, the current account deficit widened to a nearly 2-year high (USD4.92B – see chart below), exceeding expectations. This is despite the weaker currency, which in theory should have led to a correction. Second, the international reserves registered further decline. Third, the net errors and omissions jumped higher, which might be a signal of capital flight. The policy mix is likely to blame – including the on-going (and futile) currency interventions.
The IMF’s commitment to supporting emerging markets in the current situation remains strong. According to this morning’s headlines, Chilean authorities secured a (sizable) USD23.8B Flexible Credit Line (FCL) – which is given to countries with stronger fundamentals and policy frameworks. Chile’s neighbor – Peru – is also waiting for FCL’s formal approval. The most exciting news of the day came from Ukraine, where the parliament had finally approved the banking law, which was one of the main requirements for the new IMF deal. Well done!
Chart at a Glance: Turkey Current Account – Adjustment Interrupted
Source: Bloomberg LP
IMPORTANT DEFINITIONS & DISCLOSURES
PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments.; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.
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