In our latest analysis released at the beginning of the year, we had laid out our medium-term outlook as a correction of the business cycle, including an economic slowdown, yield curve inversion, a return to lower bound policy rates, and subdued inflation prints. The global shocks resulting from the eruption of the coronavirus pandemic have significantly altered the sequence of economic and financial phases, shortened the timeframe and expanded the scale of the ripple effect.
Certainly, global trade will decline as fault-lines along the supply chain surface, and whole economies come to a standstill. Monetary authorities have acted swiftly to assuage the markets, having learned the lessons from the GFC. The insidious deflation risk has become a reality because of the freefall of oil prices. Even if the main reason has been the oil producers’ price war, it is in itself having a meaningful impact in energy and financial sectors worldwide.
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