Economic Forecast: Small businesses under pressure – Hamada warns against monetary easing – ‘populist’ investments forecast to increase

11th May 2020 (Last Updated May 11th, 2020 10:35)

11 May

The European Central Banks SME survey showed that SMEs are reporting a rapid deterioration in economic environment in context of Covid-19.

The survey shows that expectations about the availability of bank loans were falling significantly in the Euro area (-11%, down from 4% in 2014 when survey was last carried out)), with the level of deterioration varying across countries.

Reflecting the severity of the coronavirus pandemic in different countries, Italian SMEs reported the largest deterioration in net terms (-13%, from 9%), followed by French and Spanish SMEs (-9% and -12%, from 8% and -1%, respectively).

Yale University Professor of Economics Koichi Hamada warned over the dangers of monetary easing led by the US.

Hamada wrote in his blog published by the World Economic Forum: “Today, governments are generally focused either on “flattening the curve” of their first wave of Covid-19 infections or, increasingly, on avoiding a second wave of infections as they ease social-distancing protocols and allow economic activity to resume.

“But, with the US apparently intent on flooding global markets with dollars, even economies that have so far managed the crisis effectively may have little choice but to pursue their own monetary easing.”

 

Commenting on the surge in unemployment in the US investment bank Citi said it expects more populist stances to gain traction in western economies.

From an equity market standpoint the bank said: “refocusing on domestic-focused industries vs. globally-oriented businesses could prove an opportunity for value stocks as the anti-globalisation drive negatively affects global industries and promotes domestic ‘national’ champions.

“Pressure on stock buybacks could mean the end of a ‘just buy the market’ mentality and usher in a new period emphasising the importance of stock selection and dividends in the search for positive returns.”

The analysis by the bank also added that: “Currently, US equity markets are pricing in an earnings rebound, but with concerns over falling profit margins as a result of the downturn, expectations for medium-term earnings growth might be optimistic.”