Coronavirus to Weaken Eurozone Fiscal Positions amid Recession

Proshare

Monday, March 30, 2020 /10:37 AM / By Fitch Ratings / Header Image Credit: The Telegraph

 

The following comment, originally published on 20 March 2020, misstated Greece's sovereign rating in the seventh paragraph. This has been corrected and all other text is unchanged.

 

The ECB's EUR750 billion bond-buying reduces refinancing risk for eurozone sovereigns and will help facilitate their fiscal responses to the coronavirus crisis, Fitch Ratings says. In line with our global approach, we will aim to assess how far urgent fiscal measures could lead to medium-term deteriorations in public finances when incorporating crisis responses into our sovereign credit analysis.

 

The ECB will buy public- and private-sector securities until at least end-2020 under its Pandemic Emergency Purchase Programme (PEPP). Eligibility requirements for Greek government debt under the existing purchase programme are waived, and purchase flows can vary across asset classes and jurisdictions, if necessary.

 

The size and flexibility of the PEPP eases potential refinancing risks for eurozone sovereigns most affected by the coronavirus (Italian and Spanish sovereign bonds rallied after the announcement). It also means the ECB will help to absorb bonds that will be issued to finance fiscal easing in response to the sharp economic contraction caused by coronavirus-containment measures.

 

Fitch's 2020 base case eurozone GDP forecast of -0.4% assumes a V-shaped recession and recovery, but the evolving nature of the crisis creates substantial downside risks. A number of governments, including those of the bloc's four largest economies, have announced fiscal responses, including a mix of tax cuts, new spending and loans or guarantees. Moreover, tax revenues will fall and other demands on government spending will increase while containment measures are in place.

 

On top of individual countries' supplementary fiscal measures and automatic stabilisers, the Eurogroup announced European-level measures including a EUR37 billion 'Coronavirus Response Investment Initiative' and EIB Group lending and investment. Both national and European fiscal responses are developing and growing. According to the Eurogroup's 16 March statement, the combined direct fiscal measures at the national and European levels account for 1% of GDP on average. The combined liquidity measures that include sizeable loan guarantees from fiscal authorities, which we think are an important component of an effective near-term policy response, account for about 10% of GDP.

 

The eurozone's lack of central automatic fiscal stabilisers means that, in the absence of greater risk-sharing (potentially via the ESM or the creation of common Eurobonds), the fiscal response will primarily fall to individual member countries, whose headroom to absorb major fiscal loosening varies significantly. The European Commission is facilitating this by allowing member states full flexibility around the Stability and Growth Pact and State Aid frameworks.

 

Fiscal performance has varied since the eurozone sovereign debt crisis. For example, Austria (AA+), Malta (A+), Portugal (BBB), Cyprus (BBB-) and Greece (BB) all demonstrate a record of running sizeable general government primary surpluses (in some cases as part of EU/IMF programmes). This has helped to put debt on a firm downward path (as reflected in the Positive Outlooks on their sovereign ratings).

 

Proshare Nigeria Pvt. Ltd.

 

Timely and targeted policies can help to reduce the risk of a more sustained loss of economic output. However, there is scope for some sovereign ratings migration given the importance of public finances to sovereign credit profiles. The magnitude and duration of the impact on the public finances will reflect the severity of the economic downturn (which may be larger for some countries, such as those where tourism is a significant contributor to GDP and revenues) and the effectiveness of the policy responses. As supplementary fiscal measures are adopted and enacted, our judgements on whether ratings should change will be guided in part by individual sovereigns' records of fiscal consolidation during more favourable economic times.

 

Proshare Nigeria Pvt. Ltd.

 

The likelihood that temporary stimulus measures are unwound will also reflect policy choices and political developments that result from the crisis. The need to formulate a crisis response can strengthen national political cohesion in the short term. In Spain, for example, the main opposition party Partido Popular has pledged to support the Socialist government's crisis response, while most Belgian political parties have agreed to grant the current caretaker government a six-month term with special powers. However, over the medium term, the crisis may make politics even less conducive to fiscal consolidation, for example by increasing expectations of state support for troubled companies.

 

Related News - Global Market

  1. External Debt Relief: A Ray of Sunshine for African Economies
  2. 39% of APAC Corporates More Exposed to Coronavirus
  3. COVID-19: Measures Taken by UK Government to Support Business
  4. The Federal Reserves is Running Out of Options to Stave Off a Coronavirus Depression
  5. Coronavirus Crisis Is Crushing Global GDP Growth
  6. COVID-19 Outbreak: How is Africa faring?
  7. Fed Actions, US Banks Discount Window Use Prudent Amid Turmoil
  8. There Is No Systemic Risk - Feedback From Goldman Sachs' Conference Call Held Sunday
  9. Coronavirus Containment Actions Pose Material Risk to Global Structured Finance
  10. Federal Reserve Cut Rates to Support the Flow of Credit to Households and Businesses

 

Proshare Nigeria Pvt. Ltd.

 

Related News - #Coronavirus

  1. COVID-19: President Buhari Announces Lockdown In Lagos, FCT and Ogun for 14days
  2. COVID-19: Why We Need to Stop Trading Now
  3. COVID-19: The Social Implication of a Pandemic
  4. COVID-19: WARIF Tackles Abuse of Women and Girls in Self Isolation
  5. COVID-19: Presidency Debunks Payment of N30,000 Relief Package to Nigerians With Verified BVN
  6. The Infection Diseases (Emergency Prevention) Regulations 2020 - Lagos State
  7. Even the Worst Crisis Creates Opportunities - 6 Trends COVID-19 will Accelerate
  8. African Development Bank Launches Record Breaking $3bn "Fight COVID-19" Social Bond
  9. COVID-19: NNPC, Oil Industry Donate N11bn to Combat Coronavirus in Nigeria
  10. NCDC Issues Guidelines for Employers and Businesses in Nigeria
  11. #Coronanomics: ISDB Redoubles Efforts With $2bn Funding For OIC Members
  12. COVID-19: Joint Statement by the Chair of IMFC and the Managing Director of the IMF
  13. #Coronanomics: Global Creative Industry Receives $100m Funding From Netflix
  14. CAC Issues Guidelines on Holding of AGMs of Public Companies Using Proxies
  15. COVID-19: CSCS Goes Fully Digital, Activates Business Continuity Plan
  16. CBN Governor's Speech At The Nigerian Private Sector Coalition Against COVID-19
  17. BUA Group Donates N1bn to Support COVID-19 Response
  18. CBN Suspends FX Sales to BDCs Until Further Notice
  19. The Nigerian Economic Stimulus Bill 2020 - How Much Cash Would Your Business Get?
  20. #Coronanomics: Understanding A Virus From An Islamic Economic Perspective - Dr. Aliyu Muhammad
  21. COVID-19 and AGM by Proxy: Lessons from GTBank Approach
  22. COVID-19 Tax Measures - LIRS Extends Filing Deadline for Annual Returns
  23. COVID-19: AFREXIM Bank Rolls Out $3bn Facility To Support African Member States
  24. #Coronanomics: The Changing Scale of Edtech, Healthtech, and Virtual Work Space In Nigeria
  25. COVID-19: Cyber Risks, Insurance and Us
  26. COVID-19: Joint Statement by the FCA, FRC and PRA
  27. COVID-19: FirstBank Focussed on Solving Education Challenges Facing Parents
  28. Securities Regulators Coordinate Responses to COVID-19 through IOSCO
  29. CBN to Remain Operational While COVID-19 Lasts
  30. COVID-19: Ecobank Launches "StaySafeNigeria" Media Campaign
  31. 39% of APAC Corporates More Exposed to Coronavirus
  32. World Bank and IMF Issue Joint Statement to the G20 Concerning Debt Relief for the Poorest countries
  33. COVID-19: Dangote Rallies Private Sector Operators To Contain Pandemic In Nigeria
  34. COVID-19: Opportunities For The Nigerian Digital Economy - Dr. (Mrs) Omobola Johnson
  35. In It Together: Protecting the Health of Africa's People and their Economies
  36. The Nigeria Emergency Stimulus Bill Passes Second Reading at House of Reps - For The Records
  37. eTranzact International Plc Proposes Rights Issue of 4.67bn Shares
  38. COVID-19 and the New Work Culture: The Financial Implication for Individuals
  39. Anap Foundation COVID-19 Think Tank Presents 'Coronavirus Alert'
  40. CBN Issues Guidelines for the Implementation of the N50bn Targeted Credit Facility
  41. COVID-19: Measures Taken by UK Government to Support Business
  42. COVID-19 Pandemic and the Middle East and Central Asia: Region Facing Dual Shock
  43. COVID-19: CIBN Adjusts Programmes; Holds AGM Through Teleconferencing, Postpones April Exams
  44. FIRS Grants Tax Concessions in Response to COVID-19
  45. The Limits of Heteredox Economics Revealed, MPC Trapped and Has to Hold
  46. SEC Nigeria Issues Advisory On COVID-19
  47. Fiscal and Monetary Responses to COVID-19 Menace: Racing Against Time
  48. COVID-19: Access Bank, Ecobank Bank Leverage Online Channels
  49. Crude Oil: Unsold Cargoes Forces Price Slash
  50. COVID-19: NSE Extends Time to Submit Audited Financial Statement by Dealing Members
  51. COVID-19: Ventures Platform and Lagos State Government Partner in Fight Against
  52. Fragility of State Government Finances
  53. Philanthropic Efforts Towards COVID-19 Containment Globally
  54. Non-Essential Federal Public Servants to Stay and Work From Home to Check Spread of COVID-19
  55. COVID-19: NSE Activates 30-day Remote Work Plan; Remote Trading to Continue
  56. IsDB Supports OIC Countries With $730m To Combat COVID-19
  57. COVID-19: Presidential Task Force Issues Statement; FEC Meetings Suspended Until Further Notice
  58. Quiet Bond Market as COVID-19 Fears Creates Uncertainty Among Investors
  59. The Federal Reserves is Running Out of Options to Stave Off a Coronavirus Depression
  60. ACCESS Releases Update To Key Stakeholders on Coronavirus
  61. COVID-19: NSE Extends Time to File Audited Financial Statement for the Year Ended 31 December 2019
  62. Coronavirus: Oyo State Activates Emergency Operating Centres, Names Incident Manager
  63. COVID-19: Our Compliance with Lockdown and Measures Put in Place To Serve You
  64. COVID-19: CBN, Bankers' Committee To Support Pharmaceutical Coys
  65. Bankers Committee Reviews Impact of COVID-19 On Economy, Announces Support Packages
  66. WHO launches Health Alert service on WhatsApp
  67. Coronavirus Crisis Is Crushing Global GDP Growth
  68. Coronavirus: Firstbank Deploys Measures to Protect Employees, Customers and other Stakeholders
  69. Blunting the Impact and Hard Choices: Early Lessons from China
  70. COVID-19 Outbreak: How is Africa faring?
  71. COVID-19 Pandemic: Ecobank Encourages Customers to Adopt Digital Self-Service Solutions
  72. COVID-19 Pandemic and Latin America and the Caribbean: Time for Strong Policy Actions
  73. COVID-19: NSE Advises Companies to Put Adequate Precautionary Measures In Place Ahead of 2020 AGMs
  74. Can the Nigerian Economy Survive the Virus?
  75. What's Really Happening In Oil Markets?
  76. COVID-19: Lagos and Ogun States Ban High Density Social Gatherings
  77. Banks Bring Down Cost-to-income ratios As Industry Margins Tighten
  78. NCDC Releases Self Isolation Guidance for Nigerians
  79. COVID-19: CBN to Inject N1trn Stimulus Across Critical Sectors of the Economy
  80. Coronanomics: ICIEC Pledges $150m In Insurance Coverage For OIC Members
  81. Coronanomics: Figuring Out CBN's Recent Policy Intervention
  82. Oil Price Plunge to Pressure US Energy States and Locals
  83. Coronavirus to Weaken Sovereign Fiscal Positions; Track Record Matters
  84. FG Restricts Entry Into Nigeria from 13 Countries; Suspends Issuance of Visa on Arrival
  85. UK Foreign Office Issues Travel Advice Against Non-Essential Travel Worldwide
  86. Fed Actions, US Banks Discount Window Use Prudent Amid Turmoil
  87. CBN Policy Measures In Response to COVID-19 Outbreak and Spillovers
  88. Coronavirus Containment Actions Pose Material Risk to Global Structured Finance
  89. Federal Reserve Cut Rates to Support the Flow of Credit to Households and Businesses
  90. World Bank Group Increases COVID-19 Response to $14bn To Help Sustain Economies, Protect Jobs
  91. There Is No Systemic Risk - Feedback From Goldman Sachs' Conference Call Held Sunday
  92. Coronavirus Containment Actions Pose Material Risk to Global Structured Finance
  93. Africa CDC Policy Recommendation for AU Meetings and Travel During COVID-19 Outbreak
  94. Africa CDC Guidance on Community Social Distancing During COVID-19 Outbreak
  95. COVID-19 and the Nigerian Economy: Backed to the Wall
  96. Coronanomics: Inside Nigeria's Stock Market Response
  97. Coronavirus: IsDB President Calls For Coordinated Efforts To Tackle Pandemic
  98. Coronavirus: FG to Review Budget as Oil Price Plunges
  99. Potential Impact of the Coronavirus Epidemic: What We Know and What We Can Do
  100. World Bank Group Announces Up to $12bn Immediate Support for COVID-19 Country Response
  101. China's Official Manufacturing Index Crashed from 50.0 to a Record Low of 35.7 In February 2020
  102. FG Inter-Ministerial Meeting Reviews Strategies On Containing Coronavirus
  103. Arbitrary Increase in Prices of Protective and Hygiene Products on Account of Coronavirus Concerns
  104. Coronanomics: Understanding The Darker Side of A Virus's Economic Downside
  105. Coronavirus: Establishing The Nexus Between A Bug and Global Equity Markets
  106. WHO Director-General's Opening Remarks at the Media Briefing on COVID-19
  107. First Case Of Coronavirus Confirmed In Lagos
  108. COVID-19 Refinancing Risk Elevated for 6% of Rated China Corps
  109. Global Ports Vulnerable to Coronavirus-Related Volume Declines
  110. The First Innovative Corporate Bond Supporting Anti-Epidemic Is Given The Green Light To Issue
  111. Coronavirus May Add to Liquidity Strain for Some APAC Corporates
  112. Coronavirus Set to Dampen China's Economic Growth
  113. What Coronavirus Means for Investors
  114. Coronavirus Raises Risks for China Toll Road Operators
  115. Coronavirus Could Push Global Oil Market into Surplus
  116. Airlines Face Growing Pressure From The Coronavirus
  117. Coronavirus' Severity Will Frame Effect on Corps, Sovereigns
  118. China Government Suspend Equity Market Trading to Prevent Sell-Off


Proshare Nigeria Pvt. Ltd.

READ MORE:
Related News
SCROLL TO TOP