Weekly Economic Insights - August 27th 2018

Macro Highlights - 8/30/2018

HIghlights of the summer

The financial crisis in Turkey has intensified, but contagion remains limited

    • Global trade tensions continued to escalate during the summer and, while the further deterioration in China-US relations does not have led to a significant rise in investor concern...
    • ... the announcement by Donald Trump of additional measures against Turkey was a driving factor behind the sharp increase in wariness toward the country
    • However, according to our analysis, the main causes of this financial crisis are Turkey’s weak economic fundamentals and the passive attitude of the central bank in the face of a sharp acceleration in inflation
    • Moreover, the contagion of the Turkish crisis has been contained: emerging countries with significant economic imbalances were primarily affected
    • Conversely, the currencies of other emerging countries, in particular Asian countries, did not experience a sharp depreciation against the US dollar, as we anticipated
    • In the eurozone, there was an increase in risk aversion, but to a limited extent and only temporarily, while in the United States investor confidence remained strong…
    • … which tends to support our scenario according to which continued robust GDP growth in the US, but with no overheating, and the cautious stance of central bankers could contribute to contain risk aversion

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