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Fiscal Policy To The Fore As The Tightening Cycle Comes To An End Published: 02 February 2023

  • After a sharp tightening of monetary policy over 2022, the hiking cycle is nearing an end across emerging (EMs) and developed (DMs) markets.
  • While containing inflation will remain a key priority for policymakers, Fitch does not anticipate any further hikes after Q2 2023, with a number of EM central banks – mainly in Latin America and Mainland China– cutting interest rates to support economic activity.
  • From a fiscal policy perspective, the Agency anticipates a slight widening in the aggregate DM fiscal deficit in 2023, as several governments maintain high levels of fiscal support against a backdrop of weaker growth and still-high inflation. 
  • The aggregate DM deficit is expected to widen from an estimated 4.3% of GDP in 2022 to 4.4% in 2023, before narrowing to 3.1% in 2024 as economic activity recovers and governments phase out support measures. On the other hand, Fitch projects that the GDP-weighted average of EM fiscal balances will narrow from a deficit of 5.6% of GDP in 2022 to a shortfall of 4.5% of GDP in 2023.
  • A combination of weakening economic activity and tight monetary conditions saw DM inflation slow for a third consecutive month in December 2022, coming in at a seven-month low of 6.9% y-o-y.
  • However, easing energy prices and normalising supply chains were also key factors behind the slowdown in inflation. DM inflation is projected to ease further in 2023 and 2024 to an average of 4.6% and 2.4% respectively, from 7.4% in 2022 as economic growth slows down, as the lagged impact of higher interest rates fully kicks in and energy prices continue to fall. 

(Source: Fitch Solutions)

Russia bans oil exporters from adhering to Western price caps   Published: 02 February 2023


  • The Russian government on Monday banned domestic oil exporters and customs bodies from adhering to Western-imposed price caps on Russian crude. The measure was issued to help enforce President Vladimir Putin's decree of Dec. 27 that prohibited the supply of crude oil and oil products from Feb. 1, for five months, to nations that abide by the caps.
  • The G7 economies, the European Union and Australia agreed on Dec. 5 to ban the use of Western-supplied maritime insurance, finance and brokering for seaborne Russian oil priced above $60 per barrel as part of Western sanctions on Moscow over its actions in Ukraine.
  • The new Russian act bans corporates and individuals from including oil price cap mechanisms in their contracts. They also have to report to customs officials and the energy ministry any attempts to impose oil price caps. In addition, customs bodies have to prevent goods from leaving Russia if they find such mechanisms have been applied. 
  • The Western allies plan from Feb. 5 to set two caps on Russian oil products, one on products that trade at a premium to crude, such as diesel or gas oil, and one for products that trade at a discount to crude, such as fuel oil. The Russian government's act also calls on the energy ministry, with the approval of the finance ministry, to work out an approach for monitoring prices of Russian oil exports by March 1.

(Source: Reuters)

WHO: COVID still an emergency but nearing ‘inflection’ point   Published: 02 February 2023


  • The coronavirus remains a global health emergency, the World Health Organization chief said Monday after a key advisory panel found the pandemic may be nearing an “inflection point” where higher levels of immunity can lower virus-related deaths.
  • Speaking at the opening of WHO’s annual executive board meeting, WHO Director-General Tedros Adhanom Ghebreyesus said “there is no doubt that we’re in a far better situation now” than a year ago — when the highly transmissible Omicron variant was at its peak.
  • But Tedros warned that in the last eight weeks, at least 170,000 people have died around the world in connection with the coronavirus. He called for at-risk groups to be fully vaccinated, an increase in testing and early use of antivirals, an expansion of lab networks, and a fight against “misinformation” about the pandemic.
  • “We remain hopeful that in the coming year, the world will transition to a new phase in which we reduce hospitalizations and deaths to the lowest possible level,” he said.
  • “The committee acknowledged that the COVID-19 pandemic may be approaching an inflection point,” WHO said in a statement. Higher levels of immunity worldwide through vaccination or infection “may limit the impact” of the virus that causes COVID-19 on “morbidity and mortality,” the committee said.
  • “But there is little doubt that this virus will remain a permanently established pathogen in humans and animals for the foreseeable future,” it said. While Omicron versions are easily spread, “there has been a decoupling between infection and severe disease” compared to that of earlier variants.

(Source: CNBC)

Gov’t Pursuing Twin Peaks Regulatory Model for Financial Sector   Published: 27 January 2023


  • The Government is pursuing the creation of a “twin peaks model” of financial sector supervision and regulation, which is being programmed for implementation within 18 to 24 months.
  • Minister of Finance and the Public Service, Dr. the Hon. Nigel Clarke, who made the disclosure, said that the model is intended to modify the existing sector-by-sector-based regulatory approach, which sees the Bank of Jamaica (BOJ) supervising deposit-taking institutions (DTIs), with the Financial Services Commission (FSC) having oversight for non-bank financial institutions.
  • The new dispensation will see DTIs, inclusive of commercial banks, building societies, merchant banks, and credit unions, along with non-bank financial institutions, comprising securities dealers, insurance companies, and pension funds, being consolidated into one institution, the BOJ.
  • In this regard, a separate regulator, the FSC, will be designated to oversee market conduct and consumer protection for the full spectrum of financial services.
  • Market conduct and consumer protection regulation refers to the oversight of financial institutions to ensure that they are engaging in fair and ethical business practices and are treating customers fairly.
  • Clarke explained that the proposed integration of the FSC’s prudential activities into the BOJ involves three components – Interim Management, Legal and Governance Reform, and Institutional Restructuring.
  • These changes are being made to strengthen the sector’s supervisory capacity and there is currently an 18-24 months implementation timeline.

(Source: JIS News)

Brazil's Economy To Stay Weak Amid Doubts Over Lula's Spending Push   Published: 27 January 2023


  • Brazil's slowing economy will likely remain weak in 2023 as a planned spending drive by newly-elected President Luiz Inacio Lula da Silva risks keeping already-high borrowing costs elevated for longer.
  • Lula's government, which took power on Jan. 1, is increasing the size of welfare programmes well beyond strict budget limits to address deeply-rooted social problems. Former President Jair Bolsonaro's government did not keep within those rules either.
  • However, many investors and analysts fear a new wave of planned spending could put Brazil's debt on an even more unsustainable path and stir inflation, which is dropping after a long series of interest rate rises.
  • Heeding their worries, the central bank is set to keep benchmark rates high for a long time, but that may amplify an economic slowdown and stoke tensions with the government.
  • Growth is forecast to recede sharply to 0.8% in 2023 from 3.0% last year, according to median estimates of 44 economists polled between Jan. 9 and Jan. 20. The growth forecast for this year was unchanged from an October poll, with 2022 upgraded from 2.7% to 2.9%.

 (Source: Reuters)


U.S. Issues License To Trinidad And Tobago To Develop Venezuela Offshore Gas Field   Published: 27 January 2023

  • The Biden administration has granted a license to Trinidad and Tobago to develop a major gas field located in Venezuelan territorial waters, U.S. and Trinidad's officials said on Tuesday, marking a further easing of some sanctions on Venezuela.
  • The license, issued by the U.S. Treasury Department at Trinidad's request and intended to enhance Caribbean regional energy security, means the island nation can do business related to the Dragon gas field with Venezuela's heavily sanctioned state-run oil company PDVSA.
  • Prime Minister Keith Rowley, speaking at a news conference in Port of Spain, said Trinidad expects to gain access to 350Mn cubic feet of gas per day from the Dragon field.
  • He said he applied for the license in mid-2022 and won approval after discussing it with top U.S. officials, including U.S. President Joe Biden, while also keeping open a channel of communication with Venezuelan President Nicolas Maduro.
  • This new development will help bolster the country's revenues by increasing its LNG production.

(Source: Reuters)

Bank Of Canada Hikes Rates, Becomes First Major Central Bank To Signal Pause   Published: 27 January 2023


  • The Bank of Canada on Wednesday hiked its key interest rate to 4.5%, the highest level in 15 years, and became the first major central bank fighting global inflation to say it would likely hold off on further increases for now. The 25-basis-point rise matched analysts' expectations. The bank has lifted rates at a record pace of 425 basis points in 10 months to tame inflation, which peaked at 8.1% and slowed to 6.3% in December, still more than three times the 2% target. 
  • "We are turning the corner on inflation," Bank of Canada Governor Tiff Macklem told reporters. "We are still a long way from our target, but recent developments have reinforced our confidence that inflation is coming down."
  • Macklem said the bank wanted to take time to see how effective the rapid hikes had been in dampening excess demand and hot labour markets that have fueled inflation. "To be clear, this is a conditional pause," he said, noting there were upside risks to the outlook.
  • In its quarterly Monetary Policy Report (MPR), which includes new forecasts, the bank painted a picture of an economy that is going to stall and could tip into a recession during the first half of the year, bringing inflation down to about 3% at mid-year and back to 2% in 2024. The Canadian dollar was trading 0.3% lower at 1.3410 per greenback, or 74.57 U.S. cents. The 2-year yield eased nearly 6 basis points to 3.596%.

(Source: Reuters)

Goldman Sachs Says Even A Near-Default On US Debt Could Spark A Recession And Market Mayhem   Published: 27 January 2023


  • A full-blown debt ceiling crisis has the potential to stop the US economy in its tracks, according to the top economist at Goldman Sachs. “If there were any doubt about the US government’s ability or willingness to make interest and principal payments on time, that could have very, very adverse consequences,” Jan Hatzius, the chief economist at Goldman Sachs, told CNN in an interview.
  • The United States hit the debt ceiling last week, forcing Treasury Secretary Janet Yellen to make accounting manoeuvres to avoid breaching that $31 trillion borrowing limit. Economists and US officials have previously warned of dire consequences if the federal government exhausts the extraordinary measures used to avoid a default.
  • If Congress fails to lift the debt ceiling in time, Hatzius said investors will worry there is a chance of a missed payment on US Treasuries – which are “maybe the most important asset in the global economy.” Unlike many of its peers on Wall Street, Goldman Sachs is relatively bullish on the US economy, with Hatzius telling CNN that America will likely avoid a recession through the 2024 presidential election. However, a debt ceiling crisis is a key risk to that optimistic outlook.
  • Assuming the United States gets through the debt ceiling episode, Goldman Sachs is optimistic about the prospects for the US economy. “We don’t expect a recession,” Hatzius said, noting his firm sees a still-significant 35% chance of a recession, compared with the consensus on Wall Street of roughly 65%. “Our baseline is a soft landing.”
  • Goldman Sachs expects the labour market will continue to cool down, but only gradually. That deceleration, combined with the housing slowdown, unwinding of supply chain turmoil and impact from the war in Ukraine, should help bring down inflation without causing a downturn.

(Source: CNN

Revenues Grow at Kremi, but Profit Melts   Published: 27 January 2023


  • Caribbean Cream Limited (Kremi) Limited recorded a net profit of $2.4Mn for the third quarter that ended November 30, 2022. This represents a turnaround in profitability relative to the $25.15Mn loss of the corresponding period of 2021. However, the company’s bottom line for the nine months declined by 69.9% to $10.93Mn when compared to the same period in 2021, given a 96.6% growth in finance costs. This is likely a result of the acquisition of the cone manufacturing company, Koni Kone, for $45Mn in 2021.
  • Gross operating revenue for the quarter was up by 15% Y-o-Y to $575.59Mn, while the nine-month revenue was $1.83Bn and represents a 19.4% jump. The increase in the Y-o-Y cost of goods sold; however, outweighed the growth in revenues resulting in a falloff in gross profit margin from 32% to 29% for the nine months.
  • Administrative, selling and distribution expenses were 11.7% higher in the nine months ending November 2022 compared to the $425.00Mn recorded in the same period of last year. This was largely due to higher costs associated with utilities, security and repairs, and maintenance.
  • Kremi’s stock price has decreased by 1.6% since the start of the calendar year. The stock closed Wednesday’s trading session at $3.80 and currently trades at a P/B of 1.78x, below the Junior Market Manufacturing Sector Average of 3.08x.
  • The outlook for Kremi is positive as it continues to invest in its capital base with work on its CHP plant which will see the company becoming self-sufficient in energy. Moreover, the construction of its new cold room and blast room will increase its capacity to store frozen novelties and reduce bottlenecks in the production flow.

(Sources: JSE and NCBCM Research)

Slowdown In Private Consumption, Exports To Weigh On Dominican Republic's Growth In 2023 Published: 27 January 2023

  • Fitch expects that the Dominican Republic will see real GDP growth ease from an estimated 5.0% in 2022 to 4.2% in 2023. Consequently, the agency revised its 2022 estimate from 4.6% previously, as Q3 GDP data showed accelerating private consumption (4.8% y-o-y) and investment (6.5%) growth, despite headwinds posed by elevated inflation and interest rates.
  • This underpinned 5.0% headline growth in the quarter and 5.4% in the year through Q322. Moreover, the economic activity index showed growth remained strong, slowing only slightly in Q4 2022.
  • For 2023, Fitch maintained its forecast for 4.2% growth, as slowing growth in the US will pose several headwinds for DR’s economy. The country is also expected to underperform its 2015-2019 average growth rate of 6.1% for the second consecutive year.
  • Fixed investment will remain largely stable at a 1.5pp contribution to headline growth in 2023, from 1.6pp in 2022. Banco Central de la República Dominicana (BCRD) will keep interest rates high at 8.50% through H1 2023, and only modestly lower rates to 6.75% by end-2023, despite Fitch’s expectation that rates will remain in restrictive territory.
  • Stickier-than-expected inflation and the threat of natural disasters continue to pose downside risks to the growth forecast. While headline inflation moderated from a peak of 9.6% y-o-y in April to 7.8% by end-2022, it is still far above the BCRD’s target of 4.0%. If food or fuel prices prove stickier than Fitch’s current forecast of 6.5% average inflation in 2023 due to supply shocks from the Russia-Ukraine conflict or demand-side shock from China, it could drive a further reduction in private consumption in 2023, depressing headline growth.

(Source: Fitch Solutions)