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Policy Pulse

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Spike in "foreign exchange" google search after COVID

Policy Pulse - George Anjaparidze - 9 April 2020

On April 6, the IMF indicated that COVID-19 will cause more economic damage than the global financial crisis. The IMF now expects the world to dip into recession in 2020. The WTO forecasts the trade slump in 2020 to exceed declines observed during the global financial crisis. Search trends on google support these assertions.


Google trends data[1] from March 2020 shows that COVID-19 has led to the highest ever search rate for terms on the “foreign exchange” topic, which points to rising exchange rate pressures and volatility (see chart: Global). This data supports the assertion that we are likely to have experienced the most sudden withdrawal of capital from emerging markets in recent history.


Had central banks across emerging economies, including Brazil, India, Indonesia and South Africa not intervened to prop-up local currencies, we would likely have seen much higher numbers of google searches on the foreign exchange topic.


All five of the Eurasian Economic Union members (Belarus, Kazakhstan, Kyrgyzstan, Russia and Armenia) made the list of top ten countries with the highest rate of google searches on the topic of foreign exchange. Other countries that are also on this list include: Tajikistan, Ukraine, Moldova, Uzbekistan and United Arab Emirates.



[1] Google trends data reveals frequency of terms searched under the “foreign exchange” topic. The data is aggregated across various parameters using an index. The numbers on the index represent search frequency relative to the highest point on the chart for the given region and time. A value of 100 is the peak popularity for the term. A value of 50 means that the term is half as popular. The ranking of countries is assessed based on the relative share of queries that fall within the foreign exchange topic. The rankings do not take into account absolute query count. So, a tiny country where 80% of the queries are related to “foreign exchange” will get twice the score of a giant country where only 40% of the queries are related to “foreign exchange”.


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About Veritas Global: Our vision is to have a positive impact on the world through truthful advice informed by robust analysis. We are a premier provider of tailored solutions on climate change, international conflict economics andinfrastructure. 



 
 
 

Russian economy: COVID19 stress test

Policy Pulse - George Anjaparidze - 3 April 2020

Oil prices have plummeted by 72% in 2020 and have reached their lowest level in nearly two decades. Demand has been hit by the economic impacts of the coronavirus. At the same time, oil supply has surged. OPEC countries together with Russia and other oil exporters were not able to agree on additional cuts and have instead increased supply. The lower oil price has brought the Russian ruble tumbling, it is down 29% against the US dollar since the start of the year.

The impacts of COVID-19 on the Russian economy are likely to be significant and will continue to place a strain on public finances. In our central stress test scenario, we expect that a combination of a fall in revenues and need for higher government spending, will result in an annual funding gap of about $120 billion. We assume that oil and gas revenues will mirror the 72% fall seen in the oil price, which will lower total revenues by about 28% (based on preliminary 2019 data, aggregate oil and gas revenues made up about 39% of the federal budget). In addition, our scenario assumes that other government revenues fall by 20% and government spending increases by $17.8 billion (as announced yesterday).

The hard currency resources available in the National Wealth Fund as of 1 March 2020 would be able to finance this shortfall for approximately 12 months. If the impacts on COVID-19 linger beyond this time period, the Russian leadership may be left with little choice but to raid the foreign exchange reserves of the Russian Central Bank, which stood at a staggering $570 billion. Such an extreme move would undermine the independence of the Russian Central Bank. However, it would extend the ability of the Russian government to fill the COVID-19 funding gap for an additional 4 to 5 years.

The strategic implication of this analysis is that Russia is likely to remain in a position of relative economic strength during the COVID-19 pandemic. Despite being dependent on hydrocarbon resources, its vast foreign currency reserves give it sufficient buffers to manage the volatility arising from the COVID-19 crisis in the short and medium term.

Other countries in Eastern Europe and Central Asia, without significant financial reserves, particularly those dependent on remittance flows and tourism, may be more exposed to the impending volatility. This means the international community, working in concert with the IMF, World Bank and other international financial institutions, needs to prepare robust support packages that will give these countries the necessary resources to manage the expected volatility. Veritas Global is in the process of examining vulnerabilities and identifying potential policy solutions.


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About Veritas Global: Our vision is to have a positive impact on the world through truthful advice informed by robust analysis. We are a premier provider of tailored solutions on climate change, international conflict economics and infrastructure. 


 
 
 

Coronavirus deflated aviation emissions

Policy Pulse - George Anjaparidze - 25 March 2020

As of March 24th COVID-19 has killed over 16 thousand people and brought the global economy to a crawl. Aviation has been one of the worst hit sectors. IATA`s latest forecast, published on March 24, expects airlines to see a 38% fall in passenger demand in 2020 compared to 2019. As a result, aviation CO2 emissions will experience the largest annual decrease in recent history.


2020 is a special year in the context of the climate agreement on international aviation - the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). The scheme is designed to use the average of 2019 and 2020 CO2 emissions to determine the level (baseline) above which the airline industry needs to offset emissions. A lower baseline implies a larger offset responsibility in the future.


Industry advocacy efforts have been exceptionally successful in securing positive outcomes in dealing with the COVID-19 crisis. Airlines have secured suspension of airport slot rules, special treatment for air cargo operations and direct financial support from governments. Therefore, if deemed an industry priority, airlines would likely also succeed in introducing adjustments to the baseline under the CORSIA scheme. However, there is more at stake for airlines than minimizing their offsetting liability. There is an urgent need to strengthen the sustainability credentials of the sector.


Before the outbreak of coronavirus, surveys suggested that 2020 would usher in a paradigm shift in consumer sentiment. Across all geographic regions majority of survey participants expressed their intention to fly less for holidays to fight climate change.


In recognition of these threats, some airlines took action. Perhaps most notably on 14 February 2020, Delta Air Lines announced a commitment to go completely carbon neutral starting from March 2020. This kind of bold leadership should be admired. However, an airline by airline approach will not change consumer perceptions on flying nor will it deliver the level of action needed to address the climate challenge.


Sustaining growth after the coronavirus requires an immediate scale up in industry-wide action to strengthen sustainability credentials.


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About Veritas Global: Our vision is to have a positive impact on the world through truthful advice informed by robust analysis. We are a premier provider of tailored solutions on climate change, international conflict economics and infrastructure.




 
 
 
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