Deprcon Outlook

February: Losing steam

In this Outlook, we concentrate on China and the U.S. First, we provide our forecasts for the growth of gross domestic product, update the state of stimulus in China and present an outlook for the global business cycle. Then we take a closer look at the U.S. labor market, the Bank Term Funding Program (BTFP) of the Federal Reserve and analyze the issues faced by the 14th China’s National People’s Congress held in March. At the end we provide recommendations for corporations and investors.

The European economy keeps on sinking, while Beijing is “tightrope walking” the Chinese economy between a collapse and a ‘soft-landing’. The U.S. economy is likely to start to lose momentum from Q2 on. A likely resurfacing of the banking crisis and geopolitical tensions across the globe create heavy uncertainties on the outlook.

The BTFP was setup by the Fed on 11 March past year, to act as a liquidity backstop for banks. As Tuomas noted past week, for some banks, the program evolved into a borrowing arbitrage, where they could borrow cheap from the facility and then “lend” the money back to the Fed with higher interest earning. We study this further, and publish our estimate for banks who have used the BTFP for liquidity support or to earn arbitrage in a separate post later.

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