It was several years ago when Jeremy Grantham quietly turned from stock bull to vocal permabear, and while his market notes turned breathlessly alarmist (if only to those who were long his multi-billion fund GMO), such as this from June 2020 "Stock-market legend who called 3 financial bubbles says this one is the ‘Real McCoy,’ this is ‘crazy stuff’", it wasn't until early 2021 that Grantham's warnings of an imminent crash became especially shrill... and wrong. Recall, back in January 2021, Grantham wrote that "Bursting Of This "Great, Epic Bubble" Will Be "Most Important Investing Event Of Your Lives", while was followed by warnings of a "Spectacular" Crash In "The Next Few Months."
Needless to say, no crash followed as the Fed and other central banks went all in on stabilizing the market, resulting in an epic year for risk assets which closed 2021 at all time highs, while GMO suffered not only steep losses but also substantial redemptions, a humiliating outcome for Grantham who had previously called the bursting of both the dot com and housing bubbles, but failed to account for just how determined the Fed is to avoid another bubble bursting.
Grantham then tried his market-timing luck once more, this time with somewhat better results, when in January 2022 he doubled down on the fire and brimstone. The GMO founder revisited a familiar theme, namely that we are currently living in a superbubble - only the fourth of the past century - and like the crash of 1929, the dot-com bust of 2000 and the financial crisis of 2008, Grantham was "nearly certain" the bursting of this bubble has begun, sending indexes back to statistical norms and possibly further.
How much lower? The value manager saw the S&P tumbling by nearly 50% to 2,500 from its then recent all time highs of 4,800 weeks ago (he appears to enjoy forecasting 50% drops as will apparent in a second). He also predicted that the Nasdaq Composite will sustain an even bigger correction.
“I wasn’t quite as certain about this bubble a year ago as I had been about the tech bubble of 2000, or as I had been in Japan, or as I had been in the housing bubble of 2007,” Grantham told Bloomberg in a “Front Row” interview last January. “I felt highly likely, but perhaps not nearly certain. Today, I feel it is just about nearly certain.”
Well, maybe not that certain, because one year later stocks did drop, but nowhere nearly as much as Grantham predicted, with the S&P sliding 20% in 2022 and the Nasdaq losing a third. Hardly the catastrophic bursting of a superbubble which has inflated stock prices by order of magnitude.
But with Grantham, now 84 and eager to make at least one more historic call before his career is over, is not giving up and in a new paper published today titled "After a Timeout, Back to the Meat Grinder!", the value investor is doubling down on his call from last January (and January 2021... and June 2020), and warns - again - that the popping of the bubble in US stocks is far from over and investors shouldn’t get too excited about the strong start to the year for the market.
According to Grantham, the value of the S&P 500 at the end of the year should be about 3,200, which in retrospect is well above his previous bubble-bursting forecast of 2,500. That equals a 17% full-year drop and a 20% decline for the year from current levels. Not satisfied with his bearish forecast, Grantham hopes to outbear the likes of Mike Wilson, and believes the index is likely to spend some time below that level during 2023, including around 3,000.
“The range of problems is greater than it usually is — maybe as great as I’ve ever seen,” Grantham told Bloomberg in an interview from Boston.
“There are more things that can go wrong than there are that can go right,” he added. “There’s a definite chance that things could go wrong and that we could have basically the system start to go completely wrong on a global basis.”
Grantham, who is desperate to eventually "nail the crash" as the biggest bear, is also quietly doubling down on his apocalyptic call from a year ago and said he doesn’t discount the idea that the benchmark index could fall to around 2,000, a 50% drop from the current price, which he says would be a “brutal decline." He is, of course, right... if the Fed were to ever allow that to happen. The problem is that Powell would step in long before the S&P dropped anywhere near there and would instruct Blackrock to buy any and all ETFs. Meanwhile, the only brutality has been the collapse in GMO's assets which had been cut by half since 2015 through the end of 2020, as the fund kept doubling down incorrectly on ever more bearish scenarios.
The irony, of course, is that if Grantham is - finally - correct, it will only force Powell to exit from his "Fed put" hibernation and start bidding up risk assets, thus leading to even more pain for bears.
Beside Grantham's bearishness, GMO - which is a value fund - has struggled with lackluster returns in the decade following the global financial crisis as growth stocks led the longest bull market in US stocks on record. But now, as the Federal Reserve tries to tame elevated inflation with aggressive interest-rate increases, value strategies are enjoying a revival. The GMO Equity Dislocation Strategy, which is long value equities and short those the company sees as being valued at “implausible growth expectations,” had gained nearly 15% last year through November; alas it has to more than double to regain its lost AUM.
Value has worked “quite a lot better” over the past year and has outperformed growth during that stretch. Before that, growth had a solid 10-year run, though value had been outperforming in the decades prior to that, Grantham said. “In the range of value versus growth, value is still much more attractively positioned than growth,” he explained. “It’s gone half the way back, but it’s still cheaper.” Value stocks could outperform growth ones by 20 percentage points over the next year or two, he added.
As to what might be currently attractive, Grantham says an investor could divide value stocks into four quartiles. The third group — made up of “the pretty cheap” — did well last year and is no longer super attractive. But the cheapest quartile, which didn’t have the best year, could be poised to hold up best. “It will have a very good time,” he said.
Grantham views the process of further stock market pain playing out now as similar to the popping of bubbles following other rare “explosions of investor confidence” such as in 1929, 1972 and 2000. While many are attributing last year’s slide in stocks to the war in Ukraine and the surge in inflation, or reduced growth from Covid-19 and ensuing supply chain problems, Grantham believes the market was due for a comeuppance regardless.
While the first and “easiest” leg of the bubble’s bursting is over, Grantham says that the next phase will be more complicated. Seasonal strength in the market in January and during the current period of the presidential cycle could keep the market buoyant in the early part of the year.
“Almost any pin can prick such supreme confidence and cause the first quick and severe decline," he wrote echoing what he has said again, and again, and again. “They are just accidents waiting to happen, the very opposite of unexpected. But after a few spectacular bear-market rallies we are now approaching the far less reliable and more complicated final phase.”
For Grantham's sake, we hope he is right because at 84, he is rapidly running out of time for the apocalypse to finally hit.
Grantham's full note is below (pdf link).
Week Ahead Alchemy: Can Powell Turn a Quarter-Point Move into a Hawkish Hike?
The new year is still young, but the week ahead may be one of the most important weeks of the year. The divergence that the market has been anticipating…
The new year is still young, but the week ahead may be one of the most important weeks of the year. The divergence that the market has been anticipating will materialize. The Federal Reserve will most likely hike by 25 bp on Wednesday, followed by half-point moves by the European Central Bank and the Bank of England the following day. On Friday, February 3, the US will report its January employment situation. It could be the slowest job creation since the end of 2020. The Bureau of Labor Statistics also will release the preliminary estimate of its annual benchmark revisions.
The markets' reaction may be less a function of what is done than what is communicated. The challenge for Fed Chair Powell is to slow the pace of hiking while pushing against the premature easing of financial conditions. In December, ECB President Lagarde pre-committed to a 50 bp hike in February and hinted that another half-point move was possible in March. With the hawks showing their talons in recent days, will she pre-commit again? Amid a historic cost-of-living squeeze that has already kneecapped households, can Bank of England Governor Bailey deliver another 50 bp rate hike and sell the idea that it is for the good of Britain, for which the central bank does not expect growth to return until next year?
United States: The Federal Reserve has a nuanced message to convey. It wants to slow the pace of hikes, as even the hawkish Governor Waller endorsed, but at the same time, persuade the market that tighter financial conditions are necessary to ensure a times convergence of price pressures to the target. Indeed, Fed Chair Powell may warn investors that if it continues to undo the Fed's work, more tightening may be necessary. The market has heard this essentially before and is not impressed. Financial conditions have eased. Consider that the 2-year yield is down 20 bp this year, and the 10-year yield has fallen twice as much. The trade-weighted dollar is off by more than 1.5%. The S&P 500 is up 4.6% after a 7% rally in Q4 22. The Russell 200 has gained nearly 7% this month, on top of the 5.8% in the last three months of 2022.
Last year, Powell drew attention to the 18-month forward of the three-month T-bill yield compared to the cash 3-month bill as a recession tell. It has been inverted for over two months and traded below -100 bp last week, the most inverted since the tech bubble popped over two decades ago. The market seems more convinced that inflation will fall sharply in the coming months. The monetary variables and real economy data, including retail sales, industrial production, and the leading economic indicators, suggest a dramatic weakening of the economy. Yet just like most looked through the contraction in H1 22, seeing it as primarily a quirk of inventory and trade, the 2.9% growth reported in Q4 22 does not change many minds that the US economy is still headed for weaker growth, leaving aside the fuzzy definition of a recession.
The median forecast in Bloomberg's survey is for a 188k rise in January nonfarm payrolls. If accurate, it would be seen as concrete evidence that the jobs market is slowing. This is also clear by looking at averages for this volatile series. For example, in the last three months of 2022, the US created an average of 247k jobs a month. In the first nine months of the year, nonfarm payrolls rose by an average of 418k a month. Average hourly earnings growth also is moderating. A 0.3% rise on the month will see the year-over-year pace slow to 4.3%. That matches the slowest since June 2021. The decline in the work week in December to 34.3 hours spurred narratives about how businesses, hoarding labor, would cut hours before headcount. Yet, we suspect it was partly weather-related, and that the average work week returned to 34.4 hours, which is around where it was pre-Covid.
Benchmark revisions are usually of more interest to economists than the market, but last month's report by the Philadelphia Fed raised the stakes. It looked more closely at the April-June 2022 jobs data. After adjusting for updated data from the Quarterly Census on Employment and Wages, it concluded that job growth was nearly flat in Q2 22. It estimated that only 10,500 net new jobs were created, a far cry from the 1.05 mln jobs estimated by the Bureau of Labor Statistics. The Business Employment Dynamics Summary (released last week) was starker still. It points to a job loss of nearly 290k. Lastly, we note that US auto sales are expected to have recovered from the unexpected almost 6% decline (SAAR) in December. However, the 14.1 mln unit pace would still represent a 6% decline from January 2022, when sales spiked to 15.04 mln.
The Dollar Index continues to hover around 102, corresponding to the (50%) retracement of the rally recorded from January 2021 through September 2022. It has not closed above the 20-day moving average (now ~102.80) since January 3. It remains in the range set on January 18, when it was reported that December retail sales and manufacturing output fell by more than 1%. That range was about 101.50-102.90. Although we are more inclined to see it as a base, the prolonged sideways movement last month saw new lows this month. That said, the next retracement target (61.8%) is near 99.00.
Eurozone: The ECB rarely pre-commits to a policy move, precisely what ECB President Lagarde did last month. Apparently, as part of the compromise with members who at first advocated another 75 bp hike in December, an agreement to raise rates by 50 bp was accompanied by an agreement to hike by another 50 on February 2 and explicitly not rule out another half-point move in March. There was a weak effort to soften the March forward guidance, but the hawks pushed back firmly. The swaps market has about a 70% chance of a 50 bp hike in March rather than a 25 bp move.
The ECB's deposit rate stands at 2.00%, and the swaps market is pricing 125 bp of hikes in the first half of the year. In contrast, the Fed is expected to raise the Fed funds target range by 50 bp. This has been reflected in the two-year interest rate differential between the US and Germany, falling from about 275 bp last August to around 160 bp now. We had anticipated the US premium would peak before the dollar, and there is a lag of almost two months. The direction and change of the interest rate differential often seem more important than the level. In late 2019, before Covid struck, the US premium was near 220 bp, and the euro was a little below $1.12.
There has been a significant shift in sentiment toward the eurozone. The downside risks that seemed so dominant have been reduced. A milder-than-anticipated winter, the drop in natural gas prices, and successful conservation and conversion (to other energy sources) lifted the outlook. Some hopeful economists now think that the recession that seemed inevitable may be avoided. The preliminary January CPI will be published a day before the ECB meets. The monthly pace fell in both November and December. The year-over-year rate is expected to ease to 5.1% from 5.2%, while the core rate slips to 5.1% from 5.2%. The base effect suggests a sharp decline is likely here in Q1, but divergences may become more evident in the euro area. This could see a reversal of the narrowing of core-periphery interest rate spreads.
The EU's ban on refined Russian oil products (e.g., diesel and fuel oil) will be implemented on February 5. It is considering imposing a price cap as it did with crude oil. Diesel trades at a premium to crude, while fuel oil sells at a discount. There have been reports of European utilities boosting purchases from Russia ahead of the embargo. Separately, reports suggest that the EU was still the largest importer of Russian oil in December when pipeline and oil products were included. However, at the end of December, Germany stopped importing Russia's oil delivered through pipelines. This does not count oil and refined producers that first go to a third country, such as India, before being shipped to Europe.
Pullbacks in the euro have been shallow and brief. Most pullbacks since the low was recorded last September, except the first, have mostly been less than two cents. That would suggest a pullback toward the $1.0730 area, but buyers may re-emerge in front of that, maybe around $1.0775. On the top side, the $1.0940 is the (50%) retracement of the euro's losses since January 2021. The euro rose marginally last week, even though it slipped by around 0.2% in the last two session. It has risen in eight of the past 10 weeks.
UK: Without some forward guidance that stopped short of a pre-commitment, the market is nearly as confident that the Bank of England will deliver another half-point hike in the cycle to lift the base rate to 4.0%. The BOE was among the first of the G10 countries to begin the interest rate normalization process and raised the base rate in December 2021 from the 0.10% it had been reduced to during the pandemic. The swaps market projects the peak between 4.25% and 4.50%, with the lower rate seen as slightly more likely.
High inflation readings and strong wage growth appear to outweigh the economic slump. The BOE's forecasts see the economy contracting 1.5% year-over-year this year and output falling another 1% in 2024. The market is not as pessimistic. The monthly Bloomberg survey (51 economists) founds a median forecast for a 0.9% contraction this year and an expansion of the same magnitude next year. The survey now sees only a 0.2% quarterly contraction in Q4 22 rather than -0.4% in the previous survey. The median forecast for the current quarter was unchanged at -0.4%.
Sterling continues to encounter resistance in front of $1.2450, which it first approached in mid-December. Although marginal new highs have been recorded, like the euro, it has been mainly confined to the range set on January 18 (~$1.2255-$1.2435). We are inclined to see this sideways movement as a topping pattern rather than a base, but it likely requires a break of the 1.2225 area to confirm.
Japan: After contracting in Q3 22, the Japanese economy is expected to have rebounded in Q4 (~3.0% annualized pace). Reports on last month's labor market, retail sales, and industrial production will help fine-tune expectations. This month's rise in the flash composite PMI moved back above 50, pointing to some momentum. Still, Tokyo's higher-than-expected January CPI warns of upside risk to the national figure due offers good insight into the national figure, which may draw the most attention. We expect Japanese inflation to peak soon. The combination of government subsidies, the decline in energy prices, including the natural gas it gets from Russia, and the stronger yen (which bottomed in October) will help dampen price pressures. We look for a peak here in Q1 23.
Last week, the dollar moved broadly sideways against the yen as it continued to straddle the JPY130 area. It repeatedly toyed with the 20-day moving average (~130.40) last week but has yet to close above this moving average for more than two months. Rising US and European yields may encourage the market to challenge the 50 bp cap on Japan's 10-year bond. A break of the JPY128.80 area may spur a test on the JPY128.00 area. However, the market seems to lack near-term conviction.
China: Mainland markets re-open after the week-long Lunar New Year holiday. There may be two drivers. The first is catch-up. Equity markets in the region rose. The MSCI Asia Pacific Index rose every session last week and moved higher for the fifth consecutive week. The JP Morgan Emerging Market Currency Index rose about 0.40% last week and is trading near its best level since mid-2022. The euro and yen were little changed last week (+/- <0.20%). The second driver is new news--about Covid and holiday consumption. The PMI is due on January 31, and the median forecast in the Bloomberg survey is for improvement. It has the manufacturing PMI rising to 49.9 from 47.0 and the service PMI jumping to 51.5 from 41.6. The offshore yuan edged up 0.3% last week, suggesting an upside bias to the onshore yuan, against which the dollar settled at CNY6.7845 ahead of the holiday.
Canada: After the Bank of Canada's decision last week, the FOMC meeting, and US employment data in the days ahead, Canada is out of the limelight. It reports November GDP figures and the January manufacturing PMI. Neither are likely to be market movers. The Bank of Canada is the first of the G7 central banks to announce a pause (conditional on the economy evolving like the central bank anticipates) with a target rate of 4.50%. The central bank sees the economy expanding by 1% this year and 1.8% next. It suggests that the underlying inflation rate has peaked and, by the end of the year, may slow to around 2.6%. The swaps market has 50 bp of cut discounted in the second half of the year.
The Canadian dollar held its own last week, rising by about 0.5%, which was second only to the high-flying Australian dollar. The greenback approached CAD1.3300, its lowest level since last November when it traded around CAD1.3225. Quietly, the Canadian dollar has strung together a six-week advance, and since its start in mid-December, it has been the third-best performer in the G10 behind the yen (~6.2%) and the Australian dollar (~6.1%). We are more inclined to see the greenback bounce toward CAD1.3400 before those November lows are re-tested.
Australia: The market's optimism about China recovering from the Covid surge, with the help of government support and attempts to help the property market, has been reflected in the strength of the Australian dollar, which leads the G10 currencies with around a 4.4% gain this year. Yet, changes in the exchange rate and Chinese stocks are not highly correlated in the short- or medium-term. The surge of inflation at the end of last year, reported last week, lent greater credence to our view that the Reserve Bank of Australia will lift the cash target rate by 25 bp when it meets on February 7. In the week ahead, Australia reports December retail sales, private sector credit, and some housing sector data, along with the final PMI readings. The momentum indicators are stretched after a 2.5-cent rally from the low on January 19. It is at risk of a pullback and suggests a break of $0.7080 may be the first indication that it is at hand. We see potential initially toward $0.7000-$0.7040.
Mexico: After falling by nearly 5.25% in the first part of the month against the Mexican peso, the dollar is consolidating. The underlying case for peso exposure remains, but there are two mitigating conditions. First, surveys of real money accounts suggest many are already overweight. Second, the dollar met key target levels in it late-2019 (~MXN18.80), even if not to the February 2020 low (slightly below MXN18.53). On January 31, Mexico reports Q4 GDP. The economy is expected to have expanded by 0.5% after 0.9% quarter-over-quarter growth in Q3 22. Growth is expected to slow further in Q1 23 before grinding to a halt in the middle two quarters. The following day, Mexico reports December worker remittances. These have been a strong source of capital inflows in Mexico. Remittances have a strong seasonal pattern of rising in December from November, which sees remittances slow. However, after surging for the last couple of years, they appear to have begun stabilizing. Also, the optimism around China is understood to be more supportive of Brazil and Chile, for example, than Mexico.
We do not have a very satisfying explanation for the two-day jump in the dollar from about MXN18.5670 to MXN19.11 (January 18-19) outside of market positioning and the possibility of some large hedge working its way through. Still, it seemed like a transaction-related flow rather than a change in the underlying situation. The greenback has trended lower since then and has fallen in five of the last six sessions. It fell to nearly MXN18.7165 ahead of the weekend. Latam currencies, in general, did well, with the top two emerging market currencies coming from there (Brazil and Chile). The Mexican peso rose about 0.4% last week. Last week, the Argentine peso's loss of almost 1.2% gave it the dubious honor of the worst performer among emerging market currencies. It is now off nearly 4.6% for this month. Mexican stocks and bonds extended their rallies. A firmer dollar ahead of the February 1 conclusion of the FOMC meeting may see the peso consolidate its recent gains.
Disclaimerrecession pandemic subsidies bonds sp 500 stocks fomc fed federal reserve currencies canadian dollar euro yuan governor recession gdp oil india brazil mexico japan canada european europe uk germany russia eu china
How far could UK property prices drop and should investors be concerned?
The more pessimistic analysts believe that UK house prices could drop by as much as 30% over the next couple of years.…
The post How far could UK property…
The more pessimistic analysts believe that UK house prices could drop by as much as 30% over the next couple of years. Property prices leapt alongside most other asset classes over the long bull market that ran relatively uninterrupted over the 13 year period from the start of the recovery from the international financial crisis in 2009 and last year.
Average prices across the country almost doubled from £154,500 in March 2009 to just under £296,000 in October last year, when the market hit its most recent record high. Global stock markets had been in a downward spiral for almost a year while property prices kept climbing.
However, a combination of rising interest rates, up from 0.1% in late 2021 to 3.5% in January 2023 and further hikes expected this year, soaring inflation putting pressure on household budgets and nerves around a recession has seen house prices ease. There still not far off their record highs of late 2022 but the trend is downward.
The big question for homeowners and property investors is just how far could UK residential property prices drop over the next couple of years? How long prices might take to recover from a drop is another important unknown.
First time buyers struggling to get onto the property ladder may welcome a significant drop in UK house prices. Even if higher interest rates mean monthly mortgage costs don’t change much, lower sales prices should reduce the minimum deposits required to secure a mortgage.
However, for anyone who currently owns a home, especially if purchased in the past couple of years towards the top of the market, a significant drop in valuation would be extremely unwelcome. That is particularly the case for home owners at risk of falling into negative equity, which means the market value of their property is lower than the outstanding sum due on the mortgage.
Falling house prices, if the decline is steep, could also create a wider economic crisis and spill over into other parts of the economy and financial markets.
But not everyone agrees UK house prices will drop by anywhere near 30%. Let’s explore the factors that would affect the residential property market over 2023 and beyond and different opinions on how serious a market slump could be. As well as the wider potential consequences that could result if the dive in home valuations turns out to be in line with more negative forecasts.
How much will UK house prices fall by?
The short answer to that question is that we don’t know but the most pessimistic outlook is for drops of up to 30% over the next couple of years. However, there are a number of factors that mean there is a high chance valuations will slide by less. But let’s look at the negative scenario first.
A 30% drop in home valuations sounds like a lot and it is. However, against the backdrop of the last couple of years that kind of fall looks a little less extreme. Prices are up 28% since April 2019 and a 30% fall would take the average price of a home in the UK to around £210,000, where it was in 2016. A less severe 20% drop in prices would see the average price settle at around £235,000, where it was just before the onset of the Covid-19 pandemic and the Bank of England dropping interest rates to just 0.1%.
Mid-term interest rates are likely to have the biggest influence on house prices. At the BoE’s current 3.5% base rate, the best mortgage deals available are 2 years fixed at 4.8% compared to 1% deals available until recently. At an LTV of 60% on a £400,000 mortgage, that would push the monthly rate up to £2300 a month from £1500 a month.
For some borrowers, that is likely to prove problematic. It is also likely to mean lower demand for properties from buyers who might have otherwise decided to move up the property ladder and first time buyers. A drop in demand at higher price brackets due to affordability thresholds being passed will see property prices fall.
Will demand drop enough to lead to a 30% fall? That depends on factors that are currently unknown. How high interest rates go will have a huge influence and that will depend on inflation. There are signs inflation is easing and today the Fed’s preferred gauge for inflation, the personal consumption expenditures (PCE) price index, rose 5.0% in December from a year earlier. That was slower than the 5.5% 12-month gain as of November and the lowest level since September 2021.
In the UK, inflation has also eased from 11.1% year-on-year in October to 10.5% in December. It’s still much higher than in the USA but will hopefully now maintain a consistent downward trend helped by easing energy prices.
There are hopes the Fed will pull back on further interest rate rises from March and that would set a tone that the Bank of England may well follow with a slight delay. The Fed’s base rate is also already higher than in the UK at 4.25% to 4.5%.
If interest rates and, more importantly, mortgage rates do not rise by more than 1% from where they are today it is unlikely valuation drops of as much as 30% eventuate. But if they did what would the consequences be?
What happens if UK house prices fall 30%?
The good news is that even a house price fall as extreme as 30% would be unlikely to lead to systematic issues in the UK’s financial services sector. More people own their homes outright than have a mortgage – 8.8 million to 6.8 million homes. Lloyds Bank, one of the UK’s biggest mortgage lenders recently reported the average LTV of its mortgage portfolio is just 40%.
Even if average LTV is a little higher for other banks, a wave of defaults is unlikely to threaten their stability and infect other areas of financial markets or the wider economy. Mortgage lenders are also reluctant to repossess homes they’ve lent against as it’s an expensive process for them. They will do as much as they can to work with borrowers who are struggling to meet increased mortgage payments.
What does falling property prices mean for investors?
For property investors, it’s really a case of if rental income will continue to cover mortgage payments, or get close enough to mean the investment still adds up. If mortgage payments are likely to exceed realistic rental income over the next few years investors may consider selling up. Unless the property was purchased in the last 2-3 years, that could still mean walking away with a reasonable return.
For investors in the wider financial markets, it seems unlikely that falling property prices, even if up to 30% is knocked off valuations, will see serious contagion spread and spark a crisis.
It’s not impossible that UK property prices could fall by as much as 30% over the next couple of years as a result of higher interest rates and tighter household budgets but the likelihood is the average drop will be less. And in the worst case scenario, wider fallout should be limited. A repeat of the systemic crash that led to the 2008 financial crisis does not seem like a real prospect. Lenders are well capitalised and the system looks strong enough to cope.The post How far could UK property prices drop and should investors be concerned? first appeared on Trading and Investment News. recession pandemic covid-19 global stock markets fed mortgage rates spread recession recovery interest rates stock markets uk
Visualizing Remittance Flows & GDP Impact By Country
Visualizing Remittance Flows & GDP Impact By Country
The COVID-19 pandemic slowed down the flow of global immigration by 27%.
The COVID-19 pandemic slowed down the flow of global immigration by 27%.
And, as Visual Capitalist's Richie Lionell details below, alongside it, travel restrictions, job losses, and mounting health concerns meant that many migrant workers couldn’t send money in the form of remittances back to families in their home countries.
This flow of remittances received by countries dropped by 1.5% to $711 billion globally in 2020. But over the next two years, things quickly turned back around.
As visa approvals restarted and international borders opened, so did international migration and global remittance flows.
In 2021, total global remittances were estimated at $781 billion and have further risen to $794 billion in 2022.
In these images, Richie Lionell uses the World Bank’s KNOMAD data to visualize this increasing flow of money across international borders in 176 countries.
Why Do Remittances Matter?
Remittances contribute to the economy of nations worldwide, especially low and middle-income countries (LMICs).
They have been shown to help alleviate poverty, improve nutrition, and even increase school enrollment rates in these nations. Research has also found that these inflows of income can help recipient households become resilient, especially in the face of disasters.
At the same time, it’s worth noting that these transfers aren’t a silver bullet for recipient nations. In fact, some research shows that overreliance on remittances can cause a vicious cycle that doesn’t translate to consistent economic growth over time.
Countries Receiving the Highest Remittances
For the past 15 years, India has consistently topped the chart of the largest remittance beneficiaries.
With an estimated $100 billion in remittances received, India is said to have reached an all-time high in 2022.
This increasing flow of remittances can be partially attributed to migrant Indians switching to high-skilled jobs in high-income countries—including the U.S., the UK, and Singapore—from low-skilled and low-paying jobs in Gulf countries.
|Rank||Remittance Inflows by Country||2022 (USD)|
|5||Egypt, Arab Rep.||$32,337M|
|47||West Bank and Gaza||$3,495M|
|59||Bosnia and Herzegovina||$2,400M|
|71||Congo, Dem. Rep.||$1,664M|
|106||Hong Kong SAR, China||$571M|
|139||Trinidad and Tobago||$172M|
|148||St. Vincent and the Grenadines||$70M|
|161||Antigua and Barbuda||$35M|
|162||St. Kitts and Nevis||$33M|
|166||Macao SAR, China||$17M|
|170||Sao Tome and Principe||$10M|
|175||Papua New Guinea||$2M|
Mexico and China round out the top three remittance-receiving nations, with estimated inbound transfers of $60 billion and $51 billion respectively in 2022.
Impact on National GDP
While India tops the list of countries benefitting from remittances, its $100 billion received amounts to only 2.9% of its 2022 GDP.
Meanwhile, low and middle-income countries around the world heavily rely on this source of income to boost their economies in a more substantive way. In 2022, for example, remittances accounted for over 15% of the GDP of 25 countries.
|Rank||Remittance Inflows by Country||% of GDP (2022)|
|19||West Bank and Gaza||18.5%|
|29||Bosnia and Herzegovina||10.1%|
|45||St. Vincent and the Grenadines||7.3%|
|47||Egypt, Arab Rep.||6.8%|
|77||St. Kitts and Nevis||2.9%|
|82||Congo, Dem. Rep.||2.6%|
|90||Sao Tome and Principe||2.0%|
|93||Antigua and Barbuda||2.0%|
|127||Trinidad and Tobago||0.5%|
|153||Hong Kong SAR, China||0.1%|
|160||Macao SAR, China||0.07%|
|171||Papua New Guinea||0.01%|
Known primarily as a tourist destination, the Polynesian country of Tonga banks on remittance inflows to support its economy. In 2022, the country’s incoming remittance flows were equal to almost 50% of its GDP.
Next on this list is Lebanon. The country received $6.8 billion in remittances in 2022, estimated to equal almost 38% of its GDP and making it a key support to the nation’s shrinking economy.
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