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Monday Morning Update

Pakistan receive economic lifeline from IMF, sliding business confidence, and Swiss rate of inflation falls.

IMF Provide Pakistan with Economic Lifeline

On Friday, Pakistan secured a $3bn bailout deal from the IMF as the country grapples with its worst economic crisis since 1947. Pakistan’s economic strife continued to be adversely affected by devastating flooding last year which is estimated to have killed close to 1800 people and caused $14.9 billion worth of damage. Islamabad has also been hit by the rising cost of energy and food which has seen the cost-of-living skyrocket – with inflation rising to 38% in May. The IMF’s deal comes after an eight-month delay as policy makers look to find solutions to a deepening crisis and consider the terms of the deal. The IMF’s agreement will now see austerity measures put in place, as well as force the lifting of some import controls and rising their interest rates. Earlier this year Pakistan had just $3.7bn left in foreign exchange reserves – a figure which is understood to cover less than a month’s worth of imports – as the county teetered on the edge of default.

Foreign Policy wrote, however, that the IMF’s deal will not be sufficient to alleviate Pakistan’s economic problems. For example, they stated that “Islamabad still struggles with corruption, a poor public welfare system, water and energy shortages, and an insufficient agriculture sector”. This came as one of their reporters, Michael Kugelman wrote that “barring badly needed large-scale reforms that are too politically risky, the next economic crisis could be just around the corner”.

Business Confidence Slides

On Friday we spoke about the Lloyds business survey showing some upbeat sentiment out there, but today we’ve had the Institute of Directors releasing a similar survey which shows the polar opposite! The survey collapsed as quickly as it did when tanks rolled into Ukraine and now sits at the same level as in the post Truss/Kwarteng era, reversing the gradual improvements we’ve seen in confidence since the start of the year. To be fair, the survey was taken in the middle of June, just as we had inflation numbers and the Bank of England hiking rates by half a percent, but of the directors surveyed that were pessimistic about the outlook, 33% said inflation was their biggest worry, whilst almost 20% said they were seeing falling customer demand.

Swiss Inflation Slows Below 2% Target

Swiss CPI also came in marginally softer than inflation at 1.7% (annualised), marking a 50bps fall in the rate of inflation from last month’s print. This now marks inflation falling below the Swiss National Bank’s 2% target rate with the rate of inflation now at 17-month lows as energy prices continued to fall. Here, according to Bloomberg, despite the soft print “the SNB has said that another increase in borrowing costs is likely. Policymakers have forecast inflation to rebound to 2% by the end of the year, and then stay above that level until early 2026. That’s because of a wave of rent increases and electricity price hikes in the pipeline, as well as the rising cost of services”.

Today in Focus

Today has seen Asia markets buyout on the release of better-than-expected PMI data from China and a strong print from Japan’s Tankan Large Manufacturing Index, though manufacturing slowed. This comes as Japan has seen a rally in tech markets this morning with the Nikkei 225 Index surging 1.7% and the Topix rising 1.41%.

At 1500 this afternoon, all eyes will turn to the US’ ISM manufacturing PMI where the general market consensus is expecting to see a print of 47.2pts – marking a slowdown from last month.

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