Analyst Views on the Global Economy 

• The need to tame inflation will be a major policy focus for many central banks and governments. However, we believe that this need will be balanced by the goal to support output growth, hence some countries will either slowdown the pace of rate hikes or begin to reduce rates in coming quarters. 

• For Central Banks it is a balancing act between addressing price stability and ensuring financial stability. Both ECB and the FED hiked rates as control of inflation remains the priority even with the unfolding bank crisis.

• The collapse of SVB has raised a number of issues for the US banking system and the global financial industry:

• First, the pace at which Central Banks raise rates to tame inflation could present some risks to the financial system. Central banks may need to increase rates at a slower pace to allow the system to adjust to the new realities. In view of this, the US Fed could slowdown its rate hikes at least in the short term.

• Second, banking regulations and the role of Central Banks as a watchdog must be strengthened to ensure complete oversight of the financial sector.

• Third, Central Banks, at frequent intervals, must examine the impact of its actions (especially raising rates) on the risks level and governance of financial institutions.

• Still on the collapse of SVB, there is a possibility of contagion to the financial system and the real economy especially in view of the slowdown in real output and high inflation that have plagued the US economy. Where customers are not assured of the soundness of the financial system, this could trigger bank runs and have grave effects on the financial system.

• In Europe, there were contagion fears over the state of Credit Suisse Group AG and this was reflected across European markets. As at March 17, the European Stoxx 600 banks index had lost another 2.6 per cent, and was down 15 per cent for the week, according to Financial Times. It was announced that the Swiss Bank, UBS, will take over Credit Suisse, with assurances from the Swiss Central Bank to provide liquidity to the merged bank.

• In an already fragile global economic environment driven by high inflation and weak growth, a global financial crisis will leave a huge dent on households, businesses and economies across countries. While regulators have rapidly intervened to provide liquidity to ailing banks and assure customers and investors  there is likely  to be a tightening of financial conditions and resultant credit crunch in some economies that may lead to dampening of growth.

• While the role of regulators in ensuring a sound financial system is important, internal governance systems of banks and financial institutions are equally crucial. Financial institutions and regulators in Nigeria need to evaluate the soundness of financial institutions in the country. With the bearish reception from the oil market, the government needs to plan for the impact of a drop in oil price below the budget benchmark for the remaining quarters of 2023.