Investment pathways to decarbonize the industrial sector in Europe; A US credit crunch in the making? Plus latest on Türkiye, Brazil & Eurozone credit

Ahead of a long Easter weekend for many, our research focus goes truly global, spanning from the US (lending standards tightening; where the next financial accident will come from), to Brazil (implications of the new fiscal framework), to the Eurozone (credit squeezing), and Türkiye (external risk assessment). And our series on net-zero transformation and decarbonizing pathways continues with the industry sector (‘the green industrial revolution’) and what type of investment is required in this regard. At times, the different initiatives resemble a jigsaw puzzle: they may fit together nicely; other times, they’re as awkward and frustrating as that one weirdly-shaped ‘Tetris’ block that always falls into the gap where you need an ‘L’ (for those still remembering ‘Tetris’). Happy Easter!

In focus – US: Credit crunch in the making?

• The US economy has been remarkably resilient to the sharpest monetary tightening in decades. While the housing market started feeling the pinch as early as summer 2022, GDP in the first quarter of 2023 is expected to show robust underlying domestic demand, buoyed by robust consumer spending.
• The Fed’s very restrictive policy stance has also not fed through to tighter market-based financial conditions. Even the recent banking turmoil has not led to tighter financing conditions overall as Treasury yields have dropped and the stock market has remained resilient (excluding bank shares).
• But lending standards have tightened rapidly since last year, and the real property-price decline is bound to accelerate. Banks’ lending standards on new loans and real property prices already point to a significant drag on GDP in the second half of 2023 through negative wealth effects and a pullback in bank loans. The downturn in property prices is far from over, according to signals sent by monetary aggregates.
• The Fed’s restrictive monetary policy will probably reach its peak impact around end 2023/early 2024. It will knock GDP by at least -2pps. The exact timing is subject to large uncertainties. Risks lie on the downside if market-based measures of financial conditions adjust to a level more compatible with the Fed’s underlying stance. More banking stress could be the catalyst.

What topics to watch

• Türkiye – economic activity shows resilience but external risks remain high.
• Eurozone credit – squeezing rather than crunching.
• Minsky clock – the next shoe to drop.
• Brazil’s new fiscal framework – an end to uncertainty?

You’ll find the complete ‘hot’ topic report including the feature story here .

The Green Industrial Revolution – investment pathways to decarbonize the industrial sector in Europe

The industrial sector is responsible for roughly one quarter of global greenhouse-gas emissions. A mix of measures, including energy-efficiency improvements, using hydrogen and biomass as feedstock or fuel, producing heat through electric means and adopting carbon-capture technologies, can reduce the sector’s carbon dioxide emissions to almost zero. To decarbonize the industry sector globally will require cumulative investments of EUR2.7trn until 2050. Of this, the EU needs 8% or EUR210bn, and half of this for electrification investments alone. The rest is almost equally split between hydrogen use, innovative production processes and new technologies. To meet these needs, the EU28 countries need to invest EUR3bn per year between 2020 and 2030, and EUR9bn annually from 2030 to 2050, when technologies will be ready for full-scale deployment. The pulp & paper industry requires the largest overall investments – EUR 78.4bn until 2050 – followed by iron & steel (EUR55.4bn) and cement (EUR37.6bn). These investments would cut emissions by 265 MtCO2 (-92%), which yields an average abatement investment of EUR790 per tCO2. Additionally, at EUR330bn until 2050, the EU industry’s total investment needs for carbon capture and storage (CCS) are almost 60% higher than the investments in all other industry decarbonization measures combined.

The comprehensive report for you here .

Country risk updates & Digital content

We’ve recently updated our assessment for a batch of countries in the Mediterranean:

Cyprus : Rated B2 (medium risk for enterprises), as the exposure to Russia will impact the recovery path.

Malta : Rated A1 (low risk for enterprises), with a robust growth path but some challenges ahead.

In an interview with CNBC Italy I discussed current economic developments on European markets and the possible risks of a credit crunch; for those who don’t speak Italian or have missed last week’s publication, our updated economic outlook scenario publication ‘(Everything everywhere all at once’) is available here .