Economic Monitor An unexpected start for 2022 - Financial Advisory
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Economic Monitor An unexpected start for 2022 Deloitte Economics: Q1 2022 Financial Advisory
Overview from Deloitte Economics
In the first quarter of 2022, the world braced to
face a new set of crises. While first and foremost
Denmark, the latest data shows a halt in the
price hike started during the pandemic. While a
Graph of the quarter: core inflation versus headline inflation
Inflation was on the rise throughout 2021 10%
a human tragedy and an abrupt geopolitical cool-off may be welcome at this stage, a and has been increasingly driven by energy 8%
tremor, the war in Ukraine has boosted inflation consumer confidence at a historical low (-20.9, and commodities. The spread between 6%
prospects (already heightened prior to the unseen since 1988) is unlikely to be supportive headline inflation and core inflation at the 4%
start of 2021 was 0 percentage point in the
conflict) through its impact on commodity of the housing market in the months to come. 2%
United States and 0.5 in the euro area.
prices. Consumer prices were recorded growing 0%
Today, it is 2.1 and 4.5, respectively. The war
by 8.5% annually in the United States, by 7.5% in In this context, combined with a resurgence of
01-15
08-15
03-16
10-16
05-17
12-17
07-18
02-19
09-19
04-20
11-20
06-21
01-22
in Ukraine strongly reinforces the anticipated (2%)
the euro area and by 5.4% in Denmark. substantial COVID-related disruptions in China,
inflationary pressures for 2022, it puts a nail US headline CPI US Core CPI
Inflationary pressures are also driven by very low the Danish growth for 2022 was revised in the coffin of transitory inflation thesis. EU headline CPI EU Core CPI
unemployment rates in most geographies (4.6% downward to an average of 2.2% (versus 2.6%
in Denmark). previously). The IMF carried out similar
adjustments at global level in its April outlook,
As a result, central banks are now tackling the setting global growth at 3.6% (versus 4.9% six
inflation challenge head-on, both effectively and months earlier). However, even revised
Majbritt Skov Bryan Dufour
through their forward guidance: policy rates are downwards, such growth prospects should keep
Partner, Chief Economist Vice President
picking up around the globe, and quantitative the recently revived stagflation prospects at bay
easing is being tightened. This has an effect both for 2022… +45 30 93 54 71 +45 42 13 74 55
maskov@deloitte.dk bdufour@deloitte.dk
on equity prices (via risk-free rates, mostly) and
on the cost of capital (the EURIBOR 12 months Our special focus in this issue is dedicated to the
gained 59 basis points in Q1 2022). war in Ukraine, where we go through some of
Peter Lildholdt Ida Steinbring Rasmussen
the economic consequences of the conflict and
Director Associate
The latter can trickle down quickly to the real explore the possible impact of fossil input
economy through the housing market. In withdrawals in the European economy. +45 40 35 25 36 +45 28 15 78 61
plildholdt@deloitte.dk isteinbring@deloitte.dk
Page 2 Deloitte Economics © 2022
Table of contents Economic trends ……………………………... 4-11 Macro trends …………………....................………. 4-6 Markets …………………………….....………………. 8-11 Q1 2022 outlook.....……………………………..……... 13 M&A environment …….…………………… 15-16 The war in Ukraine.............................. 18-21 Deloitte insights .…………………………….. 24
Economic trends | Gross domestic product (GDP)
2022 growth is revised downwards as the consequences of inflation and the war in Ukraine are felt around the globe. The
Unites States has printed its first quarter of negative growth since the onset of the pandemic.
Real GDP growth from same quarter of previous year1
GDP growth is cooling down in the first quarter of 2022 but is 20
maintaining a rate above long-term averages in most 15
geographies. This remains mostly a base effect (i.e., strong
10
growth coming from a low point the year prior).
5
According to estimates from Eurostat, Sweden grew by 3% 0
above its pre-pandemic five-year average (2.6%) in Q1 2022. Q1 (-5)
estimates for Denmark, Norway and Finland were not released
at time of publication. After the war in Ukraine broke out, the (-10)
IMF is seeing the annual Danish growth at 2.3% reducing its (-15)
previous forecast by 0.7 percentage point. Finland is the most DK FI NO SE US Euro area
(-20)
affected country in the Nordics (1.6%, or -1.4), while Norway and
Q1-22E
Q3-05
Q1-06
Q3-06
Q1-07
Q3-07
Q1-08
Q3-08
Q1-09
Q3-09
Q1-10
Q3-10
Q1-11
Q3-11
Q1-12
Q3-12
Q1-13
Q3-13
Q1-14
Q3-14
Q1-15
Q3-15
Q1-16
Q3-16
Q1-17
Q3-17
Q1-18
Q3-18
Q1-19
Q3-19
Q1-20
Q3-20
Q1-21
Q3-21
Sweden are expected at 3.9% (-0.1) and 2.9% (-0.4), respectively.
The euro area (19 countries) has recorded 5% growth in Q1
2022. Here again, the performance is driven by a base effect. GDP index, base 100 20192
The quarterly growth rate shows a more contrasted picture at 110
0.2% (from 0.3% in Q4 2021), which is well below the five-year 105
pre-pandemic average (0.5%). This is a strong indication of the
combined impact of the war and inflation in Europe. 100
95
The United States has printed negative growth in Q1 2022
(-1.4%). This was well below the consensus of 1.1%. However, 90
most of this negative growth comes from a sharp decline in 85
inventories (at an abnormally high level in Q4) and from exports.
Underlying domestic demand actually remained strong in the 80
country (accelerating by 2.6% by some measures). Despite this 75
nuanced reading of Q1, the United States is still expected to lose DK FN NO SE US Euro area
70
1.5 percentage points of growth in 2022 (3.7% instead of 5.2%), 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
mostly because of inflation.
Note: 1) GDP measured using the expenditure approach, seasonally adjusted, Q1 2022 as follows: Denmark, Finland and Norway from OECD outlook (pre-war forecast), the euro area and Sweden from Eurostat (April estimates), the US from BEA (April estimates); 2) IMF World Economic Outlook, April 2022
Source: BEA, Eurostat, OECD, IMF
Page 4 Deloitte Economics © 2022Economic trends | Interest rates and inflation
The war in Ukraine is fuelling inflation and has suppressed the temporary inflation thesis.
Central banks are pursing interest rates hike in response to
Central bank policy rates1
inflationary pressures (either effectively or in their forward
7 DK GB NO US EU SE
guidance). They are also rolling back their quantitative easing
policy (asset purchase programmes designed to stabilise 6
financial markets) and start framing “quantitative tightening” 5
policies expected to be implemented this year. The US Fed has 4
been moving aggressively in Q1, while the European Central 3
Bank has remained much more cautious. 2
The war in Ukraine (see our dedicated section) and its impact on 1
commodities has had an unprecedented effect on an inflation 0
that was already on an upward trajectory. It reached 8.5% in (1)
March in the United States and 7.8% in the euro area. (2)
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
The Nordics continue to be less affected than most of Europe,
but inflation is now higher than it was in the lead up to the 2008
financial crisis, which is the last inflation spike the region has
seen. In March 2022, Denmark recorded 5.4%, Finland 5.8% and Inflation rate
Sweden 6.0%. March printed a strong pick-up of inflation across 10 DK FI SE UK US EU
the region as energy prices were shooting up in response to the
8
war.
6
The conflict in Ukraine and its effect on commodity prices have
4
supressed the temporary inflation thesis. The core argument
however remains valid (price pressures driven by mostly 2
exogenous factors such as spiking energy prices or continued
0
supply chain disruptions unlikely to persist in the long-run),
particularly in Europe where wages have not significantly picked (2)
up for the moment. However, this argument may be weakened (4)
by the way the war will reshape economic flows (particularly the
ones affected by energy policies in Europe) and as inflation
expectations become internalised by economic agents.
Note: 1) DK: interest rate of the certificates of deposits; EU: official central bank liquidity providing main refinancing operations, fixed rate; US: mid-point of the Federal Reserve target rate; SE: Central bank fixed repo/reversed repo rate; NO: official deposit facility rate; GB: official bank rate
Source: BIS, OECD
Page 5 Deloitte Economics © 2022Economic trends | Danish exports
Danish exports were steadily increasing at the beginning of 2022.
Danish exports of goods and services (DKKm)
90,000
During the past 10 years, Danish exports of goods and services
have on average been increasing steadily. In early 2022, exports 80,000
of goods represented c. 57% of exports of goods and services.
70,000
60,000
50,000
Since a sharp drop during the outbreak of COVID-19 in Q2 2020, 40,000
Danish exports of goods and services have recovered. In 2022,
30,000
exports had recovered by 29% from the 2020 low point. Goods Services
20,000
2010M01 2012M01 2014M01 2016M01 2018M01 2020M01 2022M02
Exports of services experienced a similar trend, with a 48% 70,000 Danish exports of goods and services by region (DKKm)
recovery. As the exports data does not include later figures than EU-27 (ex. UK) Sweden Germany US China
February, it will be interesting to see how the war in Ukraine has 60,000
affected those figures as new monthly exports data is released.
50,000
40,000
The EU accounts for the majority of Danish exports. In recent
years, the share of total exports to the European Union has 20,000
declined, while the share of exports to China and the United
States has increased. Exports to Sweden fell during the 10,000
pandemic but are recovering towards levels from before the
pandemic. 0
2010M01 2012M01 2014M01 2016M01 2018M01 2020M01 2022M02
Note: Exports are seasonally adjusted
Source: Statistics Denmark
Page 6 Deloitte Economics © 2022Table of contents Economic trends ……………………………... 4-11 Macro trends …………………....................………. 4-6 Markets …………………………….....………………. 8-11 Q1 2022 outlook.....……………………………..……... 13 M&A environment …….…………………… 15-16 The war in Ukraine.............................. 18-21 Deloitte insights .…………………………….. 24
Economic trends | Equity markets
Equities have been correcting in Q1 2022, irrespective of the situation in Ukraine. Bonds have continued to pick up, this
time clearly on the prospects of inflation.
Equity markets: Sectoral indices in Europe1
Equities have been correcting during Q1 2022. This movement
was anterior to the war in Ukraine, and most of the losses
250
recorded during the first days of the war have since been Transportation Technology
recovered (cf. our dedicated section). The technology sector
Healthcare Energy
recorded the largest correction (-13.0%), followed by transport 200
Financial services
(-12.1%), financial services (-8.6%) and healthcare (-1.6%).
150
Meanwhile, the energy sector grew by 15.5%. While the
situation in Ukraine has played a role in driving some of the
100
energy equities, here again the trend already showed prior to
the war. The energy sector is now 126% above its pandemic-
related bottom level. This is the second largest recovery, behind 50
technology values (205%).
0
2020-01 2020-04 2020-07 2020-10 2021-01 2021-04 2021-07 2021-10 2022-01 2022-04
Bond yields have printed a strong upwards trend during Q1 2022 10-year bond yields2
despite a brief “flight to safety” in the first days of the war in 4
Ukraine (cf. our dedicated section). In the considered period, the
3
Swedish and Norwegian yields have doubled, while the
European, Danish and US yields have risen by 80% or above. All 2
yields are now above their 2019 level.
1
0
While the increase in bond yields in Q4 2021 was perceived as
confidence in future growth, the trajectory in Q1 2022 was much (1)
more driven by inflation expectations. This is evidenced by the
breakeven rates components of the bond yields, which have (2)
shot up since February (ca. +0.5 percentage point in the United 2017-01 2017-07 2018-01 2018-07 2019-01 2019-07 2020-01 2020-07 2021-01 2021-07 2022-01
States). EU US UK DK NO SE
Note: 1) Index – January 2020 = 100; 2) Zero-coupon yield
Source: Capital IQ, Deloitte calculations
Page 8 Deloitte Economics © 2022Economic trends | Consumer and business confidence
A historical drop of consumer confidence following the start of the war, but a steady business confidence throughout Q1
2022.
Consumer confidence in Denmark
20
Consumer confidence printed a historical low in April 2022
15
(-20.9). Consumers’ gloom fell below the levels observed during
the 2008 financial crisis (bottoming at -16.6). Such a low level of 10
consumer confidence was last seen in December 1988. 5
0
(5)
(10)
Inflation and the war are likely what is driving the consumer (15)
confidence freefall. A rebound should be expected in the (20)
following months considering that the fundamentals of the
(25)
Danish economy remain healthy. However, a return in positive
territory may take longer.
Business confidence in Denmark1
Business confidence has been particularly stable through Q1 130
2022, fluctuating by less than 1%. This is remarkable considering 120
the continued supply chain disruptions and the surge in 110
commodity prices since the start of the war.
100
90
80
Household and business confidence were showing a historical
70
divergence in April. Going forward, assuming a lingering of the
war in Ukraine (the unfortunate but likely scenario at the time of 60
writing), this gap should close as businesses will continue to feel 50
inflationary pressures and households will recover from the
initial shock of Q1 2022.
Note: 1) Index: mean of 1990-2018 = 100
Source: Statistics Denmark
Page 9 Deloitte Economics © 2022Economic trends | Bankruptcies and unemployment
A spike in bankruptcies and unemployment pursuing their downward trend across geographies.
Bankruptcies in Denmark
After two months with bankruptcies below average (155 and
172 for January and February, respectively), the number of 350
entities going out of business reached 288 in March 2022 (a 300
level not seen since the global financial crisis, with one exception
being October 2019). 250
200
It would be early for this spike to be a direct consequence of the 150
war in Ukraine. It is most likely a combination of prolonged
challenging market conditions in some specific sectors affected 100
by post-corona consumption patterns and of the effect of state 50
aid withdrawals (the last cohort of companies that would have
likely gone out of business in the past couple of months but that 0
were able to survive longer thanks to COVID-related support). 2018-01 2018-05 2018-09 2019-01 2019-05 2019-09 2020-01 2020-05 2020-09 2021-01 2021-05 2021-09 2022-01 2022-05
Unemployment keeps trending downwards. The latest data 0.16 Unemployment rate1
available for Norway is from January 2022 and showed an
0.14
unemployment rate of 3.2%, the lowest among observed
geographies. Denmark was at 4.6%, the European Union at 6.2% 0.12
(with important disparities), Finland at 6.5% and Sweden at 7.3%
0.1
(all February data).
0.08
The United States is also pursuing its unemployment downtrend, 0.06
with unemployment at 3.6% in March. The labour force
0.04
participation rate, which is still at a record low (62.4%), is
recovering slowly every month since it fell at the onset of the 0.02 DK EU27 FI NO SE US
COVID pandemic. It is still 1 percentage point below its pre-
0
pandemic level (that is 2.6 million people still out of the labour 2018-01 2018-07 2019-01 2019-07 2020-01 2020-07 2021-01 2021-07 2022-01
force).
Note: 1) % of labour force, seasonally adjusted
Sources: Statistics Denmark, OECD
Page 10 Deloitte Economics © 2022Economic trends | Property prices
The end of the pandemic boom? Housing prices are plateauing, and cost of capital is on the rise.
Indexed property prices in Denmark1
After booming prices during the pandemic, the normalisation
that seemed to be profiling in the last quarter appears to 160
Family houses Vacation houses Apartments
confirm in Q4 2021. Except family houses in the broader 150
Denmark, housing prices have been plateauing or even slightly 140
recessing in Q4. The expected increased cost of capital that
130
could occur in the fight against inflation (mortgage rates have
shot up in Q1) is unlikely to reverse this trend in the short run. 120
110
100
The upward sloping trend of national real estate prices slowed
down in the last quarter (Q4) of 2021. For vacation houses and 90
apartments, prices even decreased compared with the previous 80
quarter (1.2% and 0.1%, respectively). Besides, prices of family 70
houses increased by 1.3% in Q4 2021. Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q3-19 Q4-19 Q1-20 Q2-20 Q3-20 Q4-20 Q1-21 Q2-21 Q3-21 Q4-21
Indexed property prices in the Capital Region2
160
Prices of vacation houses have increased for seven consecutive
quarters prior to the decline in Q4 2021. However, prices are still 150
27.8% higher since the beginning of the pandemic, while
140
apartments have appreciated by 17.3% and houses by 18.3%.
130
120
In the Capital Region, vacation house prices increased by 0.4% in 110
Q4 2021 compared with the previous quarter. Vacation houses
also display the strongest growth in the period covering the 100
pandemic (+35% over the two years). Prices of family houses and 90
apartments in the capital region have decreased in the past
quarter (by 0.3% and 0.5%, respectively). 80
Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q3-19 Q4-19 Q1-20 Q2-20 Q3-20 Q4-20 Q1-21 Q2-21 Q3-21 Q4-21
Note: 1) Index - 2006 = 100; 2) The Capital Region of Denmark, not adjusted for seasonality
Source: Statistics Denmark, last data available Q4 2021
Page 11 Deloitte Economics © 2022Table of contents Economic trends ……………………………... 4-11 Macro trends …………………....................………. 4-6 Markets …………………………….....………………. 8-11 Q1 2022 outlook.....……………………………..……... 13 M&A environment …….…………………… 15-16 The war in Ukraine.............................. 18-21 Deloitte insights .…………………………….. 24
Economic trends | Economic outlook
2022 growth perspectives have been further revised downwards under the combined effect of inflation, the war in Ukraine
and COVID in China.
Expected GDP growth in Denmark1
The 2022 Danish outlook has continued to degrade, this time on
the prospects of the war in Ukraine and its effect on commodity
5%
prices. The 2022 Danish GDP growth is now expected at 2.1% by
Denmark’s National Bank and at 2.3% by the IMF. The National 4%
Bank has a low scenario at 0.9%. Danish 2022 GDP forecasts had 3%
already been revised downward in Q4 2021 in the face of
2%
prolonged COVI-induced supply disruptions. They went from an
average of 3.4% to 2.6% and are today standing at 2.2%. 1%
0%
While the context of high inflation and revised growth has
revived the ghost of stagflation among pundits, this risk still (1%)
seems remote for 2022 (2.2% growth would be nowhere near (2%)
stagnant and would in fact be above seven of the 10 years Nationalbanken (March) European commission (February, prior to war)) IMF (April)
(3%)
between the financial crisis sand the pandemic). While
2020 2021 2022F 2023F
stagflation cannot be completely removed from future
scenarios, it also appears unlikely because of the independence Different stages of the global recovery (OECD + selected geographies)
from political power that central banks enjoy today and because
of the absence of inflation-indexed salaries such as in the 1970s.
8%
The latest estimates placed global growth at 6.1% in 2021, 6%
largely driven by a base effect (a low point in 2020). The
4%
combined effect of inflationary pressures, the war in Ukraine
and China’s difficulties in coping with a COVID resurgence has 2%
had a substantial impact on forecasts for 2022, bringing them 0%
down to 3.6% from 4.9%. 2018 2019 2020 2021 2022 2023
(2%)
Emerging markets are most affected by the revisions of 2022
(4%)
forecast, losing 1.28 points of growth, with advanced economies
losing 1.24. Annual GDP growth in those country groups is now (6%)
expected at 3.8% (emerging markets) and 3.3% (advanced World Advanced economies Euro area Emerging market and developing economies
(8%)
economies), respectively.
Note: 1) Y/Y growth in %
Source: OECD, European commission, Nationalbanken, IMF
Page 13 Deloitte Economics © 2022Table of contents Economic trends ……………………………... 4-11 Macro trends …………………....................………. 4-6 Markets …………………………….....………………. 8-11 Q1 2022 outlook.....……………………………..……... 13 M&A environment …….…………………… 15-16 The war in Ukraine.............................. 18-21 Deloitte insights .…………………………….. 24
M&A environment | EBITDA multiples and MRP
Valuations have pursued their correction in Q1 2022 and are now trending below 2019 levels.
EV/ EBITDA multiple in Danish and Nordic indices
20x
OMXC20
EV/EBITDA multipliers were averaging 11.9 in the OMXC20 and
10.9 in the OMXN40 in March 2022. This is a decrease of 37% OMXN40
18x
and 32%, respectively, from the high points in August 2021.
16x
14x
12x
Valuations have continued the correction initiated in the
summer of 2021 and are now below pre-pandemic levels (by 2.2 10x
on the OMXC20 and by 0.8 on the OMXN40).
8x
Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22
The decrease in valuation has started at the same time as the
equity dip recorded in summer but has been trending down Equity market risk premium1
since then (equities had a brief recovery between late summer 7.5%
MRP Damodaran
and October). Increased uncertainty in the macro-environment 7.0%
(including inflation) and rising cost of capital are additional 6.5%
factors that have likely driven valuation further down (they 6.0%
however recovered from a dip after the start of the war in 5.5%
Ukraine). 5.0%
4.5%
4.0%
After a relatively stable 2021, market risk premiums have 3.5%
increased in Q1 2022, indicating investors’ reaction to the
3.0%
changes observed during the quarter. Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Apr-21 Oct-21 Apr-22
1) Deloitte’s own measure of market risk premium and NYU’s Prof. Aswath Damodaran’s measure of market premium
Source: Capital IQ, Deloitte Analysis, Damodaran
Source: S&P Capital IQ 15
Page 15 Deloitte Economics © 2022M&A environment | Nordic target deals
M&A activity is down by 5% in Q1 2022 compared with the previous quarter and is far from the exceptional 2021 levels.
Total number of Nordic target deals in Q1 20221
In the first quarter of 2022, Nordic M&A activity is down by 5% 106
TMT 139
compared with the previous quarter. With a total of 357 deals in
59
Q1 2022, this is 25.6% less than in the same period last year. Industrials 94
70
Consumer 95
Real estate 56
51
Technology deals continue to be most numerous, representing 31
Energy/Infrastructure
30% of the disclosed transactions. However, the number 47
decreased by 24% when compared to Q1 2021. Real estate is the 18
Life Science / Health care 27 Q1 2022 - Total: 357
only sector where more deals were recorded in Q1 2022 than in
Q1 2021. 15 Q1 2021 - Total: 480
Financial services 25
2
Other 2
The total disclosed deal value2 reached EUR 17.35 billion in Q1 Nationality of Nordic target buyers
2022. This is an 42% decrease on Q1 2021 and an 11% decrease Rest of Europe
in the average deal value. Compared with Q4 2021, the total deal
Asia-Pacific 13%
value is 64% lower in Q1 2022.
2%
The Americas
10%
Buyers of Nordic companies remain largely based in the Nordics
themselves (76% of buyers). Sweden records the lion share of
Nordic buyers, representing 42% of them. Norway comes second
(29.5%) and Finland third (15%). Denmark accounts for 13.5% of
76%
the Nordic buyers.
Nordic
Note: 1) Announced deals, excluding lapsed/withdrawn bids in Denmark, Norway, Sweden and Finland. 2) The total disclosed deal value as of 22 April 2022.
Source: Mergermarket – Data is extracted from Mergermarket on 22 April 2022. Comparisons with previous time periods are based on latest available data from Mergermarket as of 22 April 2022.
Page 16 Deloitte Economics © 2022Table of contents Economic trends ……………………………... 4-11 Macro trends …………………....................………. 4-6 Markets …………………………….....………………. 8-11 Q1 2022 outlook.....……………………………..……... 13 M&A environment …….…………………… 15-16 The war in Ukraine.............................. 18-21 Deloitte insights .…………………………….. 24
Market reactions are rather moderate so far
In the face of a historical geopolitical event, markets are proving relatively resilient.
European markets more affected than US Most European indices are trading below Some indices performed relatively well Volatility was on the rise since the
1 2 3 4
markets pre-war levels after the war beginning of the year (VIX)
Market indices in Europe and the US 110 Conflict impact on European indices 130 EU energy and global defense indices 90 VIX Index
105 80
100 120 70
100
60
95 110
50
90
90 40
100
85 30
80 20
90
80
10
75 70 80 0
05/19
08/19
11/19
02/20
05/20
08/20
11/20
02/21
05/21
08/21
11/21
02/22
OMX 20 (DK) FTSE 100 (UK) Financial Services Transportation
DAX (DE) CAC 40 (FR) Energy (EU) Defense (global)
Dow Jones (US) S&P 500 (US) Technology Healthcare
Large European indices have recessed While most European sectoral indices
upon the start of the war, losing 3.7% on The VIX index has risen by up to 17.5%
were adversely affected by the conflict Few sectors were faring better than the
average in the first day. They have since since the start of the invasion of Ukraine
(3% decrease on average the first day), pre-war situation suggested, just after the
recovered initial losses but pursued a by Russia. It is currently 7.7% above its
they showed signs of recovery shortly invasion.
downward trend, printing losses at 2.2% February 23rd level.
after, before resuming a downtrend.
when compared with February 23rd. The energy sector was highly affected by Overall, market volatility increased by up
American indices were less affected on The healthcare sector went down by 3.6% the conflict at first, losing 3.5% on the to 110% since Russia started moving its
the first day of the conflict, and indices on the first day of the conflict but was first day. The index peaked on April 21st troops to the Ukrainian border at the end
are currently showing a 1.3% decrease on trading 2.1% above its pre-war level at (4.7% above pre-war levels) but is now of 2021, indicating that markets were
average when compared with February time of publication. trading 0.8% below February 23rd. very volatile before the conflict broke out.
23rd.
While most market indices in Europe Other sectoral indices were recording Market volatility peaked on March 7th but
The defence sector initially benefited
recorded losses when the war broke out, losses: the financial sector is trading 2.6% is now 94% higher than at the start of
from the war (increasing by 2.1% on the
the OMX went up for four consecutive below its February 23rd level, the 2022. The market is a bit more balanced
first day of the conflict). Today, the index
sessions and was trading 12.7% above transport sector 3.5% below, and the compared with the COVID shock (475%).
is only 0.7% higher than at 23 February.
pre-war level on 29 April. technology sector 3.3% below.
Sources: S&P Capital IQRussia is hard hit by Western sanctions
Western economic indicators remain resilient, and Russia is likely hit harder than it expected despite precautions.
1 Yield curves are cooling down 2 Russia prepared its economy … 43 … but sanctions are still very costly … 4 … and a default seems near
10Y government bond yields in % Location of Russia’s reserves in % Currencies, index base 04/2021 CDS, index base 04/2021
12,000
3.0 100%
20% 105 10,000
2.5 33%
80% 1% 95
2.0 8,000
17% 85
1.5 60% 0% 13% 6,000
75
1.0 30% 13% 4,000
40% 65
0.5 18% 55 2,000
0.0 20% 8%
32% 45 0
(0.5)
04/21
05/21
06/21
07/21
08/21
09/21
10/21
11/21
12/21
01/22
02/22
03/22
04/22
15%
04-21
05-21
06-21
07-21
08-21
09-21
10-21
11-21
12-21
01-22
02-22
03-22
04-22
10-21 11-21 12-21 01-22 02-22 03-22 04-22 0%
2014 2021
EU US UK DK France USA China Gemany Japan Other USD/RUB USD/UAH
Russia Ukraine
Bond yields reacted strongly to the start After an initial collapse following the asset
2014 and the Russian invasion of
of the war (the so-called flight to safety), freeze decided over the assets of Russia’s Credit default swaps have risen by nearly
Ukraine’s Crimea are widely regarded as
losing up to 30 percentage points in the national bank, the country managed to 2,300% in Russia since the start of the war
the prelude to today’s horror. It is also
European Union. They quickly bounced rein in exchange terms after drastic and by 261% in Ukraine (after peaking at
the year when Russia started a marked
back and are now trending at levels above capital control measures. 634%).
change in the allocation of its central
the start of 2022.
bank’s international reserves. This difference can be interpreted as the
After the start of the war, the rouble
European bond yields dipped in negative bottomed losing 47% of its value. Since impact that sanctions are having on the
The move was clearly aiming at cutting Russian economy, much more important
territory on 3 March and shortly came then, it has recovered nearly fully, but the
Russia’s monetary dependencies from the
back to a positive value. sustainability of this recovery is being than “war alone” (particularly through
West, reallocating a substantial share of increased expectations of Russia’s
its reserves away from Western banks questioned since it rests on measures that
The movement on bond yields is a may suffocate the Russian economy. inability to pay its bonds’ coupons).
(most notably moving 22% off of the
reflection of the expected market
United States). Credit rating agencies have degraded
uncertainty. Inflation expectations are In the same period, the Ukrainian hryvnia Russia’s debt to “junk”, and a default
now increasingly driving the yields as well None of Russia’s reserves were held in recessed by 5%. seems increasingly likely.
(as measured by the so-called breakeven China in 2014. In 2021, China was holding
rate on inflation-protected bonds). nearly a fifth of Russia’s liquid assets.
Sources: S&P Capital IQ, The Economist, Thomson ReutersAn energy crisis, in the midst of an inflationary spike
Inflationary pressures pre-existing to the Ukrainian crisis are amplified through several channels.
Inflation was increasingly driven by … The war in Ukraine is accelerating this Commodities are affected too, whether
1 2 3 4 … And shipping cost are shooting up again
commodities and energy … phenomenon by triggering an energy crisis traded by Ukraine or by Russia …
Inflation in the United States and the euro area Price in multiples of March 2021
Price in % of April 2021 Baltic Dry Index (USD)
10% 6,000
2.3x 16x 80%
8% 13x 5,000
1.8x 60%
6% 10x 4,000
1.3x
7x 40%
4% 3,000
0.8x
2% 4x 20%
2,000
0.3x 1x
0% 0% 1,000
(0.2x) (2x)
01-15
08-15
03-16
10-16
05-17
12-17
07-18
02-19
09-19
04-20
11-20
06-21
01-22
(2%)
(20%) 0
04-19
07-19
10-19
01-20
04-20
07-20
10-20
01-21
04-21
07-21
10-21
01-22
04-21
05-21
06-21
07-21
08-21
09-21
10-21
11-21
12-21
01-22
02-22
03-22
US headline CPI US Core CPI Oil Natural Gas, US
EU headline CPI EU Core CPI Natural Gas, EU (right) Wheat Corn Aluminum
Oil prices reached a high on 8 March and
were 34% higher than before the war (in a Ukraine is a key exporter of some food
Inflation was on the rise throughout 2021 The Ukrainian war is creating new supply
12-day period). Prices have recessed since commodities such as wheat, where prices
and has been increasingly driven by routes disruption in a world that has not
then, showing great volatility as embargos went up by 116% compared to pre-war
energy and commodities. yet recovered from the pandemic.
are being discussed and adopted. level on 23 February.
The spread between headline inflation European natural gas prices have reached Sea traffic in the Black Sea is at a stand-
and core inflation at the start of 2021 new historical levels since the onset of Sanctions on Russia cause a broader still, and insurance premiums have shot
was 0 percentage point in the United the war, trading at 12 times 2021 prices. movement on commodities (Russia up. Freighters are progressively stopping
States and 0.5 in the euro area. Today, it US gas prices have had a more moderate exports many ores in large quantities) and to service Russian harbours, creating
is 2.1 and 4.5, respectively. but continuous increase. further disruption and rerouting on an
amplify an upward cycle started in 2021.
Energy prices remain very volatile. already slowed-down traffic.
The war in Ukraine strongly reinforces the
Russia’s decision to halt natural gas Ukrainian agricultural supplies may be
anticipated inflationary pressures for These renewed logistics pressures,
exports to Poland and Bulgaria marked disrupted in the next year, and the war,
2022, it puts a nail in the coffin of although very locals, are affecting global
the first actual supply disruptions since even if halted, will make sowing very
transitory inflation thesis. trade costs.
the start of the wark but generated only a difficult.
moderate movement on prices.
Sources: Eurostat, Federal Bank of St Louis, S&P Capital IQ, Thomson ReutersCurrent estimates of consequences of the war in Ukraine
Considerable growth forecasts for 2022.
So far, the commodity shock translates No recession in view yet, but a considerable Impact of a 20% decrease in fossil inputs
1 2 3 4 … and on selected industries in Europe
into a 2.5 % points increase in inflation amputation of forecast growth on the European GDP…
Impact on inflation so far, in % points Impact on 2022 GDP growth in % points Impact of decreased fossil inputs on GDP Impact of decreased fossil inputs on selected
growth in % points industrial outputs in % points
3.0 United
Euro area OECD States World
DNK Pharmaceuticals
2.5 0
FRA Food & drinks
2.0 (0.2)
GBR Motor vehicles
(0.4) NOR Agriculture
1.5
(0.6) DEU Land transport
1.0 (0.8) NLD Chemicals
(1.) FIN Air transport
0.5
(1.2) EU22 Electricity & gas
0.0 SWE Refined petroleum
Euro area OECD United World (1.4)
States (1.6) -1.2 -0.7 -0.2 -15.0 -10.0 -5.0 0.0
The marginal increase in inflation due to The OECD estimates that global growth In its latest outlook, the OECD modelled a
the war in Ukraine is estimated by the The same decrease of 20% in fossil inputs
will be affected by 1.1 percentage points 20% decrease in fossil inputs in Europe
OECD at 2.5 percentage points globally, yields very different results across
in 2022,while the IMF estimates a 0.8 (energy and refined oil products) showing
since the start of the year. European industries.
point impact. diverging results.
Europe is particularly exposed to the
increased inflation because of The IMF published a global GDP growth The EU22 is affected by 1 percentage
forecast of 3.6% for 2022 (compared to a Refined petroleum products production
dependency to Russian energy inputs. point loss on its annual GDP growth (the
4.4% estimate in January). This is from would obviously be the most affected
Emerging countries are particularly same level as Sweden). Denmark is seen
6.1% growth in 2021. sector and would see its output decrease
affected by commodity prices and the as one of the least affected countries
by 12 percentage points.
raise of the US dollar. (-0.7).
The euro area is expected to be
The United States is one the least affected disproportionally affected by the war on The most affected countries would be the
its annual output (1.4 percentage points), Air transport, already badly damaged by
area, as its inflation becomes increasingly Baltic countries such as Lithuania (-2.5)
mostly due to its reliance on Russian and the COVID crisis, would see its output
endogenous. and some Mediterranean economies such
Ukrainian inputs. decrease by 2.7 percentage points.
as Turkey (-2.1) and Greece (-2.4).
Sources: OECD 2022, IMFTable of contents Economic trends ……………………………... 4-11 Macro trends …………………....................………. 4-6 Markets …………………………….....………………. 8-11 Q1 2022 outlook.....……………………………..……... 13 M&A environment …….…………………… 15-16 The war in Ukraine.............................. 18-21 Deloitte insights .…………………………….. 24
Deloitte insights
Deloitte Economics
Majbritt Skov
• Economic due diligence: We can analyse market dynamics (including monopolies/
oligopolies), forecast growth factors using econometric models and provide pricing
Partner, Chief Economist
optimisation models.
+45 30 93 54 71
maskov@deloitte.dk
• ESG e(Valuation): We help support better deal decisions by providing in-depth scoping
of ESG impacts and costs, which help determine the operating and financial costs
Peter Lildholdt associated with a transaction.
Director
+45 40 35 25 36 • Value and growth analysis: Our ability to forecast and analyse data allows us to provide
plildholdt@deloitte.dk transaction and post-acquisition support in terms of metrics, KPIs and value
identification in the market.
Bryan Dufour • Investment impact assessments: We provide models which can cost for all economic
Vice President factors which influence investments.
+45 42 13 74 55
bdufour@deloitte.dk • ESG and SDG investment advice: We can assist in portfolio and ongoing ESG support for
investment and operational strategies.
Ida Steinbring Rasmussen
• Macro-investment strategy: We help institutional investors and corporations design
Associate
macroeconomic and ESG aligned portfolio and investment strategies off the back of
+45 28 15 78 61 innovative ESG solutions.
isteinbring@deloitte.dk
Page 23 Deloitte Economics © 2022Deloitte insights
Contact details of Deloitte Corporate Finance partners
All industries Life Science & Health Care Consumer Valuation & Modelling
Sigurd Ersted Jensen Peter Sandfeld Olesen Mads Damborg Tinus Bang Christensen
Managing Partner Managing Partner Equity Partner Equity Partner
Email: sigurdjensen@deloitte.dk Email: polesen@deloitte.dk Email: madsdamborg@deloitte.dk Email: tbchristensen@deloitte.dk
Mobile: +45 30 93 61 66 Mobile: +45 30 93 46 11 Mobile: +45 30 93 54 81 Mobile: +45 30 93 44 63
Financial Services Special Situations Real Estate Industrials
Tore Stürmer Heyden Søren Nørgaard Mads Skaarup Niels Stoustrup
Partner Partner Partner Partner
Email: theyden@deloitte.dk
Email: sonoergaard@deloitte.dk Email: maskaarup@deloitte.dk Email: nstoustrup@deloitte.dk
Mobile: +45 30 93 00 33
Mobile: +45 30 93 62 90 Mobile: +45 61 67 90 50 Mobile: +45 30 93 59 15
TMT Small Cap Energy & Infrastructure
Kasper Svold Maagaard Jonas Knudsen Troels Ellemose Lorentzen
Partner Partner Partner
Email: kmaagaard@deloitte.dk Email: jpknudsen@deloitte.dk Email: tlorentzen@deloitte.dk
Mobile: +45 30 93 54 54 Mobile: +45 20 99 45 20 Mobile: +45 30 93 56 90
Economics Debt Capital Public & Infrastructure
Majbritt Skov Morten Husted Permin Rikke Beckmann Danielsen
Partner Partner Partner
Email: maskov@deloitte.dk Email: mpermin@deloitte.dk Email: rdanielsen@deloitte.dk
Mobile: +45 30 93 54 71 Mobile: +45 61 55 26 70 Mobile: +45 30 93 56 92
Page 24 Deloitte Economics © 2022This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms or their related entities (collectively, the “Deloitte organization”) is, by means of this communication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No representations, warranties or undertakings (express or implied) are given as to the accuracy or completeness of the information in this communication, and none of DTTL, its member firms, related entities, employees or agents shall be liable or responsible for any loss or damage whatsoever arising directly or indirectly in connection with any person relying on this communication. DTTL and each of its member firms, and their related entities, are legally separate and independent entities. Deloitte provides industry leading audit and assurance, tax and legal, consulting, financial advisory, and risk advisory services to nearly 90% of the Fortune Global 500® and thousands of private companies. Our professionals deliver measurable and lasting results that help reinforce public trust in capital markets, enable clients to transform and thrive, and lead the way toward a stronger economy, a more equitable society and a sustainable world. Building on its 175 plus year history, Deloitte spans more than 150 countries and territories. Learn how Deloitte’s more than 345,000 people worldwide make an impact that matters at www.deloitte.com Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities (collectively, the “Deloitte organization”). DTTL (also referred to as “Deloitte Global”) and each of its member firms and related entities are legally separate and independent entities, which cannot obligate or bind each other in respect of third parties. DTTL and each DTTL member firm and related entity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services to clients. Please seewww.deloitte.com/about to learn more. © 2022 Deloitte Statsautoriseret Revisionspartnerselskab. For information, contact Deloitte Global.
You can also read
