h�b```f``�d`2�1�3 ?P����A�7k�g����?0K6�q&������A�E>�i f������BS����+��������"���>c@� $)� Any information, statement or opinion set forth herein is general in nature, is not directed to or based on the financial situation or needs of any particular investor, and does not constitute, and should not be construed as, investment advice, forecast of future events, a guarantee of future results, or a recommendation with respect to any particular security or investment strategy or type of retirement account. Data is coming at investors from every angle with so-called recession indicators flashing signs of an economic slowdown brought on by slower growth abroad and the U.S.-China trade war. For now this effect is mostly visible in Italy, but it is unlikely to be confined to this member state.Headline PMI surveys for January-February suggest the economy still has little to worry about, but rising delivery times (which push up the index) were Obviously, financial factors are also important as they can both attenuate as well as aggravate the situation. Copyright © 2020 Rabobank/RaboResearch, Utrecht %%EOF While Austrian firms have relatively less cash, they also have little interest obligations a relatively large profit share. And these layers are interlinked (figure 4).Indeed, the response by the general public in the Eurozone and less aggressive containment measures by the governments and businesses are likely to make for an entirely different outcome than in China, where the economy virtually came to a standstill in February. This model is described on the St. Louis Federal Reserve site (FRED) as follows: Especially since EU heads of state have argued for less strict regulation of state-aid. Clearly, Italy differs from the others in that it has to deal with a large domestic outbreak. Although Q4 GDP growth actually disappointed with a meagre 0.1% gain (partly due to transitory factors), several indicators for the Eurozone economy had only just started to show hopeful signs in the final months of last year. Recession Tracker @ www.economy.com Indicator Type Months to Recession Threshold Risk Unemployment rate - NAIRU Leading 30 to 36 0 High Financial stress index Leading 11 to 15 >1 Low Housing permits Leading 10 to 12 Yr/Yr decline Low Yield curve 10-yr minus 3 … Again, Getting a complete picture of countries’ vulnerability to the supply side shock originating in China is a challenge in this exercise due to the existence of international supply chains.As a proxy we have combined trade to GDP with the size of the manufacturing sector in the economy (row 5). However, The shock couldn’t have come at a worse time. Tourist accommodations in The third and fourth row of table 2 shed some light on countries’ relative exposure to supply shocks originating in China. A recession can become a depression if it lasts long enough. Prior to the wider outbreak, the ClearBridge Recession Risk Dashboard was improving with Money Supply and Without government or central bank support, companies with lower debt, higher cash buffers and a high profit share are likely to be more resilient in case of a fall in both external and domestic demand.To assess the shock-absorbing capacity of non-financial corporations we look the following indicators in table 5 below:The heatmap in table 5 shows that non-financial corporates in Austria, Spain and the Netherlands seem to be more resilient to temporary shocks to liquidity. In the next paragraph we look at some of the issues in more detail.As output in China falls sharply, the import of Chinese consumer goods and semi-finished goods is hampered.

On top of that the profit share of French companies is relatively small.There is quite some heterogeneity among member states when looking at how vulnerable their economies are to the outbreak of COVID-19. Dutch companies have much cash, but also large debt (obligations). In contrast, import and supply chain disruptions could lead to temporary price hikes in goods that are difficult to obtain and/or where inventory levels are low. For the Eurozone as a whole, non-financial corporations have a lot more cash on their balance sheets when compared to 2008 (figure 5). Despite a lack of details so far, it seems governments are now aware that targeted measures are needed. So far, European businesses are mostly experiencing supply chain disruptions directly or indirectly caused by ChinaMeanwhile, demand suffers as well. An additional challenge for Spain is its substantial dependence on tourism income. In France companies also combine much cash with a relatively low interest coverage ratio. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies should consult their financial professional.Royce & Associates, LP primarily conducts its business under the name Royce Investment Partners.INVESTMENT PRODUCTS: NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUELegg Mason Investor Services, LLC and all entities mentioned are subsidiaries of Franklin Resources, Inc.Copyright © 2020 Legg Mason Investor Services, LLC.

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