Executive Summary
This week, we looked into three important topics:
- First, the wind sector bust is a learning moment for climate policy. The sector is grappling with rising operating and financing costs, quality-control problems and supply-chain issues. Inflation and global energy-price fluctuations have led to increased costs for wind power projects, casting doubt over the feasibility of many ventures. Overall, the eight largest renewable energy firms reported a -USD3bn combined decrease of assets in the first half of the year. Without government guarantees to act as a financial backstop for large industrial projects, climate targets could be at risk.
- Second, it’s the immigration, stupid! Around a third of US growth since 2021 (1.3pp) can be explained by the return of migrants or foreign-born employment – while it only accounted for a fifth of Eurozone growth. Foreign-born job creation has accounted for 40% of the gains in total employment in the US despite making up around 17% of total employment in 2021. Assuming that the Eurozone had had similar immigration patterns as the US since 2021, the Eurozone could have added 1.3pp to its GDP growth (or increased it to +5.3%). Smart immigration policies are needed on both sides of the pond.
- Last, US corporate spreads – too low to be true? The rapid increase in sovereign yields has pushed up those of corporate bonds, which are now offering some of the highest yields in the last 20 years. However, spreads in relative terms are at their lowest point since 2007. Amid growing concerns over the economy, the compensation for the additional risk taken on corporate bonds seems low. But going forward, we expect this situation to unfold mainly through lower bond yields instead of wider credit spreads.