The high profile announcements from COP28 around renewable capacity pledges and fossil fuel usage are ambitious, but strike us as either overly optimistic or vague. While we think renewable energy consumption will increase markedly, fossil fuel usage is …
21st December 2023
We think “risky” assets could struggle relative to “safe” ones in the near term if, as we expect, growth disappoints, although we still think they’ll outperform over next year as a whole. At the time of writing, Thursday’s drop in equity prices had …
The rerouting of trade ships away from the Red Sea has come at a time of disruption to shipping elsewhere in the world, but it is unlikely to alter the broad pattern of falling core inflation in 2024. We expect the recent rise in oil prices to prove …
Another monthly fall in China, but the US and India to remain at full blast The monthly falls in China’s steel production continued in November, but output over the year is almost certain to be higher than in 2022. Production in India grew quickly and …
Consumption growth better than feared The strong rise in retail sales volumes in October suggests that consumption growth will accelerate this quarter. That presents an upside risk to our forecast that GDP will edge down again, although we remain …
This page has been updated with additional analysis from the post-meeting press statement and press conference. CNB kicks off its easing cycle The Czech National Bank (CNB) maintained a hawkish tone as it started its easing cycle today, but we still think …
Red Sea crisis adds to Egypt’s external strains Attacks on cargo ships in the Red Sea have prompted major shipping companies to reduce their traffic through the Suez Canal. This deals a blow to Egypt’s hard currency revenues when it desperately needs …
ECB is talking but investors aren’t listening This week brought more pushback from ECB policymakers against expectations for rates to start falling in the first half of next year. But investors have largely ignored them, and arguably for good reason. …
Leaving the door open for one more hike Turkey’s central bank (CBRT) delivered a 250bp interest rate hike, to 42.50%, at today’s meeting and didn’t close the door on the tightening cycle. We’ve now pencilled in one more 250bp hike at the next meeting in …
A relatively resilient economy and tight supply will support French industrial rent growth in the next two years. However, regional markets stand to benefit most. Availability is greater, and rising, in Paris and poor rental affordability will continue to …
This page has been updated with additional analysis since first publication. Recovery stalls in November Poland’s activity data for November suggest that the economic recovery stalled last month, but we think that this is only a temporary blip. We still …
Bank Indonesia left its policy rate unchanged at 6.0% today for a second consecutive meeting, but in its press conference hinted at the possibility of rate cuts in the second half of next year. However, with economic growth set to struggle and inflation …
House prices will limp along in 2024 Although house prices in Melbourne have started to fall anew, we doubt that they are the canary in the coal mine. A persistent shortfall in housing supply should ensure that house prices across most of Australia keep …
This page has been updated with additional analysis since first publication. Still scope for pre-election splash in Spring Budget We doubt November’s public finances figures will prevent the Chancellor from unveiling a further pre-election fiscal splash …
The performance of the 17 office markets we forecast will continue to be driven by structural factors over the next couple of years. That points to further weakness in the six major markets, where traffic and long commutes are a major drag on office …
20th December 2023
As the year draws to a close, this Update sets out our answers to five of the most commonly asked questions about currency markets for the coming year. In short, we expect another year of muddling through for the dollar, a rebound in the yen, and growing …
The surprising strength this year of the region’s two largest economies, Brazil and Mexico, will fade in 2024 and growth over the next couple of years is likely to come in below consensus expectations. In contrast, the Andean economies are set for a …
While the valuation gap between “growth” and “value” factors in the US is high by past standards, we suspect that “growth” will generally keep outperforming in the next year or two. Since the start of this year – and as was the case between the Global …
We think the 10-year Japanese government bond (JGB) yield will rise over 2024 as the Bank of Japan (BoJ) lifts its policy rate early next year and c onstraints on the JGB market ease . And while that may exert some upward pressure on bond yields in other …
Trough in existing home sales behind us: Existing home sales recovered somewhat in November from the 13-year low reached in October, as falling mortgage rates brought more buyers and sellers into the market. That chimes with the pickup in mortgage …
As 2023 draws to a close, this Update looks at three key climate themes to watch in 2024. In short, one should look beyond the inevitable climate-related rhetoric in the run-up to looming elections and focus on what the data tell us – particularly as …
The decisions yesterday by Colombia’s central bank to kick off its easing cycle and by Chile’s to accelerate the pace of easing appears to have been driven by the substantial improvement in the external environment. We expect both central banks to …
More subdued production growth likely over the coming months After hitting a new record in October, global aluminium production slipped back in November. We suspect that the new record will not be toppled in the coming months owing to power rationing in …
In Warsaw, more favourable economic conditions will support retail spending and prime rents in the short term. But from 2025, faster rises in online shopping than elsewhere in Europe will cause the city’s retail rents to lag the rest of the region. Warsaw …
High interest rates have taken longer to percolate through the economy than we expected, but we now think consumer spending will contract over the next six months. That poses a risk to our retail rent forecasts. However, the sector will still benefit from …
Fiscal Risks …
Most major DMs need to shrink their primary budget deficits significantly and, for various reasons, most are likely to find it hard to do so. This will exacerbate growing worries about fiscal sustainability. Fiscal deficits increased significantly in …
The end of Portuguese Prime Minister António Costa’s time in office does not signify the end of Portugal’s impressive period of debt reduction. We think any future government is likely to exercise similar fiscal discipline while benefitting from …
This page has been updated with additional analysis since first publication. Collapsing domestic inflationary pressures may mean BoE cuts rates earlier For the second month in a row, the falls in CPI inflation from 4.6% in October to 3.9% in November …
While the income tax cuts due next year are widely seen as necessary to reverse bracket creep, the income tax burden isn’t particularly onerous by historical standards. However, Australia taxes income far more heavily than most other advanced economies …
Our China Activity Proxy (CAP) suggests that the economic recovery is continuing as the service sector makes up further lost ground. With policy support still flowing and consumers feeling less downbeat, further gains are likely in the near-term, but …
This page has been updated with additional analysis since first publication. Net trade will make a positive contribution to Q4 growth Even though the trade deficit narrowed in November, goods trade will probably be a drag on GDP growth this quarter. …
We expect the 10-year Japanese government bond (JGB) yield to rise next year, as the era of negative interest rates there comes to an end and constraints on the bond market ease. And w e think the yield gap vs the US will shift further in favour of the …
19th December 2023
The attacks in the Red Sea are the third major disruption to maritime transport this year, alongside low water levels in the Panama Canal and collapse of the Black Sea Grain Deal. Much will depend on how long the disruptions last, but we think that they …
Investors’ growing expectations that the US Fed will cut interest rates in March next year, as well as the recent soft UK wage and inflation data, have convinced investors that the Bank of England will start cutting interest rates sooner, in May 2024 …
The more supportive global risk environment is helping to ease some financial strains across the EM world, but there are still pockets of vulnerability heading into 2024. Balance of payments positions are fragile in Turkey and Tunisia. Public debt risks …
Although the economic backdrop is likely to be less favourable for the stock market in the US over the next two years than it was in second half of the 1990s, we doubt this will prevent a similar bubble in equity prices from inflating as investors seek to …
As core PCE inflation is on track to return to the 2% target by the middle of next year, we expect the Fed to cut interest rates by 25bp at every meeting next year from March onwards, with rates eventually falling to between 3.00% and 3.25% in early 2025. …
Single-family starts jump to 19-month high The extreme lack of existing inventory on the market continued to support newbuild demand and construction activity in November, as single-family starts jumped to an 19-month high. The rise is at odds with the …
This page has been updated with additional analysis since first publication. A temporary step backward The renewed acceleration in core inflation pressures in November was largely due to a jump in travel tour prices, which is likely to be quickly …
The goal of keeping government debt ratios stable or falling means that many euro-zone countries will need to tighten fiscal policy substantially and some will need to run primary budget surpluses for a long time to come. Italy has the most challenging …
At face value, the Argentine central bank’s (BCRA’s) decision yesterday to switch (and essentially lower) its policy rate seems at odds with the goal of tackling the country’s severe inflation problem. But the move appears to be aimed at shifting the …
Saudi Arabia looks set to record its worst economic performance this year, outside of the pandemic and the global financial crisis, in more than two decades on the back of lower oil output. The worst of the downturn now appears to have passed and we …
This publication has been updated with additional analysis from the post-meeting press statement and press conference. 75bp cuts to continue for the time being The Hungarian central bank (MNB) cut its base rate by 75bp again today (to 10.75%), and we …
Last week, Christine Lagarde cited high wage growth and “domestic inflation” as reasons for the ECB to keep interest rates high. While domestic price pressures are easing, it will take several months for policymakers to see enough evidence that they have …
Inflation and interest rates will fall across Central and Eastern Europe in 2024 and an economic recovery is likely to take hold across the region. But the task of bringing inflation back to central banks’ targets will take time and we think that monetary …
The Bank of Japan left policy settings unchanged today as widely anticipated. And while Governor Ueda is sounding more confident that 2% inflation will be sustained, we now expect the Bank of Japan to end negative interest rates in March rather than in …
