Upside surprise further boosts the case for another rate hike The larger-than-expected 3.1% annualised rise in first-quarter GDP and the strong preliminary estimate in April boost the case for another interest rate hike from the Bank of Canada, which …
31st May 2023
Growth likely to slow after Q1 rebound GDP data for Q1 (Q4 of FY22/23) show that India’s economy rebounded at the start of the year. But with higher interest rates still feeding through and fiscal policy turning slightly less supportive, growth is likely …
Good news on inflation but core rate still high The fall in German headline inflation in May along with signs that core price pressures eased echoes the message from the inflation figures for France and Spain and supports the case for the ECB to limit …
There has been further evidence over the past month that resilient export growth, weak domestic demand and lower energy prices have helped to improve current account positions across Central and Eastern Europe this year. This has been particularly …
European property valuations continued to improve in Q1 on the back of further increases in property yields as well as falls in government bond yields. Nonetheless, all office and industrial markets aside from Istanbul remained overvalued. Indeed, we …
India’s economy is one of the most vulnerable in the world to the physical effects of climate change. Climate change alone won’t stop relatively rapid rates of growth over the coming decades. But it is likely to mean that income convergence with other, …
The Bank of Thailand (BoT) raised its policy rate by 25bps, to 2.0%, today but given the relatively benign outlook for inflation we think this marks the end of the tightening cycle. Today’s decision was accurately predicted by 17 of 22 analysts polled …
Solid Q1, but economy set for slowdown in growth Turkey’s economy shrugged off the impact of the earthquakes in February and grew by 0.3% q/q (4.0% y/y) in Q1. GDP growth is likely to remain soft in q/q terms this year, but a continuation of President …
Further tightening unlikely The Bank of Thailand (BoT) raised its policy rate by 25bps, to 2.0%, today but given the relatively benign outlook for inflation we think this marks the end of the tightening cycle. In the accompanying statement to today’s …
Encouraging inflation data from France The larger-than-expected fall in headline inflation in France and the fall in both services and core goods inflation bode well for euro-zone HICP inflation which will be published tomorrow and will strengthen the …
Economy softening, but not collapsing Inflation overshooting Bank’s forecasts and upside risks abound We now expect two more 25bp hike in June and July; rate cuts unlikely until Q2 2024 With inflation set to overshoot the Reserve Bank of Australia’s …
Renewed acceleration will prompt further RBA tightening While the pick-up in inflation in April mostly reflects base effects from the excise duty cut a year ago, trimmed mean CPI picked up as well. With inflation set to overshoot the RBA’s forecasts this …
This page has been updated with additional analysis and charts since first publication. Recovery still making headway The PMI surveys suggest that China’s economic recovery was still ongoing in May. Waning fiscal support weighed on construction activity. …
Balanced risks to Q2 GDP outlook April’s activity data were a mixed bag. The fall in industrial production and sharp drop in retail sales volumes pose downside risks to our Q2 GDP growth forecast . By contrast, capital goods shipments data suggest …
Renewed acceleration in inflation will prompt further RBA tightening With inflation set to overshoot the RBA’s forecasts this quarter, the Bank will continue to increase interest rates, perhaps as soon as next week. According to the Monthly CPI …
High net immigration helps explain why rental growth accelerated to its fastest pace on record last year. Immigration won’t be as high this year, adding to the reasons to think that rental growth has peaked. But strong pay growth, high mortgage rates and …
30th May 2023
We think that the slump in demand for mortgages will more than offset the support from the high backlog of work and result in a sizeable contraction in euro-zone construction output in the coming quarters. Euro-zone construction output – which accounts …
“Official” China PMIs may show a further slowdown in the reopening rebound (02.30 BST) We expect Thailand’s central bank to hike by 25bp, to 2.00% (08.00 BST) Canada’s rate of growth probably picked up in Q1 (13.30 BST) Key Market Themes A sense that …
House price declines reverse In line with the stronger-than-expected economic data releases at the start of the year, house prices proved resilient in March. But we expect the economy to weaken in the coming months, which will weigh on homebuyer …
The upward revision to our Bank Rate forecast suggests that mortgage rates will return to a similar peak as last autumn by the end of the year. That would undermine the recent pick-up in mortgage approvals and lead to renewed falls in house prices. Higher …
Overview – Higher-than-expected core inflation means interest rates are now set to be higher for longer and we still think the economy will enter a mild recession later this year. That’s not a great backdrop for commercial property and yields will need …
Economy stagnating, price pressures still high The larger-than-expected fall in the EC Economic Sentiment Indicator in May is consistent with our view that the euro-zone will continue to stagnate in the second quarter. Meanwhile, firms’ selling price …
The renminbi strengthened sharply against the US dollar in response to China’s move away from zero-COVID. But the currency has since reversed much of those gains and is now approaching 7.10/$, its weakest level since December. Optimism over China’s …
April’s money and credit data suggest that the decline in bank deposits in recent months is due to rising interest rates rather than worries about the banks’ stability. Meanwhile, bank lending remained extremely weak. Data released this morning show that …
Further contractions in industrial production in store The weakness in both industrial activity and retail spending in April points to a poor start to Q2 for the economy after it expanded by 0.4% q/q last quarter, posing downside risks to our current …
It’s Political Economy 101 that if the cost of household staples rises for long enough then governments will reach for price controls. This is exactly what is starting to happen across Europe in response to the sharp rise in food prices over the past …
Economic rebound likely to be short-lived The rebound in the Swiss economy in Q1 was due to robust domestic private sector demand, which more than offset a weakening in net trade. However, we expect the economy to slow over the remainder of the year as …
Fall in inflation much faster in Spain than elsewhere At face value, the fall in Spain’s HICP inflation rate to below 3% in May is encouraging for the ECB. However, it largely reflects country-specific factors which may not be replicated elsewhere for …
Many commentators have pinned the recent outperformance of Japan’s stock market on the stronger focus by Japanese firms to maximise shareholder value. But while those efforts showed some success in the run-up to the pandemic, there hasn’t been much …
Unemployment rate still set to rise in H2 The unemployment rate reversed the sharp rise in March last month and the job-to-applicant ratio stabilised, but a recession in H2 should still see the unemployment rate peak at 3% by year-end. The labour force …
Although President Joe Biden and House Speaker Kevin McCarthy have finalised a deal to raise the debt ceiling, we wouldn’t be surprised if legislative delays mean that deal doesn’t get passed by Congress until late this week. There is little of any …
29th May 2023
Looming recession will see unemployment rate hit 3% The unemployment rate fell from 2.8% to 2.6% in April, a better outturn than the 2.7% we and the consensus had pencilled in. The job-to-applicant ratio was unchanged at 1.32, arresting a downtrend that …
Turkish economy’s day of reckoning may now just be around the corner The victory for President Erdogan in Turkey’s presidential election on Sunday is likely to result in a continuation of distortive economic policies and push the economy down a path …
Our China Activity Proxy (CAP) shows that, despite losing some momentum, the economic recovery was still making progress at the start of Q2. And we think there is still scope for further improvement, especially in the service sector. The CAP is our …
Neil Shearing says the UK’s April CPI report was a “horrorshow”. The Capital Economics Group Chief Economist tells David Wilder why sticky inflation readings make recession more likely – despite the popular view that a downturn can be avoided – while …
27th May 2023
Commodity prices generally fell this week, as investors’ expectations for the Federal Reserve’s policy rate rose on concern about the persistence of high inflation. The dollar also strengthened. Declines in many equity indices also pointed to a risk-off …
26th May 2023
The labour markets in Norway and Sweden remain very tight, in line with conditions in the euro-zone. This is likely to keep services inflation high over the coming months and encourage the Norges Bank and Riksbank to raise rates further. The labour market …
China’s May PMIs are likely to show the momentum from re-opening fading Euro-zone inflation probably fell in May, but we think the core rate was steady (Thu.) We think US non-farm payrolls increased by 200,000 in May (Fri.) Key Market Themes We expect any …
For the third week running, the dollar looks primed to notch up decent gains against most other major currencies. We don’t think newsflow regarding the US debt ceiling (which has swung from positive to negative and back this week) has had much bearing on …
The big news this week was the downward revision to Germany’s estimate of Q1 GDP, which is now thought to have contracted by 0.3% q/q rather than stagnating. That pushed the economy into a technical recession as it had contracted by 0.5% in Q4 last year, …
Note: We’re discussing potential EM equity outperformance, monetary easing and “friend-shoring” in our next EM monthly online briefing on Thursday, 1 st June. Register here to join. Brazil’s fiscal framework gets strong support The approval of Brazil’s …
Our commercial property valuation scores rose sharply in Q1, suggesting that Q3 2022 was a trough in valuations. Office and retail sectors now look fairly valued. While we think retail values do not have much further to fall, concerns about the outlook …
Attention focusing on financial stability in Turkey With the second round vote of Turkey’s presidential election taking centre stage on Sunday, the day of reckoning for Turkey’s economy and financial markets may now just be around the corner. The …
The decline in the job vacancy rate to a 22-month low in March eases some of the pressure on the Bank of Canada but, with the CFIB Business Barometer showing a renewed rise in firms’ selling price expectations this month, we continue to judge that …
GDI suggests economy already in recession This week’s upward revision to first-quarter GDP growth, to 1.3% annualised from 1.1%, suggests the economy had marginally more momentum than previously thought. But, in stark contrast, the first release of real …
Core inflation still elevated The 0.5% m/m increase in real consumption in April got the second quarter off to a good start, although that followed two months’ of declines. We now expect second-quarter consumption growth to be around 2% annualised, which …
Slow progress tackling construction backlog New home sales have ticked up since the end of last year, helped by a post-zero-COVID recovery in consumer confidence and large reductions in mortgage rates and down-payment requirements. But the improvement has …
The title of the UK Economic Outlook we published in March was “Recession needed to solve the inflation problem”. (See here .) The argument was that the drags from high inflation and a rise in interest rates to 4.50% would weaken activity and domestic …
Challenges to China’s long-run growth potential that were mounting a few years ago are now evident to all. We continue to expect trend growth to have fallen to around 2% in 2030. We held an online drop-in yesterday to discuss how our views on China’s …
