Economy starts the year on a weaker footing The disappointing 1.1% annualised rise in first-quarter GDP indicates that the economy had less forward momentum at the start of this year than previously thought. We continue to expect the drag from higher …
27th April 2023
Calm before the storm? Turkey’s central bank (CBRT) left its key policy rate on hold at 8.50% again today, but all eyes are now firmly on next month’s election for a possible change in the stance of monetary policy. Polls are close, but an opposition …
ECB most likely to raise its deposit rate by 50bp next week. Hawks can point to strong activity, high core inflation and tight labour market. We forecast the deposit rate to hit 4% and stay there for over a year. While it is not a done deal, we think the …
We expect the Norges Bank to follow through on its plan to raise its policy rate by 25bp next week, to 3.25%. We have pencilled in a peak of 3.5% in June but the risks are skewed towards it reaching a higher level, particularly if the krone keeps falling …
Business surveys signal resilience in activity The EC’s economic sentiment indicator for April remained consistent with the economy expanding at the beginning of Q2. It also suggests that price pressures (though easing) remain high and that labour …
Fall in sentiment points to tepid growth The EC’s Economic Sentiment Indicators (ESIs) for Central and Eastern Europe generally fell slightly in April, with our regional measure declining for the first time in six months. On past form, the ESIs suggest …
The replacement of Colombia’s market-friendly finance minister José Antonio Ocampo with a close ally of President Petro is likely to lead to a sell-off in Colombia’s financial assets when markets open later today. This is especially worrying given the …
Wage growth in the euro-zone is likely to remain above the level compatible with 2% core inflation this year and only gradually return to a more sustainable level thereafter. For the past year, wage growth has run well above the 3% y/y or so compatible …
Occupier demand ticks up, but further falls in rents and capital values likely After a weak end to 2022, surveyors reported that occupier demand was essentially flat in Q1. All sectors saw an improvement and that suggests take-up will pick-up in Q2. That …
Labour market loosening in earnest Labour market conditions loosened visibly in March and there’s room for it to loosen further given the recession we’re expecting in the second half. Meanwhile inflation reversed course and increased in April. Our …
Sweden dodges recession for now News that the Swedish economy expanded slightly in Q1, and thereby narrowly avoided a recession, adds to the evidence that economic activity in Europe as a whole has held up well in Q1. That said, we still think Sweden is a …
The turmoil in the US banking system is likely to set off the worst decline in Japan’s commercial real estate prices since the Global Financial Crisis by prompting foreign investors to stop buying Japanese assets. In the worst-case scenario, GDP will …
The US dollar has weakened again over the past month or so, leaving it only somewhat higher in trade-weighted terms since the start of its rally at the start of 2022. In other words, the greenback has nearly reversed all of its gains from the Fed …
26th April 2023
The raft of inflation data over the past couple of weeks will have provided some relief for Latin American central banks, with headline rates in most countries now on a clear downward trajectory. In Mexico this means that a final rate hike in May now …
Product demand proving solid, for now Commercial stocks fell last week as production and net imports declined. Meanwhile, product demand remains resilient, but we doubt oil demand can weather the mounting economic headwinds much longer. The EIA’s latest …
Spain’s underperformance since the pandemic can be explained in part by the incomplete recovery in its tourism sector and in part by the sharp fall in real household disposable incomes. That said, we think the economy will outperform at least in the first …
House prices edged up in March and the sharp rise in the sales-to-new listing ratio suggests there are further gains to come. (See Chart 1.) As the improvement has been driven mainly by a collapse in new listings, while buying power is still constrained …
We think GDP in Sweden contracted in Q1 for a second consecutive quarter (07.00 BST) Turkey’s central bank is likely to leave its key rate unchanged again (12.00 BST) US GDP probably held up in Q1, but we expect a sharper slowdown soon (13.30 BST) Key …
Inflation has finally turned a corner. Headline inflation rates fell in March in all 14 economies that we cover, the first synchronised drop in more than a decade. This partly reflects base effects resulting from the sharp rise in prices after the war in …
25bp hike next week likely to be the last, with rates peaking at 5.00%-5.25% Economic weakness and falling inflation to prompt rate cuts later this year We expect fed funds target range to have fallen to 2.50%-2.75% by end-2024 The Fed looks set to …
JODI data show that oil demand held up in advanced economies at the beginning of the year. We suspect this won’t last though as weakening economic activity drags on demand over 2023. The data also show that natural gas demand in Europe fell in February, …
Vietnam became the first country in the region to start loosening policy when it lowered its refinancing rate at the end of March. We don’t think it will be long before other central banks in Asia start to cut rates, with the Bank of Korea set to be next, …
Details consistent with declining equipment investment The 3.2% m/m jump in durable goods orders in March mainly reflects a stronger-than-expected gain in the more volatile commercial aircraft component, with the details suggesting that first-quarter …
Balance of payments strains have prompted Egypt, Morocco and Tunisia to turn to the IMF over the past six months or so, but agreements in Egypt and Tunisia are faltering. The IMF postponed its first review of Egypt’s deal amid the government’s slow …
In this new quarterly publication, the Capital Economics’ Climate and Commodities teams will track and analyse developments in the transition to a greener global economy. The sharp increases in the lifetime costs of wind and solar projects since 2021 …
The 3.2% m/m jump in durable goods orders in March mainly reflects a stronger-than-expected gain in the more volatile commercial aircraft component, with the details suggesting that business equipment investment contracted again in the first quarter. …
Food inflation spike finally at an end The drop in Brazilian inflation to a 30-month low of 4.2% y/y in the middle of April was mainly a result of a sharp decline in food inflation, which is at its lowest rate since the start of the pandemic. With core …
Table of Key Forecasts Overview – Headline inflation looks set to fall sharply as energy effects subside and the let-up in product shortages reduces goods inflation further. We also expect services inflation to decrease as demand weakens, allowing …
Markdowns smaller in Q1, but this feels like the eye of the storm Total returns of -1.8% q/q in Q1 reflected a much smaller markdown in values than in Q4. But, looking ahead, we remain convinced that the strains being felt by many investors will drive …
The recent resilience in economic activity and stubbornness of inflation is raising market rate expectations, gilt yields, UK equities and the pound. And there is a growing risk that interest rates rise above 4.50% and/or stay high for longer. But we …
With the ECB poised to raise rates next Thursday, the Riksbank has got its retaliation in early, hiking its key rate by 50bp. The statement indicates that policymakers expect to raise rates by another 25bp at most but, on balance, we think a further 50bp …
Overview – While house price declines have slowed and economic activity has proven more resilient than expected over the three months since our last Outlook , we are sticking to our forecast that house prices will fall by 12% in total. Persistent core …
Riksbank leads the way with 50bp With the ECB set to raise rates next Thursday, the Riksbank has got its retaliation in early, raising its key rate by 50bp to 3.5%. The press release indicates that the Bank expects to raise rates by another 25bp at most, …
Inflation moderating, but still far too strong to be consistent with RBA’s target Further tightening needed to return inflation to target by mid-2025 Rate cuts will start a bit later than most expect; our forecast is Q2 2024 Note: We’ll be discussing the …
RBA will deliver a final 25bp rate hike next week While inflation is moderating slightly faster than the RBA had anticipated, price gains remain far too strong to be consistent with the Bank’s 2-3% inflation target and we’re sticking to our forecast of a …
Our China Activity Proxy (CAP) shows that the economy bounced back rapidly in Q1, with growth since the start of the pandemic now broadly back in line with the official GDP data. And while the recovery will slow, the strong start to the year has …
Inflation will only return to target in H2 2024 While inflation is moderating slightly faster than the RBA had anticipated, price gains remain far too strong to be consistent with the Bank’s 2-3% inflation and we’re sticking to our forecast of a final …
Sweden’s Riksbank will probably hike by 50bp (08.30 BST) We think US durable goods orders only fell marginally in March (13.30 BST) Catch-up here on today’s CE Advance Drop-In on our revamped Financial Conditions Indices Key Market Themes We don’t …
25th April 2023
House price growth turns positive New home sales jumped in March and house prices increased 0.2% m/m in February. The continued resilience of the housing market means the risk to our forecast of an 8% drop in house prices are now to the upside. But …
The Hungarian central bank (MNB) slashed the upper end of its interest rate corridor today by 450bp, to 20.50% and, while this move alone won’t loosen monetary conditions, it is likely to be followed by cuts to the effective policy rate (the overnight …
Industrial occupier demand in Spain is set to slow sharply this year and next, as the economy falls into recession. And with both Madrid and Barcelona poised to see a record level of speculative development in the same period, we think Spain’s prime rent …
MNB kickstarts loosening cycle The Hungarian central bank (MNB) slashed the upper end of its interest rate corridor today by 450bp, to 20.50%, and while this move alone won’t affect monetary conditions, it is likely to be followed by cuts to the effective …
There’s little evidence (so far) that the surge in interest rate is leading to widespread debt servicing problems in Chile’s private sector, but there are pockets of vulnerability in the household sector. Although we don’t expect a wave of defaults in the …
EM sovereign debt problems have been thrust back into the spotlight after the latest World Bank and IMF meetings, with promises of a quicker resolution to restructurings in debt-distressed EMs. But can the hurdles that have gummed up debt talks really be …
What do recent data signal about recession risk in the euro-zone? How high will the ECB take the policy rate to rein in inflation pressure? Has March’s bank turmoil had any residual impact on the European banking system? Economists from our Europe and …
More wiggle room for the Chancellor The news that total borrowing in 2022/23 was £13.2bn lower than the Office for Budget Responsibility (OBR) predicted only a month ago provides the Chancellor with more wiggle room to cut taxes and/or raise spending …
More wiggle room for the Chancellor The news that total borrowing in 2022/23 was £13.2bn lower than the Office for Budget Responsibility predicted only a month ago provides the Chancellor with more wiggle room to cut taxes/raise spending ahead of the next …
GDP in Korea rose slightly during the first quarter of the year but we think the economy faces a difficult year ahead as high interest rates and weak external demand weigh on output. According to the advance estimate for Q1 GDP published today, the …
High interest rates and weak external demand to weigh on prospects GDP in Korea rose slightly during the first quarter of the year but we think the economy faces a difficult year ahead as high interest rates and weak external demand weigh on output. Our …
We think that Korea’s economy slipped into recession in Q1 (00.00 BST) UK public sector borrowing probably undershot the OBR’s target in 2022/23 (07.00 BST) We expect US home sales and consumer confidence to paint a weak picture (15.00 BST) Key Market …
24th April 2023
