Supply constraints are easing Some commentators have been arguing that it’s not weak demand but a shortage of supply that’s keeping GDP growth at 1% y/y. After all, the fact that job vacancies are still very high and employment growth remains very strong …
21st June 2024
This page has been updated with additional analysis since first publication. Underlying inflation will fall below 2% in second half The jump in headline inflation in May mostly reflected electricity price hikes that have further to run. By contrast, …
The G7 loan to Ukraine announced last week and the narrowing window to approve a new debt relief package once the payment suspension with private creditors ends in August has shone the spotlight on Ukraine’s large external financing needs. This Update …
20th June 2024
Having cut the policy rate by 25bp at its last meeting, we think the Riksbank will stick with its guidance that it will keep rates on hold next week. But with inflation likely to fall below 2% in the coming months, policymakers will probably cut the …
Despite the many twists and turns in bond markets this month amid mixed signals from central banks, most sovereign bonds in developed markets (DM) have rallied on net. We expect this to continue, with yields falling further in the coming months. The three …
The office sector faces another two years of value falls, led down by Seattle and San Francisco, where cumulative declines will be around 25%-30%. But our latest forecasts highlight the brighter spots in the South. Thanks to a smaller impact from remote …
We see three scenarios for French fiscal policy in the coming months. Even in the best case the spread of French over German bond yields remains higher than before Macron called an early election. In the worst case there is a fully-fledged bond market and …
The outcomes of the EM central bank meetings over the past 48 hours or so underscore the point that, while the EM monetary easing cycle is likely to continue over the coming quarters, it will no longer be led by Central Europe and Latin America. Central …
The proposal to save governments money by ending interest payments on commercial banks’ reserves is a lot more complicated than some of its advocates suggest. The extreme version could either cause central banks to lose control of monetary policy or …
Overview – The economies of Latin America started the year on the front foot, but the strong growth rates recorded in early 2024 are unlikely to be sustained and growth in many parts of the region is likely to be soft in the coming quarters. This is …
The Bank of England predictably left interest rates unchanged at 5.25% today but continued to give the impression that the pieces of the puzzle are almost in place for it to cut rates. This lends some support to our view that the Bank will first cut rates …
Housing starts fall to lowest level since June 2020 The drop in housing starts in May is consistent with the recent slowdown in permit issuance, pointing to construction continuing to falter this year. The 5.5% m/m decline in housing starts was driven by …
There is a growing chance of a La Niña weather pattern taking hold in the second half of this year. While the economic effects would depend on its severity and length, La Niña events tend to coincide with higher food inflation across Latin America, which …
Overview – We expect economic growth in most countries in Asia to slow in the second half of 2024, as tighter fiscal policy, high interest rates and weaker global growth all weigh on demand. Inflation is back to target in most countries and likely to …
Overview – The euro-zone has come out of a long period of stagnation and will expand at a moderate pace over the coming two years. The recovery will be faster in some southern economies, such as Spain, than in core economies, notably Germany, while the …
BoE leaves the door open to an August rate cut The Bank of England predictably left interest rates unchanged at 5.25% today but continued to give the impression that the pieces of the puzzle are almost in place for it to cut rates. As a result, we still …
Lebanon on verge of being drawn into the war Skirmishes between Hezbollah and Israeli forces have intensified, culminating in Israel’s approval of an “offensive” into Lebanon this week. Not only does this threaten to exacerbate Lebanon’s prolonged …
After a strong start to the year, aggregate EM GDP growth will slow over the coming quarters. Within this there will be regional variation, with Emerging Asia the outperformer and Latin America the laggard. While we expect the EM monetary easing cycle to …
Overview – Prime Minister Modi begins his third term with a weakened mandate, but an economy that is primed to grow by 6.5-7% per year between 2024 and 2026. That would put India on course to become the world’s third largest economy within the next couple …
Capital values are close to bottoming out in most sectors as yields have stabilised. However, with no yield compression and moderating rental growth the recovery will be weak by past standards, not helped by a struggling office sector. But residential …
The SNB’s decision to cut the policy rate from 1.5% to 1.25% was probably more influenced by the appreciation of the franc over the last two months than any perceived easing in domestic inflation pressures. In our view, the SNB is unlikely to cut rates …
Investor concerns about the upcoming snap legislative elections have pushed up French government bond yields and we think they will rise further over the rest of the year. This has worsened the outlook for property valuations and in turn we now expect …
The continued divergence between export values and export volumes of the “New Three” underlines the downward pressure on prices from the rapid expansion in manufacturing capacity in China. Meanwhile, as the EU and US impose greater tariffs on Chinese-made …
BI hints at rate cuts, timing dependent on currency Bank Indonesia today left interest rates unchanged (at 6.25%), but hinted at possible rate cuts later in the year, provided that the rupiah stabilises against the US dollar. The central bank’s dovish …
This page has been updated with additional analysis since first publication. Norges Bank to be one of last DM central banks to start cutting Norges Bank’s verbal guidance and updated interest rate projections reinforce the message that it won’t start …
SNB cuts rates again, but no further cuts likely this year Today’s decision by the SNB to reduce its policy rate from 1.5% to 1.25% was correctly anticipated by two thirds of economists surveyed by Reuters. (We were in the minority anticipating a hold.) …
This page has been updated with additional analysis since first publication. Economy struggles to gain momentum The modest rebound in GDP last quarter doesn’t change the bigger picture that the New Zealand economy is worse for wear. In fact, timely survey …
19th June 2024
No room for rate cuts this year The Brazilian central bank kept the Selic rate unchanged at 10.50% and with the headline inflation rate set to rise further in the coming months, we see no room for a resumption of the easing cycle this year. The decision …
The US stock market has hit another fresh all-time high, with its ascent is an increasingly lonely one driven by a handful of its constituents. That pattern may be difficult to sustain indefinitely, but we remain optimistic about the outlook for US …
The European Commission’s recommendation to open the Excessive Deficit Procedure (EDP) against Poland, Hungary and Slovakia for breaching the EU’s fiscal rules won’t force a drastic change in policymaking, nor will it deal with the structural factors …
The Monetary Policy Report released by Chile’s central bank today alongside the communications to yesterday’s policy meeting suggest that the easing cycle over the next few quarters will be stop-start. We now expect a pause at the central bank’s next two …
South Africa’s new government of national unity (GNU) will welcome signs that the economy showed signs of perking up at the start of Q2. We think this burst of momentum has further to run, although growth will remain constrained by tight fiscal and …
We expect political uncertainty in France to maintain a floor under government bond spreads in the near term, not only in France but also in other vulnerable euro-zone countries. Further ahead, we see scope for spreads to fall back in Greece, Portugal, …
Inflation unchanged, GNU means rate cuts later this year more likely South Africa’s headline inflation rate was unchanged at 5.2% y/y in May and, while still some way off the 4.5% mid-point of the SARB’s target range, the formation of a government of …
This page has been updated with additional analysis since first publication. Stubborn services inflation still a point of concern for BoE We’ll be discussing the outlook for Bank of England, ECB and Fed policy in a 20-minute online briefing at 3pm BST on …
Drag from net trade will hold back Q2 GDP rebound Trade volumes were little changed in May which suggests that net trade provided a small drag on GDP growth this quarter. The 13.5% annual rise in export values was a touch stronger than the analyst …
The gap between downtown and suburban office vacancy rates has widened alarmingly since 2020. This reflects pandemic-driven changes to working patterns, exacerbated by the cyclical slowdown. In our view, this shift cannot last. While any recovery will be …
18th June 2024
Although the Reserve Bank of Australia (RBA) – which left policy on hold today – looks set to be the last developed market central bank to join the easing cycle now underway among developed economies, we think more important for long-term bond markets …
Strong rise in manufacturing output unlikely to be repeated The strong rebound in manufacturing output in May was better than we expected but, given the softness of the earlier retail sales release, it does not change the big picture that second-quarter …
Soft sales add to signs that consumers are beginning to struggle The soft May retail sales data support our view that, after a disappointing first quarter, GDP growth remains a little lacklustre in the second quarter too. Our forecast now stands at 1.9%. …
Easing cycle slows again, limited room for rate cuts in H2 The communications accompanying the decision by the Hungarian central bank (MNB) to cut its base rate by a smaller 25bp today, to 7.00%, were fairly hawkish and support our view that the base rate …
Data released this morning suggest that May’s surprisingly large jump in euro-zone services inflation may have been due to the most unlikely of culprits: Taylor Swift. So to some extent, the ECB can “shake it off” (apologies). Wage-sensitive inflation …
The tightening of fiscal constraints is putting pressure on politicians to pare back green investment ambitions. But kicking the fiscal can down the road on measures that could accelerate the green transition will probably lead to greater macroeconomic …
Overview – Growth in the Gulf economies is likely to pick up in the coming quarters, particularly as oil output starts to rise from October. We think non-oil sectors will continue to grow strongly. But the outlook will become more challenging from 2025 as …
The Third Plenum may conclude with a pledge of comprehensive reform in areas spanning the private sector, manufacturing, innovation, social security, economic management and more. That may excite hope of substantial change but, in the Party’s eyes, it has …
While the economy has only narrowly avoided a recession, activity should rebound over coming quarters as real household incomes recover. Indeed, with inflation set to remain above the Bank’s 2% target this year and wage growth accelerating, we expect the …
