The latest euro-zone money and credit data show that tighter ECB policy is continuing to weigh on households’ and firms’ borrowing, as well as influencing what they do with their savings. The weakness in money and lending growth supports our view that the …
27th September 2023
Final hike of the cycle The Bank of Thailand (BoT) today raised interest rates by a further 25bps (to 2.50%), but hinted this was likely to be the last hike of the cycle. With inflation below target and headwinds to the economic recovery mounting, we …
This page has been updated with additional analysis since first publication. Resurgent price pressures raise risk of tighter policy With Australia’s disinflationary process stalling, there’s a growing risk that the Reserve Bank of Australia will resume …
We think that investors’ enthusiasm for artificial intelligence (AI) will grow again next year and inflate a bubble in stock markets. This is just one of the many consequences that AI will have on the economy, in our view, as we discuss at length in our …
26th September 2023
Financial risks generally look quite low in most major EMs as current account deficits have narrowed this year and banking sectors remain in strong shape. But there are some areas of weakness, including large currency risks in parts of Eastern Europe …
This is an excerpt from our CE Spotlight series on AI. The whole series can be viewed here . A year ago, China was widely held to be a – perhaps the – global leader in AI. It has an online population larger than the US and Europe combined. Ubiquitous …
Softening demand proves a tipping point for new home sales The 8.7% m/m drop in New Home Sales in August was the largest monthly decline since September 2022 and suggests that the renewed rise in mortgage rates has caused home purchase demand to decline …
The Hungarian central bank (MNB) delivered another 100bp interest rate cut (to 13.00%) and simplified its monetary policy toolkit at today’s meeting, paving the way for the second phase of the easing cycle in the coming months. The hawkish tone of the …
Another dip in house prices this year unlikely after sixth consecutive rise The sixth consecutive rise in house prices in July showed that very tight supply is causing home prices to continue to rise despite sales volumes remaining weak, and suggests a …
Rising bankruptcy filings by large corporations are another reason to doubt that the economy will continue to grow at close to its potential rate, as the Federal Reserve now seems to believe. Admittedly, the bankruptcy data suggest that consumers and …
The more we read about AI’s potential economic consequences, the more it becomes clear that the current research fails to provide a coherent and consistent framework for understanding its whole impact. To that end, we are excited to be able to provide our …
The leisure sector is now feeling the impact of the cost-of-living crisis, with rising vacancy and declining rents. But we don’t think the retail sector will follow in its footsteps. Households are likely to continue to shift spending away from expensive …
Overview – We expect another few quarters of near-zero GDP growth to lead to an annual gain of just 0.7% next year. Even with higher oil prices, the weakness of economic growth leaves scope for CPI inflation to fall back to the 2% target in 2024. That …
Capital Economics clients can download a complete pdf version of this report by clicking the download button top right. If you can't see a download option, please speak to your account manager. You can also explore the individual Spotlight chapters below: …
Overview – We expect most commodity prices to struggle over the rest of this year as developed economies flirt with recession, the US dollar remains strong and investor risk appetite moderates. That said, we wouldn’t be surprised if the Brent oil price …
Chapter 6: Blowing bubbles? AI's financial market implications …
Chapter 5: AI and the global economic order …
Chapter 4: The policy dilemmas from AI …
Chapter 3: AI, jobs and prices …
Chapter 2: AI's economic revolution …
Chapter 1: AI – What’s all the fuss about? …
AI, Economies and Markets: Executive summary …
Entering the second phase of the easing cycle The Hungarian central bank’s (MNB’s) decision to cut the top of its interest rate corridor, by 250bp, today is a first step in what is likely to be a shift in the monetary policy framework that will be …
This page has been updated with additional analysis since first publication . Inflation data and minutes pour cold water on hopes for larger rate cuts The jump in Brazilian inflation to 5.0% y/y in the first half of September, taken together with the more …
The weakness in German construction activity has raised questions about whether a slowdown in new office supply could offset the weakness in demand and prevent a rise in vacancy. But we think that on balance it won’t be enough and that rental growth will …
The sharp slowdown in broad money growth since late last year suggests that higher interest rates are working by reducing households’ and firms’ demand for borrowing, which should lead to softer activity and lower inflation. This supports our view that a …
RBNZ to reassert its tightening bias as activity surprises on the upside Given the noise in the recent data, we don’t expect further rate hikes However, policy will remain restrictive for longer, with rate cuts only in Q3 2024 Although economic activity …
Another set of downbeat business surveys out of the euro-zone and an increasingly cautious tone from ECB officials have put the EUR/USD rate under renewed pressure. But more broadly market participants do not appear particularly downbeat on the prospects …
25th September 2023
Overview – After a sharp slowdown this year, GDP growth across the Middle East and North Africa will improve in 2024 as OPEC+ starts to raise its output quotas and high oil prices allow the Gulf economies to keep fiscal policy supportive. Outside of the …
Overview – With the economy showing signs of slowing and transaction volumes likely to stay low in H2 2023, a tough 6-12 months lies in store for commercial real estate. We still expect cap rates to rise on the back of higher Treasury yields, but the full …
Global steel production growth continues to struggle The slowdown in global steel production in August is consistent with our long-held view that slowing demand will weigh on production in the second half of this year. Weakening demand stems from slowing …
Overview – GDP growth across most of Emerging Asia has struggled over the past year and we expect growth to remain weak in the near term as tight monetary policy at home and subdued activity abroad weigh on demand. Next year should be a little better, but …
Investment in the green transition is unlikely to rise quickly enough this decade to help achieve net zero by 2050. But a greater focus on areas including renewables and electric vehicles will still probably push up investment’s share of global GDP by …
Given clearer signs of economic weakness in recent weeks, we think the surprise increase in underlying inflation pressures in August means the Bank of Canada is more likely to keep interest rates at their current level for longer than to raise rates …
Ifo points to renewed contraction in German GDP in Q3 The Ifo Business Climate Index (BCI) confirmed that the German economy remained in the doldrums in September. We continue to expect contractions in GDP in both Q3 and Q4 of this year. The small fall in …
This week marks the launch of our annual Spotlight report, which will land in client inboxes tomorrow. This year we are exploring the economic and market impact of artificial intelligence. As with any piece of analysis it’s useful to gauge what the market …
The abandonment of Yield Curve Control would probably prompt the Bank of Japan to reduce its bloated holdings of government bonds, which could push up long-term bond yields. However, there are good reasons to think that the fiscal consequences wouldn’t be …
The potential of artificial intelligence to reshape the global economy is more than just the breathless hype of headline writers. Paul Ashworth , our Chief North America Economist, explains why AI’s impact should be thought of in terms of previous …
22nd September 2023
Amid the flurry of central bank announcements, the Fed doubling down on “higher for longer” proved to be enough for the greenback to eke out small gains against most other currencies, taking the DXY index to a tenth consecutive weekly rise. While comments …
With the Bank of Japan offering little new at its policy meeting earlier today and US Treasury yields surging higher in the wake of the FOMC’s hawkish message earlier in the week, pressure on the yen has ratcheted up further. Unless US policy changes …
The following is a presentation that our Chief Property Economist Andrew Burrell gave to the District Conference in Barcelona on 21st September, 2023. … Where next for euro-zone …
Nigeria's fuel subsidy unexpectedly returns The recent pick-up in oil prices will provide welcome hard currency income for Nigeria. But high oil prices and a weak naira also signal the return of the fuel subsidy. As a major oil exporter, Nigeria benefits …
Brazil’s services inflation: how soft? The big economic event this week was the central bank meeting in Brazil on Wednesday at which the Selic rate was lowered by another 50bp (to 12.75%). As we noted in our response , the key messages in the statement …
Most commodity prices fell this week as the Federal Reserve left the door open to another interest rate hike before the end of the year , and indicated that rates will remain higher for longer. However, we are sticking with our view that US inflation will …
The September Flash PMIs add to evidence that economic activity in the US and Europe is weakening. This supports our view that the Fed, ECB, and Bank of England have finished hiking interest rates. Our estimate of the DM average composite PMI edged down …
Although the 10-year Treasury yield rose further to a post-Global-Financial-Crisis high of ~4.5% in the wake of this week’s FOMC meeting, we continue to forecast that it will drop back to 3.75% by the end of this year and to 3.25% by the end of next year. …
This week’s news that interest rates are probably at their peak (see here ) and the news that public borrowing in the current fiscal year is £11bn below the Office for Budget Responsibility’s forecast has raised the pressure on the Chancellor to deliver …
We do not expect the recent rise in oil prices to cause the ECB to hike rates, as the impact on headline inflation will be limited. Since the end of June, the Brent crude oil price has risen by almost 30% to around $94pb, predominantly due to cuts in …
Poland-Ukraine relations show some cracks The dispute that escalated this week between Poland and Ukraine shows how Poland’s ruling PiS party is hoping to capitalise on nationalism, and public fatigue over the war, ahead of elections next month. Poland, …
With most European G10 central banks now at, or very close to, the ends of their tightening cycles, this note examines where the European G10 currencies stand and how we see the outlook for the main euro cross-rates. In short, we think the Swiss franc …
