Hopes that policymakers can engineer a soft landing rest heavily on the belief that wage growth can be tamed without a surge in unemployment. This ‘Phillips curve’ relationship has changed recently, with G7 pay growth now higher than it was before 2020 …
6th September 2022
The Indian rupee has continued its long-run trend of depreciation against the US dollar this year, taking it to a record low of 80/$. It may still weaken further in the near term. However, there are reasons to think that that the rupee will reverse …
31st August 2022
In this Focus , we make the case that mid-and large-cap equities in the US will not, in general, continue to outperform those in other developed markets, despite the fact that such outperformance has been virtually relentless since the Global …
26th August 2022
The war in Ukraine is dragging on, but there is now growing attention on the country’s eventual reconstruction. We think the government’s target of $750bn of total funding is unlikely to be met ($300-400bn seems more realistic). The primary focus of the …
19th August 2022
We think the euro-zone will soon fall into recession as high inflation, tighter monetary policy and weak global growth take their toll. While the economy should recover next year, the rebound will be held back by a lack of policy support. What’s more, we …
11th August 2022
An end to Russian gas exports to Europe would prompt us to forecast a deeper recession in the euro-zone this winter than we currently anticipate. The hit would come partly through higher inflation, which would further squeeze real incomes, and partly …
9th August 2022
We think that major distribution hubs, where rents are high and availability is low, will underperform their neighbouring markets over the next few years. Tenants will increasingly look past the major hubs in favour of nearby markets with better …
4th August 2022
China’s leadership has options other than invasion to coerce Taiwan to submit to its political control. The immediate economic and financial ramifications would differ in each case. But any scenario that upset the existing cross-Strait balance would come …
2nd August 2022
The yen may have bottomed out against the dollar, but it is likely to remain weak for some time. That should boost Japan’s economy as higher revenues from exports and from overseas subsidiaries outweigh the resulting increase in import costs. Winning the …
Although less widely reported than the house price boom, rents have been setting records too. The 11% y/y rise in the Zoopla rents index in Q1 was the fastest since the series began in 2006. That strength was driven by extraordinary factors related to the …
26th July 2022
Amidst sky-high oil prices, a stream of downbeat comments from Nigerian government officials on the state of the economy may seem mind-boggling. In this Focus , we outline what’s behind the country’s struggles, their economic implications and whether …
11th July 2022
We think that the economy is well-placed to handle higher interest rates and anticipate a period of weak economic growth rather than an outright recession: Rate-sensitive spending is a relatively small share of the economy right now, there are no …
In contrast to the mid-2000s, there seems little chance of a significant loosening in mortgage lending standards in response to higher interest rates today. Traditional banks have not forgotten the financial crisis and, after a 37% rise in house prices in …
1st July 2022
We are revising up our forecast for core inflation in the euro-zone because the labour market is tighter, demand stronger and inflation expectations higher than we had anticipated. Moreover, fiscal policy will be tightened only gradually and there are …
27th June 2022
Equilibrium interest rates in advanced economies are probably still very low. However, there is still a lot of uncertainty about how far above this equilibrium interest rates will have to go in the near-term to quash inflation. Even if we are right in …
21st June 2022
Surging food prices are a cloud over the global economic outlook. While food inflation should fall sharply next year, it will remain high in the near term, eating further into households’ spending power and weighing on discretionary spending. What’s more, …
14th June 2022
Saudi Arabia’s economic recovery is likely to be one of the strongest in the emerging world over the next couple of years as oil output is ramped up and fiscal policy is loosened. We expect GDP growth of 10.0% this year and 5.3% in 2023, which is far …
9th June 2022
The Bank of Korea (BoK) is almost certain to hike interest rates further this year, but with financial risks receding, economic growth likely to slow and inflation set to fall back to target by early next year, we think financial markets and the consensus …
Policy tightening by the RBI is putting public finances stretched by the pandemic under further strain. While an increase in debt financing costs is inevitable, we expect the government and RBI to step up financial repression so that the full impact of …
1st June 2022
We expect the most aggressive policy tightening cycle in decades to cause a slowdown in global economic growth, not a severe downturn. The biggest risk is that inflation stays higher for much longer than we anticipate, causing central banks to raise …
Colombia’s upcoming presidential election could result in the country’s first left-wing government in recent decades, headed by Gustavo Petro. While he is unlikely to be as radical as many expect, Petro’s policies would lead to higher public debt, higher …
26th May 2022
The war in Ukraine will exacerbate two key macro risks in Central and Eastern Europe (CEE) this year: wage-price spirals (particularly in Poland) and widening current account deficits (particularly in Hungary and Romania). Monetary policy will do most of …
19th May 2022
We don’t expect the Bank of Japan to tighten monetary policy meaningfully but, with inflation about to breach 2%, what if we are wrong? The direct impact of higher interest rates on the corporate sector would be manageable, but a stronger yen would weigh …
18th May 2022
The trade-weighted US dollar has edged up to multi-decade highs as the Fed has started to raise its policy rate. In this Focus, we analyse past Fed tightening cycles and explain why we think the dollar will continue to appreciate over the course of the …
12th May 2022
The strong dollar and spill-overs from the war in Ukraine have caused sovereign debt risks to escalate in some frontier markets. But most large EMs have far stronger public sector balance sheets, mitigating much of the risk of the “classic” emerging …
11th May 2022
We expect the Fed to reduce its asset holdings by more than $3trn over the next couple of years, enough to bring the balance sheet back in line with its pre-pandemic level as a share of GDP. That shouldn’t have a major impact on the economy but, with …
10th May 2022
We expect higher interest rates to cause a 10% fall in house prices over the next 12 months and an even steeper fall in residential investment. With the rest of the economy still recovering from the pandemic and benefitting from higher commodity prices, …
9th May 2022
Equilibrium real interest rates in the euro-zone appear to be below zero and lower than in most other advanced economies. We expect them to stay that way. While the ECB is likely to raise interest rates sooner and further than most economists expect, this …
3rd May 2022
Substantial fiscal support helped to prevent a big rise in income inequality within developed economies during the pandemic. But inequality was rising in many DMs before then and could revert to that trend if technological advances disproportionately …
Most analysts are overestimating the near-term negative impact of RBA rate hikes on household finances and are therefore underestimating the degree of tightening required to bring inflation under control. We now expect the RBA to hike rates to 2.5% by …
19th April 2022
An analysis of the behaviour of the yield of 10-year US Treasuries during the eight major Fed tightening cycles since the 1970s suggests to us that the current sell-off in long-dated US government bonds may have further to run if the Fed hikes rates by a …
14th April 2022
This month’s French presidential election no longer looks like the shoo-in for incumbent Emmanuel Macron that it did only a few weeks ago. Right-wing nationalist Marine Le Pen’s chances have risen sharply over the past week or so and a surprise victory …
8th April 2022
In adapting to the threat of having its foreign exchange reserves frozen, the People’s Bank is likely to shift more of its portfolio into unconventional alternatives, including EM sovereign debt and real assets. But as long as the PBOC wants to continuing …
1st April 2022
The industrial sector would bear the brunt of any power rationing imposed as a result of Europe’s shift away from Russian energy, but the direct economic impact of this would be smaller than one might expect. However, the knock-on impact from higher …
30th March 2022
We estimate that euro-zone governments’ fiscal deficits will be around 1% higher than expected this year, as a result of the war in Ukraine, mostly due to government subsidies for energy, support for refugees and higher defence spending. This will soften …
29th March 2022
We think that property markets are the weak link when it comes to the impact of tightening monetary policy. A modest rise in interest rates might only cause price falls in a few obvious candidates. But rates might have to rise only a bit further than we …
25th March 2022
The Chancellor, Rishi Sunak, provided more support to the economy than we had expected over the next few years in today’s Spring Fiscal Statement, but he could have gone further in 2022/23. Instead, he chose to bank some extra cash so there’s scope for …
23rd March 2022
For the most part, EMs are well placed to withstand rising US interest rates, but there are pockets of vulnerability where external financing needs are significant. Among the large EMs, Turkey (unsurprisingly) stands out, and current account risks are …
22nd March 2022
The Chancellor, Rishi Sunak, will use his Spring Statement on 23 rd March to soften the blow for households facing rising energy and food costs. However, any hopes that he will announce a big handout may be disappointed as he tries to strike a balance …
16th March 2022
We think that most of the fall in the size of the UK’s labour force since the onset of the COVID-19 pandemic should eventually be reversed. Even so, we wouldn’t be surprised if this took another two years or so. That suggests to us that the labour market …
14th March 2022
Efforts by overseas governments to combat climate change will result in mining falling from 10% of GDP last year to 5% by 2050. Rising exports of “green” metals are unlikely to offset falling coal and iron ore exports and slower growth in liquefied …
9th March 2022
Current labour shortages are not purely the result of short-term absenteeism related to the virus. Indeed, we estimate that around 80% of the shortfall can be explained by factors that will prove more persistent, such as a fall in migration. It is hard to …
8th March 2022
The economic plans that have been detailed at the National People’s Congress signal that China’s leadership is expecting much weaker growth this year than the relatively upbeat GDP growth target might suggest. However, it does not appear that policy will …
7th March 2022
Rental growth hit record highs last year as a wave of pent-up demand, plenty of savings, the need for more space and lack of homes for sale all drove rental household formation higher. But some of those factors supporting demand are now starting to fade, …
4th March 2022
Korea’s presidential election on 9 th March will have major implications for the country’s economic future. A pledge by the ruling DPK’s candidate to introduce a universal basic income could bring some important benefits. However, ensuring that it is both …
3rd March 2022
This week’s Budget in South Africa will probably see the government reaffirm its commitment to fiscal consolidation. But we think that officials will struggle to stay on this path in the next couple of years, leaving the debt-to-GDP ratio on an upwards …
22nd February 2022
With equilibrium interest rates in developed markets probably still close to record lows, actual interest rates are likely to peak at a far lower level in this cycle than in most previous ones. The main risk to our forecasts is that cyclical inflationary …
16th February 2022
A perfect storm of surging house prices, a further worsening of supply shortages, and a pick-up in labour mobility would be needed to cause an inflation surge in Japan. Even if inflation did reach 2%, this wouldn’t necessarily trigger a policy response by …
8th February 2022
We expect that falls in commodity prices will cause current account positions to worsen across the region this year. While external positions will remain secure in most major Latin American economies, those in Colombia and Chile are an underappreciated …
4th February 2022
The “new economic model” adopted by Turkey’s government is likely to mean low real interest rates and a persistently weak lira, but it will come alongside a shift towards capital controls, ever higher inflation and growing fiscal and banking sector risks. …
18th January 2022
