We have long been sceptical of the conventional view that inflation expectations have been an important determinant of inflation in advanced economies. At the same time, though, we doubt that expectations are as ‘anchored’ at low levels or at central bank …
1st November 2021
This Budget was perhaps more notable for what the Chancellor didn’t do rather than what he did. The OBR handed Rishi Sunak a significant upgrade to its forecasts for the public finances but, while the Chancellor spent some of the windfall a substantial …
27th October 2021
Americans are returning to cities, but the return to the office has been much slower. We see suburban areas being net winners in the residential and retail sectors, although the picture for downtown versus suburban offices is less obvious than the …
22nd October 2021
We expect rising wage inflation in the US to squeeze the profits of the non-financial corporate sector, which were a record high as a share of its output in Q2. This is one reason why we think the upside for the stock market there is limited, despite …
A renewed tightening of the labour market next year means that wage growth will accelerate further. That pick-up will be underpinned by a stronger minimum wage hike, the lifting of caps on public sector wage growth and more employees switching jobs. And …
21st October 2021
Suggestions that Brazil’s government will raise welfare spending – and circumvent the spending cap in doing so – add to the evidence that there’s little appetite for the long-term fiscal squeeze needed to stabilise the public finances. Taken together with …
20th October 2021
Central and Eastern Europe is one of the regions of the world where we think that the risk of sustained higher inflation in the next few years is greatest. The Phillips curve is alive and we think the combination of a cyclical recovery in demand for …
13th October 2021
With supply shortages set to persist for the next 6 to 12 months, the current period of “stagflation-lite” will persist a while longer. But it is likely to remain a pale imitation of the 1970s stagflation episode. Meanwhile, we do not share the pessimism …
7th October 2021
Current supply shortages have been driven by several forces which look set to persist for six to twelve months. They have caused sharp increases in some prices (most notably energy and used cars) and also limited output. Central banks are unlikely to …
6th October 2021
The Czech parliamentary election that kicks off on Friday looks to be one of the most unpredictable for some time. A victory for the incumbent ANO party would continue the recent trend of loose fiscal policy and support GDP growth, but at the cost of …
We expect underlying inflation in the US to be significantly higher over the next decade on average than it has been over the last one. Nonetheless, we don’t think that it will climb sharply from here, or that it will coincide with much weaker economic …
29th September 2021
We think that for the extra one million footloose American workers created by the pandemic, the cost of living has become far more important to their decision of where to live than in the past, while the “desirability” of a metro and its climate have also …
28th September 2021
Low inflation is here to stay in much of the emerging world. However, there is a significant risk that inflation rises, albeit moderately, over the medium term in several countries. This risk isn’t limited to the usual suspects like Turkey and Argentina. …
27th September 2021
We think a sustained period of inflation in the region of 3-4% over the coming years could be dealt with relatively easily by central banks. But if inflation were to rise much further than this, policymakers would have to raise rates more aggressively and …
23rd September 2021
A period of moderately higher inflation could be a good thing for many economies, but there is a risk that policymakers become too accepting of the situation. We judge that the costs of higher inflation would start to outweigh the benefits in advanced …
21st September 2021
There are good reasons to think that the natural stalling in globalisation underway won’t do much damage to Japanese manufacturers. And while an abrupt severing of supply chains between China on the one hand and the US and its allies on the other would be …
The Indian government’s aim to significantly ramp up infrastructure investment through its flagship National Infrastructure Pipeline (NIP) has suffered less disruption than might have been expected during the pandemic. That is a positive for long-term …
20th September 2021
China and countries that align more closely with it than with the US together account for around half of the world’s population. But the China bloc is far smaller economically than the US bloc and far more dependent on the rival bloc as a source both of …
17th September 2021
Demand was always likely to rebound strongly as economies re-opened and confidence returned. Beyond this, though, there are reasons to think that we could now be in for a period of sustained strong aggregate demand in developed economies. Initially, this …
16th September 2021
When contemplating whether we are entering a new era of higher inflation, it makes sense to first reflect upon the lessons from history. While there are several insights that apply to the current debate, a unifying theme is that sustained high inflation …
14th September 2021
The pandemic is likely to inflict lasting damage on potential growth in economies in much of Latin America, Africa and South and Southeast Asia, adding to the structural headwinds that they already faced. However, the risk of permanent scarring in many …
9th September 2021
The interactions between Brexit, the deterioration in Scotland’s fiscal situation and the continued lack of an easy option for the currency have made the economics of Scottish independence even more challenging than at the time of the first referendum in …
7th September 2021
Housing market valuations in Sweden are even more stretched than on past occasions when the Riksbank has “leant against the wind” – that is, set policy tighter than needed to contain consumer price inflation. While we think the Bank is unlikely to raise …
1st September 2021
Euro-zone wage data are published only quarterly, and with a long lag, and have been distorted by pandemic-related effects. So it will be another six months before we get a clearer idea of the underlying trend in earnings. For now, though, measures of …
31st August 2021
We think that the adoption rate of renewable electricity will accelerate in the decades ahead, which should contribute to a near-continuous decline in demand for coal. Demand for natural gas should still eke out some growth over the next decade or so …
26th August 2021
This Focus provides an overview of the concepts and models underpinning our new FX Markets Valuations Monitor . It is split into three sections. The first explains our framework for thinking about currency valuations. The second provides details on the …
20th August 2021
Korea has performed relatively well through the pandemic, and we expect the economy to emerge from the crisis with little lasting damage. However, the long-run outlook is less promising. Although productivity growth is likely to accelerate, it will not do …
17th August 2021
The housing market is highly cyclical, and the current price boom marks the fifth episode since 1970 where real house price growth has exceeded 5% y/y. But there are good reasons to think this will mark the last house price boom for next 30 years. …
12th August 2021
Cities are central to property performance. And the largest are seen as hugely important by investors. But the pandemic has turned many received ideas about real estate on their head and we think that performance in gateway markets will remain relatively …
10th August 2021
The pandemic appears to be accelerating a political trend towards populism in Latin America. While there is a lot of uncertainty about how this might play out, it generally points towards loose fiscal policy and greater state intervention across the …
5th August 2021
Less favourable demand fundamentals and less scope for yield compression mean that European residential returns are likely to be lower in the coming years than over the previous decade. An analysis of the relative outlook across selected western European …
27th July 2021
Productivity growth surged during the pandemic last year, but that was principally due to the disproportionate job losses in low-productivity sectors like leisure & hospitality, which raised the economy-wide average level. The pandemic also accelerated …
We think that euro-zone headline inflation will rise further than most expect in the second half of this year. But rather than reaching the levels of around 5% seen in the US, it is likely to top out at about 3% before falling back sharply in 2022. The …
This Focus has been updated to incorporate the latest publicly-available information on China’s eCNY project, including the PBOC White Paper published on 16 th July 2021. The original version of the Focus , published on 27 th May 2021, is here . In this …
21st July 2021
The widely reported labour shortages should mostly prove temporary. While it may take 6-12 months before some of the underlying causes unwind, recruitment difficulties probably won’t have a long-lasting upward impact on wage growth. As such, they …
8th July 2021
The sheer scale of the surge in residential investment since the pandemic means it now presents a key downside risk to the outlook. At best, the widely held assumption that residential investment will remain high for years looks too rosy. At worst, a …
6th July 2021
We expect some major central banks to issue digital currencies later this decade, with those in countries where cash is rarest proceeding the fastest. The first generation of central bank digital currencies (CBDCs) will be purposely designed not to shake …
The widespread labour shortages evident in the survey data and job opening & quit rates are only partly due to transitory factors, including enhanced unemployment benefits, childcare constraints, and virus fears. Limited international migration, the wave …
29th June 2021
Achieving net zero emissions in Japan in three decades is a difficult but achievable task. And while the most carbon-intensive sectors may face significant headwinds, overall we agree with PM Suga that economic growth wouldn’t have to be sacrificed to …
We think there’s a good chance that when the Bank of England’s Monetary Policy Committee (MPC) starts to tighten monetary policy it will do it by unwinding some quantitative easing (QE) before it raises interest rates. That would be consistent with the …
22nd June 2021
The Egyptian pound has appreciated significantly since the devaluation in 2016 and there are signs that the strength of the currency is weighing on the country’s external competitiveness. We forecast a gradual depreciation from around 15.6/$ now to 17/$ …
15th June 2021
Global migration has ground to a halt over the past year or so, but we doubt that the pandemic will have any major lasting impact. Moreover, there is potential for migration to get a fresh impetus from a big rise in the number of people leaving Africa …
Nigeria’s government has turned to the central bank to plug ever larger budget deficits in recent years and policymakers are unlikely to kick their deficit monetisation habit, particularly if the fiscal position worsens next year (as we expect). This will …
14th June 2021
Having fallen back to near its post-pandemic lows, we don’t think that the decline in the US dollar will continue. In this Focus, we explain why instead we expect the dollar to strengthen against most currencies over the next 12-18 months. In the early …
11th June 2021
We estimate that the spare capacity in the euro-zone’s labour market has increased by around four million people, or 2.5% of the labour force, since the start of the pandemic. This is likely to disappear over the next couple of years as the economy …
9th June 2021
India’s ferocious second wave of COVID infections is likely to have caused the economy to contract by about 5% over Q2 as a whole. The good news is that the outbreak is quickly subsiding and activity appears to have bottomed out. But the recovery is …
3rd June 2021
We expect inflation to rise to the mid-point of the RBA’s target band over the next couple of years. The main driver is a continued tightening of the labour market and a pick-up in wage growth. By contrast, we think that the goods supply shortages …
2nd June 2021
With the economy rebounding strongly from the crisis, the Bank of Korea (BoK) is starting to shift its attention away from supporting growth and towards containing financial risks. We expect the BoK to begin raising interest rates at its meeting in …
31st May 2021
The purpose of this Focus is to introduce our new FX Markets service, which we launched in May 2021. It is split into three sections. The first provides an overview of the new service. The second explains our approach to forecasting currencies. The third …
27th May 2021
In this Focus we detail what is known about how China’s central bank digital currency (CBDC) will operate, when it will launch, what the People’s Bank is trying to achieve, and whether it will succeed. One conclusion is that the launch of eCNY will do …
