Our annual Spotlight series this year looks at the implications of the “fracturing” of the global economy that we believe is being caused by the re-emergence of geopolitics as a driver of policy. The key divide is between China and the West. Events at the …
7th October 2022
The hawkish speech from Governor Tiff Macklem this week suggests that the Bank of Canada has no intention of following the Reserve Bank of Australia in dropping down to a 25 bp hike at its next meeting, despite the growing downside risks to the economy, …
Bolsonaro strong, but Lula still the front-runner The main story in Brazil’s general election on Sunday was the stronger-than-expected performance of Jair Bolsonaro and his right-wing allies, which buoyed the country’s financial markets. The real is up by …
What could the Fed "break"? The recent liquidity issues faced by UK pensions funds and problems at a few European banks have led to speculation that the Fed’s interest rate hikes will trigger some form of financial instability which, via an adverse …
Russia under more strain after Ukraine annexation The macroeconomic fallout from Russia’s call-up of military reservists and its formal annexation of Ukrainian territory has continued to mount, resulting in tighter Western sanctions, a mass fleeing of …
BoK to take cautious approach The consensus is expecting the Bank of Korea (BoK) to increase its policy rate by 50bp at its scheduled meeting on Wednesday. But with the economy slowing sharply, we think a 25bp hike is more likely. A weakening currency …
The Prime Minister, the Chancellor and investors will probably all be breathing a huge sigh of relief today as there was no guarantee that they would end the week in the same positions as they started it. But the lesson from the past couple of weeks is …
A raft of economic data for Sweden published this week added to the evidence that its economy is slowing and, like most of Europe, heading for a recession this winter. The 1.3% fall in Statistics Sweden’s monthly GDP indicator in August was the biggest …
Strong case for even bigger rate increase The case is growing for the ECB to step up the pace of tightening further at its meeting in three weeks. The account of last month’s ECB meeting, published on Thursday, showed that policymakers expect to keep …
JP Morgan announcement won’t impact inflows After weeks of media speculation over an imminent addition, it was announced on Wednesday that India’s local-currency bonds will not be included in JP Morgan’s GBI-EM Global Diversified Index for the time …
Regular pay rising at the fastest rate in 25 years The preliminary estimate of labour cash earnings released today showed a 1.6% annual rise in regular pay in August, the largest rise in 25 years. We wouldn’t be surprised if that figure was revised …
Bank not done tightening yet Following the RBA’s surprise decision to hike the cash rate by 25bp instead of the 50bp widely anticipated, the financial markets now price in a peak of 3.6% by mid-2023 instead of 4.2% just before the meeting. Some …
OPEC+ cut to hit Gulf GDP growth; irks US The decision by OPEC+ to cut its oil output quotas by 2mn bpd on Wednesday poses a clear downside risk to our Gulf GDP growth forecasts, and it has also raised tensions between Saudi Arabia and the US. The oil …
6th October 2022
Central banks in Central Europe are attempting to draw their tightening cycles to a close, but with inflation very high and currencies under pressure, there is a clear risk that this could be premature. This week Hungary’s central bank sprung a surprise …
30th September 2022
Political considerations ahead of key elections in South Africa and Nigeria are likely to add to reasons to loosen fiscal policy over the coming quarters. Severe power cuts continued in South Africa this week, which past experience shows will have weighed …
Annual revisions show a weak real economy The big gap that had opened recently between the real GDP and real GDI (gross domestic income) data was partly resolved in the annual revision released this week, but not in the way the Fed would have liked, …
The government-induced turmoil in the markets this week has altered our thinking in five key ways. First, we have raised our forecast for the peak in interest rates from 4.00% to 5.00%. At the end of last week, we had thought that the tax cuts announced …
The accepted wisdom is that strong immigration reduces the pressure on the Bank of Canada to raise interest rates, as it will eventually help to ease labour shortages. But the immediate impact has been to boost rental growth at a time when the Bank is …
Ugly trade data, about to get worse The most recent trade data out of Asia have been very weak, and with the global economy heading for recession, we think the worst is still to come. There has been no shortage of bad news recently for the region’s …
While we don’t expect euro-zone governments to engage in UK-style large discretionary fiscal loosening, Italy’s weak public finances and/or the ECB’s likely reluctance to intervene in government bond markets may well turn out to be the source of turmoil …
This week we got yet more data showing that economies in the region are slowing. Sweden’s Economic Tendency Indicator for September, published on Wednesday, plummeted and suggested that growth has abruptly stalled. (See Chart 1.) And other indicators …
Mortgage rate floor relaxed, LPR cuts now less likely After being slashed this year, mortgage rates in most cities are now at the regulatory floor which, for first-time buyers, is currently set at 20 basis points below the five-year loan prime rate …
All eyes will be on Brazil’s general election on Sunday. Among other things, we’ve written about the implications of the vote for the economy, what lessons to draw from Lula’s previous presidency, and the future of Brazil’s fiscal rules. All of our …
C/A deficit widens to multi-year high Data released this week show that India’s current account deficit widened to 2.8% of GDP in Q2, its largest since 2013. The data can however be volatile, so we prefer to take a longer perspective. In the year to Q2, …
Travel subsidies to return in October The government announced this week that it will once again be providing travel subsidies, this time under the National Travel Discount (NTD) program, from 11 th October through December. Prefectural governments get …
Budget deficit will continue to narrow The Treasurer confirmed this week that the deficit in the underlying cash balance in 2021/22 narrowed to just 1.4% of GDP instead of the 3.5% predicted in the March budget, which was the largest forecast miss …
OPEC+ weighing up a further output cut The latest reports suggest OPEC+ is seeking to follow up last month’s surprise 100,000bpd cut to oil output quotas with another reduction next week, increasing the downside risks to our Gulf GDP growth forecasts. …
29th September 2022
Policy tightening in Ghana: past, present and future Despite the release of better-than-expected Q2 GDP growth figures in Ghana, the economic outlook remains gloomy as policy tightening to address the country’s debt woes will increasingly bite. Data …
23rd September 2022
The hawkish message from the Federal Reserve this week has prompted us to revise up our forecast for the peak policy rate in Canada to 4.0%, even as the latest data suggest that inflationary pressures are easing and the economy faces a growing risk of …
The Fed’s transformation from inflation-denier back to Volcker-style inflation-slayer is all but complete. As Chair Jerome Powell acknowledged in his press conference this week, “we have got to get inflation behind us. I wish there were a painless way …
Argentina’s second IMF review This week the IMF announced that a staff-level agreement has been reached with Argentina to release a $3.9bn tranche of the $44bn programme, which will help the government to continue external debt repayments (mainly to the …
Inflation and currency key concerns for SBV Central banks stepped up tightening cycles across the region this week, with hikes in the Philippines, Indonesia (both 50bp) and Taiwan (12.5bp). There was also an unscheduled move from the central bank …
The financial markets delivered their verdict on Chancellor Kwasi Kwarteng’s “Growth Plan” immediately after it was revealed Friday morning. There was carnage in the gilt market with 2-year yields rising by over 40 basis points (bps) to 3.95% (the …
Russia ups the ante in Ukraine The announcement by President Putin to “partially mobilise” Russia’s military reservists this week could prolong the war in Ukraine. From a macro perspective, the main implications for Russia’s economy could come through …
Some progress in restarting stalled projects Back in July, homeowners banded together en masse and refused to repay mortgages on presold homes in projects where construction had stalled. This sent shockwaves through the housing market, further …
In a quiet week for euro-zone economic data, attention has focused on the bumper interest rate hikes by central banks elsewhere, including the Fed , Bank of England , the Riksbank , the SNB and the Norges Bank . The scale of the rate hikes and the …
In what has proven to be an action-packed week for major central banks, those in the Nordics and the SNB kept their end up and delivered historically large rate rises. And more tightening is likely from all three before the year is out. The 100bp rate …
First intervention to buy yen since 1998 In the wake of the Fed’s hawkish 75bp rate hike on Wednesday, the yen approached 146 against the dollar for the first time since 1998. Back then the government intervened to shore up the yen and it did so again …
Drop in FX reserves not a macro concern Data to the first week of September show that the RBI’s FX reserves have dropped in value to US$550bn, the lowest level in almost two years. (See Chart 1.) While part of that is a valuation effect, it is mainly …
Aussie falls to our year-end forecast With the Fed delivering a hawkish 75bp rate hike by signalling that it will continue tightening aggressively, the Australian dollar has slumped to US$0.66, on par with our end-year forecast. The exchange rate …
UAE seeking to accelerate oil ramp up Reports that the UAE is aiming to increase oil production capacity faster as peak oil demand draws closer could create tensions within OPEC+ over the group’s cautious approach to output quotas The Abu Dhabi National …
22nd September 2022
Colombia: fiscal consolidation vs. inflation The Petro administration’s commitment to address costly energy subsidies is the fiscally responsible thing to do, but it will come at the expense of exacerbating the country’s inflation problem. Fuel …
16th September 2022
Nigeria’s oil output slump typifies economic woes The fall in Nigeria’s oil production in August to a 50-year low, coming alongside the recent drop back in oil prices, reinforces our downbeat view on the economy’s prospects. The OPEC Monthly …
Manufacturing outlook remains muted Although manufacturing sales volumes increased by 0.5% m/m in June and 0.6% m/m in July, those gains only partly reversed the 2.1% decline in May. Furthermore, the July gain looks like it was boosted by a …
August CPI data reinforce monetary policy divide The latest batch of inflation data out of Central and Eastern Europe (CEE) provides support to our view that tightening cycles in Czechia and Poland are at an end, but that Hungary’s central bank (MNB) …
According to media reports, in his mini-Budget slated for Friday 23 rd September, the new Chancellor, Kwasi Kwarteng, intends to officially set a target of real GDP growth of 2.5% a year. At first glance, 2.5% economic growth would appear to be within …
Policymakers worried by falling won The Korean won has continued to fall against the US dollar over the past week and is now at its lowest rate against the greenback since the 2008-09 Global Financial Crisis. It has fallen by 15% against the dollar since …
The economic data this week suggest that slowing activity growth isn’t yet putting downward pressure on core inflation, which is likely to see the Fed remain in hawkish mode at its meeting next week. But we still think that picture could change quite …
PBOC trying to loosen without triggering renminbi The onshore renminbi weakened past 7/$ for the first time in two years today. Recent currency weakness has clearly put the PBOC on edge. It has been pushing back via the daily fixing. The exchange rate …
Data released this week brought yet more evidence that the euro-zone is heading for recession. The energy crisis was already weighing on industry in July, with output in the sector contracting sharply, especially among energy-intensive producers. And …
