No end in sight to the downturn in Sweden The latest data releases for June from Sweden show that the flash estimate of a contraction in the economy in Q2 was no rogue reading. We learned on Tuesday morning that private sector production fell for the …
9th August 2019
Industry’s outperformance coming to an end June’s terrible industrial production data for Central Europe provided the first clear sign that weakness in the euro-zone is dragging manufacturing activity in the region down. After rising strongly for most of …
The contraction in GDP in Q2 together with the partial inversion of the gilt yield curve has raised concerns that a recession in the UK is on the way if it’s not already here. Indeed, the 0.2% q/q fall in GDP in Q2 suggests the UK is half way towards a …
Bigger budget deficits on the way Italy now looks set for an early election. Relations between the two coalition partners have broken down, and the leader of the junior partner has called for a vote of confidence in the government. That said, even if it …
ZAR: Currency weakness homegrown The South African rand had a tough time this week, shedding 2.3% against the US dollar. Indeed, the currency is now weaker than our end-year forecast of ZAR15/USD. But while this has coincided with a generalised fall in EM …
Balance sheets resilient… The plunge in oil prices over the past week won’t result in balance sheet strains in the Gulf economies, but it does strengthen our view that governments in parts of the region, most notably Saudi Arabia, will resume fiscal …
8th August 2019
More depreciation ahead The People’s Bank (PBOC) allowed the renminbi to weaken beyond 7.00 against the US dollar this week in response to Trump’s most recent tariff threat. We doubt the PBOC would have taken this step if it wasn’t willing to let the …
Escalation of crisis would have limited impact The Indian government this week revoked a long-standing constitutional provision that granted special autonomy to the state of Jammu & Kashmir. The measures will split the state into two separate “union …
RBNZ cuts while RBA holds In Australia, the RBA kept rates on hold at 1.0% this week, as widely expected. But the Bank acknowledged that the uncertainty generated by the trade war had increased and noted that it would “ease monetary policy further if …
New currency forecasts In response to the renewed falls in Asian financial markets over the past week and the further escalation of the trade war between the US and China, we are revising some of our currency forecasts for this year. The drop in the …
Yen climbs to 17-month high against dollar Two months ago we predicted that the US would eventually impose tariffs on all imports from China. (See here .) Indeed, President Trump announced last week that he will impose an additional 10% on the remainder …
Large Mexico stimulus raises fiscal risks The large fiscal stimulus unveiled by Mexico’s new finance minister this week will support activity, but it raises medium-term fiscal risks. We always argued that the change of finance minister last month was …
2nd August 2019
Yesterday’s announcement by President Trump that a 10% tariff is to be levied on $300bn worth of Chinese goods came as a shock after reports of “constructive” trade talks between the US and China earlier in the week. While rising protectionism has …
Despite cutting rates by 25bp this week, the Fed gave no indication that it is lining up another cut soon or that this will mark the start of the extended easing cycle investors are hoping for. But with President Donald Trump’s subsequent move to …
May’s GDP data suggest that the economy was in better shape than the Bank of Canada thought in the first half of the year. But a further deterioration in the global business surveys, coupled with an escalation in the trade war between the US and China, …
July surveys point to continued weak growth The slowdown in euro-zone GDP growth from 0.4% q/q in Q1 to 0.2% in Q2 was in line with our forecast and the ECB’s. (See here .) We don’t yet have an expenditure breakdown for the euro-zone as a whole, but the …
Swedish economy to flirt with recession… The 0.1% q/q fall in Swedish GDP in Q2 is unlikely to be the final word on the matter given that the data are almost certain to be revised in September. (See here .) Nonetheless, the release adds to signs that the …
MPC living in an alternative reality In our latest UK Economic Outlook , “ An economic multiverse ” (16 th July) , we set out the different paths politics could send the economy down. The MPC took a different approach this week, forecasting an alternative …
CBRT too sanguine on inflation risks The Turkish central bank’s optimistic inflation forecasts add weight to our view that it is likely to go too far with monetary easing and will ultimately have to reverse course further down the line. In its latest …
Eskom: Between a rock and a hard place… While Eskom’s problems are often blamed on corruption and poor management, its recently-released annual report underlined the scale of the structural challenges facing the firm. Eskom faces the significant …
Tax hike countermeasures progressing well Implementation of the government’s flagship measure to cushion the blow of October’s sales tax hike is ahead of schedule. Hiroshige Seko, the Minister of Economy, Trade and Industry, said this week that 240,000 …
Hopes of strong rebound dashed Data released this week provide further evidence that the economy is performing below capacity. Admittedly, house prices appear to be bottoming out. Average house prices in the eight capital cities edged up in July. What’s …
Tariff man strikes again President Trump re-escalated trade tensions overnight by announcing a 10% duty, effective 1 st September, on the $300bn worth of US imports from China yet to be subject to tariffs. We estimate that this will directly knock of …
Mixed Q2 GDP figures, signs of export revival Second quarter GDP figures will be coming in thick and fast over the next few weeks. For the countries that have reported already, the numbers have been a mixed bag. In q/q terms, growth slowed in Hong Kong …
Fiscal deficit target likely to be exceeded India’s fiscal deficit in Q1 of FY19/20 (April to June) provides little assurance about the government’s ability to meet the 3.3% target that it set in the union budget last month. Data released this week show …
Saudi fiscal loosening unlikely to last much longer Budget figures released this week in Saudi Arabia showed that the government loosened fiscal policy in Q2 but, if oil prices remain low (as we expect), the authorities will reverse course in the coming …
1st August 2019
Mexico: avoiding a recession…just Mexico’s preliminary Q2 GDP figures due next week are likely to show that the economy stagnated, dodging a technical recession. But whether the growth figure is above zero or not, the key point is that the economy is …
26th July 2019
Commodity prices have largely been treading water, ahead of some major events next week . The Fed will announce its interest rate decision on Wednesday. A 25 basis points rate cut is already priced into financial markets, but anything more could prompt a …
Dovish ECB to make life difficult for the SNB Having seen the Swiss franc post multiple fresh two-year highs against the euro early in the week, the SNB will have welcomed the drop in the currency after the ECB meeting on Thursday. The fall was mirrored …
The Fed is likely to cut interest rates by 25bp at next week’s FOMC meeting. New York Fed President John Williams put the markets into a frenzy last week by arguing in a speech that the Fed should move quickly to ease policy at the first signs of a …
At Thursday’s press conference, the ECB laid the groundwork for policy easing in September. The change to its forward guidance suggests that a rate cut is pretty much a done deal. But the Bank also “tasked the relevant committees” with looking into other …
This week brought more gloomy news about the state of global manufacturing, which will make it even harder for the recent strength of the factory sector in Canada to be sustained. Canadian manufacturing has recently bucked weaker trends elsewhere. We …
Turkish central bank playing with fire Turkish financial markets took Thursday’s larger-than-expected interest rate cut in their stride but we don’t think that this resilience will last. Investors seems to be coming round to our view that the central bank …
Looser fiscal policy on the way It came as no surprise that Boris Johnson became the UK’s new Prime Minister this week. ( See here .) And in his first speech in Parliament on Thursday there was no sign of him rowing back on his campaign pledges for the UK …
Eskom: Another bailout, still real solution A new cash injection for Eskom has underlined the scale of the firm’s problems and increased the risk of a sovereign rating downgrade in November. The government will grant another ZAR60bn in 2019/20 and 2020/21 …
Limited trade war impact on FDI flows, for now There was no net increase in direct investment by Chinese firms in the US last year according to the annual US Bureau of Economic Analysis report on direct investment, which was published this week. (See …
Korea trade spat starting to hurt inbound tourism Local media report that many South Koreans are starting to boycott Japan as a holiday destination. One of South Korea’s largest travel agencies said that bookings of trips to Japan were down 50% y/y in the …
MAS to loosen sooner rather than later The recent deterioration in the economic data from Singapore adds weight to our view that monetary policy will be loosened before the central bank’s (MAS) next scheduled meeting in mid-October. The advanced Q2 GDP …
Hawk’s flight from MPC points to more easing Dr Viral Acharya stepped down this week from his position as one of the six members of the RBI’s MPC, one month after handing in his resignation. Dr Acharya was one of the most hawkish members of the MPC. …
Is the inflation target still fit for purpose? Treasurer Josh Frydenburg revealed this week that he is currently reviewing the RBA’s inflation target in preparation to sign the Statement on the Conduct of Monetary Policy, along with Governor Lowe. The …
Rate cuts unlikely to boost Gulf credit growth Central banks in the Gulf will follow the US Federal Reserve in cutting interest rates next week, but past experience suggests that this is unlikely to provide a significant boost to the economy. Fed Chair …
25th July 2019
We now expect the Fed to start cutting interest rates at the end of this month . However, we only expect a quarter-point reduction in July and only one further cut this year. While lower US interest rates are typically good news for all commodities, there …
19th July 2019
Mexican government unwilling to fix Pemex The Mexican government’s underwhelming business plan for Pemex, announced this week, reinforces our view that it is not willing to implement the reforms necessary to stabilise oil production. Against that …
Despite continued economic growth, a near-record low unemployment rate and still-positive house price inflation, borrowers are increasingly turning to lenders of last resort. That suggests the health of borrowers could be more precarious than it seems. …
We expect to learn next week that second-quarter GDP growth slowed to only 1.6% annualised, from 3.1% in the first, which should reinforce expectations that the Fed will cut interest rates at the FOMC meeting a week later. But politics are likely to take …
Franc leaves exporters with a mountain to climb The widening in Switzerland’s trade surplus in June (data released on Thursday) was driven in large part by weakness in imports and masked a continued slowdown in export growth. The rise in the value of the …
What are investors expecting from the ECB? Next week, we think that the ECB will alter its forward guidance in two ways. First, it is likely to say that interest rates will remain “at present or lower ” levels at least through the middle of next year. And …
Erdogan: rates to be cut in a “serious manner” Comments this week from Turkey’s new central bank governor and President Erdogan suggest that an interest rate cut next Thursday will be followed by further aggressive easing in the coming months. The case …
Plans for further big minimum wage hike scrapped President Moon was elected in 2017 on a pledge to raise household incomes and reduce inequality. The cornerstone of his strategy was to raise the hourly minimum wage to 10,000 won (US$8.50) by 2020, which …
The Office for Budget Responsibility’s (OBR) public finance forecasts in a no deal scenario published in its Fiscal Risks Report this week really do look pretty dreadful. We suspect they overdo the gloom a bit. But either way, whether it is Boris Johnson …
