While we expect that EM currencies in general will rise further this year due to strong appetite for risk and a recovering global economy, we think several headwinds will limit their appreciation. For a start, EM currencies as a group have already …
19th February 2021
The batch of flash PMIs for February suggest that shipping constraints and some goods shortages are raising costs for manufacturers. There are some signs that these cost pressures are being passed on to consumers. Outside of the US, price pressures in …
Although we expect oil prices to rise a bit further this year, we doubt that we are in the early phase of a new “super cycle” in commodities. In fact, we project that the returns from commodities will lag those from US equities considerably over the next …
Israel’s rapid vaccination programme has allowed the government to set out plans to re-open the domestic economy in the coming weeks and may offer some lessons for other countries. The speed at which the restrictions will be lifted is the most striking …
Our long-run forecasts suggest that China will still be the second largest economy, measured at market exchange rates, in 2050. The most likely scenario is that slowing productivity growth and a shrinking workforce prevent China ever passing the US. But …
It’s unlikely that Colombia’s government will achieve its lofty fiscal targets over the coming years, which may prompt a loss of its investment grade rating – an outcome that is not fully priced into financial markets. But a bigger concern from an …
18th February 2021
The account of the January ECB monetary policy meeting confirms that there was unanimous support for the policy agreed at the December meeting, when the PEPP envelope was increased to €1.85trn and more TLTROs were announced. We expect the ECB to stick to …
Taken alone, prolonged restrictions on international travel would do little to hinder the global recovery since overseas tourism is a small share of world GDP and some of the lost spending would be made up. But the aggregate masks a wide range of effects. …
Even if a significant share of the $1.6trn of student loan debt owed to the Federal government was forgiven, it would provide only a limited boost to activity while driving a potentially sizable further increase in the budget deficit. President Joe Biden …
Turkey’s central bank left its policy rate unchanged at 17.00% at today’s MPC meeting and the hawkish tone in the statement, including a commitment to bring inflation back to the 5% target, supports our view that an easing cycle will arrive later and will …
While new COVID-19 infections have dropped, our Mobility Trackers have shown only a slight pick-up in activity as tight restrictions remain in place in many economies. Vaccine rollouts have been slow in the euro-zone and most EMs, but much faster in the …
Bank Indonesia (BI) today cut its main policy rate by 25bps to 3.50% and revised down its forecast for the coming year. The central bank, however, also noted the room for rate cuts was “getting limited”. On balance we expect one more 25bp rate cut, most …
Record low inventory should continue to drive strong house price gains in the first half of the year, but we expect house price inflation to slow beyond then as bond yields and mortgage rates start to rise. Home sales rose by a further 2% m/m in January, …
17th February 2021
A severe COVID-19 outbreak has added to the long list of troubles in Lebanon and, given renewed social unrest and the fact that talks with both the IMF and international creditors are at a standstill, it is likely that economic conditions will remain dire …
The latest rise in the price of oil – and our view that it will increase further this year – could push current account and budget balances into surplus in many of the EM producers. It should ease any concerns about dollar pegs in the Gulf, although we …
The shift in policymaking at Turkey’s central bank (CBRT) has supported a rally in local financial markets over the past few months and we think this has further to run. We now expect the Turkish lira to end this year at 6.25/$ (previously 7.00/$). A …
An elevated unemployment rate, alongside some relaxation in immigration restrictions, will help ease labour shortages in the residential sector this year. Admittedly, not all parts of the economy are finding jobs easy to fill, but homebuilders are …
The discussion in Brazil around extending emergency fiscal support reinforces our view that the government will ultimately cast aside the spending cap. That could put the public debt trajectory onto an unsustainable upwards path and, were that to happen, …
We think that the positive equity market rotation that accompanied November’s vaccine announcements will resume before long if, as we expect, vaccines allow restrictions on activity to be lifted later this year. To recap, the MSCI World Index of developed …
The Long Run is a new subscription service offering insight into issues that will shape the global economy and financial markets over the next 30 years. This Update outlines our ten key calls for the coming decades. 1. Pandemic won’t permanently weaken …
South Africa’s hard activity data for December suggest that the economy avoided contraction in Q4, but the pace of the recovery slowed and is likely to remain weak. Activity data published by Stats SA today showed that, following a 4.0% y/y fall in …
With the first batch of Chinese trade data for 2021 not due for another few weeks, this Update outlines the key developments to look out for. Overall, we expect imports of refined metal to fall back while ore and scrap imports rise, all of which supports …
We think the risk of a surge in unemployment and slump in household incomes later this year is quite low. Euro-zone governments are choosing to extend their job support schemes and will probably scale them back only gradually as the end of the pandemic …
Following the decline in 2020, we think prime office rents in Amsterdam will hold steady this year. But rental growth should pick up thereafter, supported by continued growth in the information and communication sector, comparatively low rents and the …
We forecast the Norges Bank to be the first advanced central bank to begin raising interest rates, in the second half of this year. This will further bolster the krone, which we expect to be the best-performing G10 currency in 2021, and will drive the …
The continued surge in growth of narrow measures of the money supply underline that the economy is awash with liquidity, but that will not trigger a surge in price inflation when growth in the broader money supply and bank lending are trending lower. (See …
16th February 2021
Singapore today unveiled a budget that will keep fiscal policy loose for the coming fiscal year (April 2021-March 2022), while also attempting to address some of the long-term challenges facing the economy. The budget deficit is projected to narrow from …
After a relatively mild first wave of coronavirus, Portugal is now contending with the worst second wave in Europe. Another economic contraction in Q1 is all but certain and more delays to the vaccine rollout put the tourist season at risk. We forecast …
We do not expect a re-run of the 2013 “taper tantrum”, in which EM assets went into a tailspin and some EM central banks were forced to hike policy rates. But even if there were a similar period of turmoil, the fallout for EMs would be less severe. The …
Mario Draghi’s reputation and large majority put him in a strong position to promote euro-zone reform and he may have some successes in areas such as banking union and fiscal rules. But he will be constrained by his short period in office and the greater …
The narrowing in India’s goods trade deficit in January is likely to soon reverse as the recovery in domestic demand and oil prices pushes up imports. But while this means that India’s recent current account surplus is unlikely to last for long, we still …
A digital euro is many years away, and the fact it is not intended to replace physical cash means that it won’t supercharge monetary policy as some may hope. However, it could become the norm for small cash transactions in the bloc over time and will at …
15th February 2021
We think that slower growth in US housing starts and increased supply will weigh on the price of US lumber over the coming quarters . That said, prices are likely to remain elevated relative to past standards . The price of US lumber soared to …
12th February 2021
Supply disruptions and strong electronics demand have lifted the tin price from its virus-induced lows. But we anticipate that a switch in consumer spending away from goods towards services once lockdowns are relaxed, will act as a drag on the price of …
The recovery in many emerging markets after the Global Financial Crisis was characterised by concerns about destabilising capital inflows, overheating, and asset price bubbles. This recovery is likely to be more gradual, external imbalances are unlikely …
Recent market moves have led us to revise up our end-2021 oil price forecast. But our story remains the same: one of resurgent demand later this year at a time of constrained supply . Having underperformed other commodity prices for much of last year, the …
Russia’s central bank (CBR) left its key policy rate on hold at 4.25% today and the hawkish message about pro-inflationary risks means that there is no room for further easing. The CBR set the groundwork for a return of interest rates back to a neutral …
The unanimous decision by Banxico’s Board to cut its policy rate by 25bp, to 4.00%, suggests that policymakers are more dovish than we had thought. But the initial market reaction – significantly more monetary easing has been priced in – looks overdone. …
With a large fiscal stimulus package looking increasingly probable in the US, and the Fed unlikely to push back on higher inflation expectations, we think the yield of 10-year US Treasuries may rise a little further. We expect this to be driven mainly by …
We think that prolonged weakness in domestic and foreign spending on prime high streets in Italy will add to pressure on rental affordability, triggering rental falls this year. However, a less significant increase in online penetration during the …
Chile is motoring ahead in Latin America’s vaccine race and it may be on course to start lifting stringent lockdown measures by mid-Q2. Other countries may follow suit in Q3, which feeds into our above-consensus GDP growth forecasts for most economies in …
11th February 2021
The spread of performance between UK commercial property sectors hit an all-time high in 2020, with retail spiralling into a GFC-like slump, while industrial barely flinched. This gap will narrow, but not disappear, weighing on the strength of the …
The pound has performed better than all other G10 currencies so far in 2021 (see Chart 1), rising from $1.36 at the start of January to almost a three-year high of $1.41 now. We expect the strength of sterling against the US dollar to continue and have …
The upside surprise in South Africa’s mining and manufacturing output in December is unlikely to be repeated in early 2021. Tighter virus containment measures and continued power cuts probably mean that the pace of the recovery has slowed. Activity data …
We think that past movements in Czech bond yields mean that they are less appropriate to use in our valuation calculations. Using alternative bond benchmarks, re-calculated metrics support the view that industrial yields can fall further while office …
The central bank in the Philippines (BSP) left its main policy rate on hold at 2.00% today, and while rising inflation means further easing isn’t likely in the near term, we still expect the central bank to cut interest rates later this year. Today’s …
The performance of the major FTSE NAREIT sub-sectors since the end of 2019 appears to suggest that our forecasts for 2021 might be too weak for industrial and too strong for the office and apartments sectors. But while we expect to upgrade our industrial …
10th February 2021
When analysing the effect of COVID-19 on business balance sheets, most attention is given to the surge in debt. But this ignores the fact that non-financial firms in DMs have built up a pile of excess cash worth $1.6tn (4% of GDP), so their balance sheets …
