Turkey’s central bank (CBRT) has burned through its FX reserves to defend the lira this year, but the CBRT’s firepower is severely depleted and reserves are now so dangerously low that monetary conditions will need to be tightened by much more to prevent …
11th August 2020
Travel restrictions and caution shown by holidaymakers have hit the hotel sector hard. While there has been a boost from the temporary cut in VAT for hospitality and tourism, weak global growth and virus-related restrictions and uncertainty will continue …
The success of the Eat Out to Help Out (EOHO) scheme suggests that fears about the virus are not preventing activity. But as meals out only seem to be popular due to a heavy discount, consumers are still behaving cautiously. This restraint is part of the …
By July, we think that around 4 million people had already left the government’s job furlough scheme and 5 million remained on the scheme. That fall is faster than we had expected but does not change our forecast that the ILO unemployment rate will reach …
10th August 2020
If strains in Turkey’s balance of payments fail to ease, the central bank will probably tighten monetary conditions more aggressively within the interest rate “corridor”. But use of the corridor alone would not allow real interest rates to return to …
Earlier this week, the gold price broke through the previous record set back in 2011 to reach an all-time high. Given that we now expect real yields to continue to grind lower, we have revised upwards our gold price forecast to $2,100 per ounce by …
7th August 2020
We don’t think that the recent resurgence in the coronavirus in certain parts of the UK makes the economic outlook any weaker than we already thought. But more widespread outbreaks would either slow the pace of the economic recovery, stall it, or send it …
China’s industrial import volumes rose in July, which is consistent with the recovery in economic activity and opportunistic stockpiling at low prices. While final commodity demand will remain strong for the remainder of this year, China’s import volumes …
The landslide victory by Sri Lanka People’s Party (SLPP) will allow incumbent President Rajapaksa to consolidate power. This is likely to lead to an increase in corruption and nepotism and will also add impetus to Mr Rajapaksa’s plans to “restore …
Weekly data for June and July point to a slight recovery in US crude oil production from May’s depressed level of 10m bpd. We expect output to remain subdued for the rest of 2020 . US crude oil production fell to 10m bpd in May, from 12m bpd in April, …
6th August 2020
Last week saw the zinc price return to its pre-pandemic level, making it the second in the S&P GSCI of Industrial Metals to do so after copper. But unlike copper, we expect the zinc market to remain oversupplied for the foreseeable future. Accordingly, we …
Data for Q2 revealed widespread drops in GDP, but the extent of the damage varied markedly depending on the length and severity of lockdowns. Recoveries since then have followed the same pattern. Looking ahead, Asian economies including China and Korea …
The Monetary Policy Committee (MPC) left its interest rate and quantitative easing (QE) policies unchanged today and its new projections appear to suggest that no further loosening is required. But its dovish language is more important for the future path …
The only new step taken by the RBI today was the introduction of a new framework to help struggling borrowers manage their bank debt. The MPC voted unanimously to keep the repo and reverse repo rates on hold. But, with the growth outlook worsening amid …
Turkey’s current account deficit has widened to levels not seen since 2018, which can partly be explained by a slump in tourism receipts. While this should start to reverse over the rest of this year, Turkey’s large external financing needs will keep the …
The 25bp cut in the Selic rate, to 2.00%, at last night’s Brazilian central bank meeting probably marks the last reduction in the cycle, but the accompanying statement supports our view that rates will remain at rock bottom levels into 2022. The reduction …
While high-frequency mobility data should be interpreted with caution, they are now consistent with a marked slowdown in the pace of recovery, dashing hopes of a V-shaped rebound in the world economy. July saw a pronounced acceleration in the spread of …
5th August 2020
The coronavirus has changed how people live their lives and spend their money. The consumption of almost all agricultural commodities has fallen so far this year and we expect that it will take until 2022 for demand to return to pre-virus levels. As a …
Although demand for Romanian industrial space held up in H1, we expect it to weaken over the rest of the year as consumer demand falters and the economy recovers only slowly. Combined with incentives rising and the significant increase in supply in recent …
The major blast in Beirut yesterday has severe humanitarian consequences, and the incident threatens to deepen the country’s economic and political crises. Yesterday, a huge blast rocked Lebanon’s capital city, Beirut, that emanated from the local port. …
The Bank of Thailand’s (BoT) decision to leave interest rates unchanged at 0.5% despite the very poor outlook for the economy suggests further rate cuts are unlikely. In its statement, the BoT hinted at further measures it could take to support growth, …
While the future of the virus is very uncertain, three things seem clear from recent developments: the pandemic has entered its fifth phase; the Americas are still the global hotspots; and containment measures are more likely to be extended or tightened …
4th August 2020
We expect office-based employment growth to be faster than total employment growth by around 0.3-0.5% ppts each year over the next decade in the US, the UK and the euro-zone. The coronavirus crisis will dampen the outlook in the short run, but the less …
We predicted four months ago that Australian house prices would fall by 5-10% from their peak. The short-lived nature of the recent downturn and the fact that affordability is looking increasingly attractive means that forecast is still looking good. …
The RBA turned more pessimistic about the outlook for the economy when it kept policy settings unchanged today and we think it will engage in additional asset purchases before long . As widely anticipated, the RBA kept both its cash rate as well as the …
The rise in the EM manufacturing PMI in July (to 51.4) should be treated with caution but, even so, it still suggests that conditions in EM manufacturing are improving. The recovery is likely to be fastest in China and Central & Eastern Europe. The …
3rd August 2020
The latest China import data tally with our view that constrained supply will help to push the prices of most base metals higher. Conversely, the surge in iron ore shipments is consistent with our forecast that a rise in supply will send the price of iron …
While the global manufacturing PMI rose again in July, it masked a divergence in the strength of recoveries among major economies. With growing concerns in recent weeks over a resurgence in the virus in many parts of the world, the recovery of global …
July’s encouraging batch of PMIs for China suggest that the robust economic rebound continued into the start of Q3. And with policy support set to be stepped up, strong Chinese activity will continue to be a fillip for commodities demand in the months …
Even though Congress failed to prevent the $600 additional UI payments from expiring last Friday, we still expect a deal in the coming weeks which will offset the continued hit to incomes from the pandemic. With the saving rate so elevated, the bigger …
While the auto sector was hit particularly hard by the virus lockdowns, sales and production now seem to be recovering. In the near term, this bodes well for economies which rely heavily on vehicle production including Germany, Japan and Czechia. However, …
The re-imposition of some restrictions in late-June is weighing heavily on Portugal’s tourism sector. Along with its unfavourable labour market structure and fragile banking system, this will hold back the recovery of consumption and investment. …
The additional restrictions on activity imposed in Victoria this week to curb the renewed surge in virus cases will cause the recovery in output to slow markedly in Q3. The number of virus cases in Victoria continues to surge, with new daily cases …
The second virus wave that is hitting Japan supports our view that Japan’s economy will contract more sharply this year than most anticipate. However, a renewed state of emergency would probably not be as economically damaging as the one declared in April …
Policymakers in a few emerging markets have turned to unconventional monetary policies to combat the economic fallout from the coronavirus pandemic, and some may go further into outright financial repression . This note sets out some of the potential …
31st July 2020
A more favourable economic outlook should support occupier demand and thereby prime Dutch office rents over the next few years. And while the shift to more remote working poses a risk, we think that the Netherlands might be better placed to deal with the …
The Saudi economy has embarked on a recovery in the past couple of months, but fiscal austerity and oil production cuts, as well as the ongoing suspension of pilgrimages, mean that it is likely to be slow going. The latest activity data suggest that Saudi …
30th July 2020
A combination of official travel restrictions and caution from holidaymakers is likely to hit Spain, Greece and Portugal particularly hard. Germany should get off lightly thanks to its comparatively small tourism sector, relatively small number of foreign …
The outlook for the Polish economy is better than in much of Europe. However, we still expect retail rents to end the year lower than in 2019, with the recent rebound in retail spending unlikely to be sustained. Despite the Polish economy holding up …
While the Fed left its policy settings unchanged and opted not to strengthen its forward guidance at the conclusion of its meeting today, its downbeat assessment of the economic outlook still suggests they will provide more accommodation in the months …
29th July 2020
Reforms in Chile that allow households to withdraw some of their pension savings may help to boost the economic recovery over the next year. But the way in which the reform was passed adds to the sense that public pressure will result in a higher social …
We think the Bank of Canada’s GDP forecasts are too weak given it assumes there will not be a second wave of the virus. Even if there is one, the Bank is likely underestimating the potential for inflation to rise. The Bank’s July Monetary Policy Report …
The unprecedented surge in household formation and the homeownership rate in the second quarter is not a sign that Americans are fleeing rental apartments in the city to buy homes in the suburbs. Rather, issues with data collection due to the coronavirus …
Spain’s economic recovery was already set to be one of the weakest in the euro-zone but the resurgence in virus cases over the past week and subsequent re-imposition of restrictions deals a fresh blow to the outlook. A return to normality looks even …
Today’s depreciation of the Turkish lira marks the first significant departure from the de facto peg that has been in place over the past month and, if tensions with the EU continue to escalate, sharper falls lie in store. These could ultimately force the …
28th July 2020
A surge in new domestic coronavirus cases is the biggest downside risk to our forecast that it will take two years for the economy to return to its pre-crisis peak. It could mean that the recovery takes even longer. And if it coincided with the winter flu …
Retail sales rebounded to near pre-virus levels in June, but this partly reflects a shift in spending from services to goods. Accordingly, the strong recovery in sales overstates the health of total consumption. The May retail sales data released last …
27th July 2020
A new type of recession requires new tools to measure it. It has become clear that the activity PMIs will be of little use in gauging the extent and pace of the recovery from the coronavirus crisis. Our new “Capital Economics BICS Indicator”, which is …
Policy measures from governments and the ECB to keep banks lending during lockdowns appear to have been successful, but as we have argued was likely to happen, loan growth is now slowing. Consumers’ and firms’ ability and willingness to borrow will be …
Over the past few months, the euro and the BTP-Bund spread have moved closely together, with the euro strengthening as the BTP-Bund spread narrowed and vice versa. (See Chart 1.) We think that this pattern will persist over the remainder of this year . …
24th July 2020
