We don’t think that the election in Nigeria on Saturday will lead to a sudden improvement in crude oil production. The oil industry’s challenges in the country are too deep-seated. But the long-awaited Petroleum Industry Bill, passed in 2021, could at …
22nd February 2023
Figures released today highlight the dreadful demographic outlook facing Korea, with the population (excluding migrants) falling for a third year in a row. Poor demographics are the key reason why we expect trend growth in Korea to continue slowing over …
In today’s budget speech, South Africa’s finance minister tried (largely successfully) to pull off the difficult task of sticking to fiscal prudence while partly relieving the struggling state-owned electricity company, Eskom, of its debt burden. But with …
There is mounting evidence that households’ pandemic savings will no longer be able to support real spending. That implies from now on, real consumer spending will have to evolve in line with real incomes. The conventional wisdom is that households and …
While it is in America’s strategic interests to build stronger economic ties with allies to counter China’s growth, its protectionist tendencies could undermine those goals and blunt the effectiveness of its interventionist foreign policy. Our work on …
The sharp fall in European electricity prices sets the stage for a recovery in metals output across the region. As power prices are still historically high and unlikely to fall that much further, however, the potential for a full and rapid recovery is …
With Hong Kong’s economy on the mend, the budget unveiled today curtailed some of last year’s emergency spending. But it still signals a supportive fiscal stance, particularly in areas hardest hit by COVID. Together with the reopening of Hong Kong’s …
Even though the Reserve Bank of New Zealand slowed the pace of tightening at today’s meeting, it still signalled a peak in the overnight cash rate of 5.50% by the middle of this year. Our more pessimistic forecasts for economic activity and wage growth …
The higher bond yields that would follow abandonment of Yield Curve Control would make it more difficult to stabilise Japan’s public finances. But the long maturity of government debt means that the government’s interest rate bill would only creep up …
The euro-zone’s Composite PMI was much stronger than expected in February, but it excludes the construction sector where prospects are weaker. Tighter financial conditions and softer demand in the region as a whole, together with the removal of generous …
21st February 2023
The flash PMIs for February provided more evidence that advanced economies have remained more resilient than expected so far this year. Both the manufacturing and services sectors contributed to this strength, with improved sentiment and easing supply …
Swedish house prices have fallen 18% from their peak and could drop by a further 5% or so from here. This should not cause significant financial stability problems but will be a major drag on economic activity and is a key reason why we expect Sweden to …
Russia’s budget deficit has widened sharply in recent months and is likely to remain under pressure amid lower oil prices and rising military spending. The government is unlikely to experience severe fiscal strains this year, but the public finances are …
Nigeria’s presidential election this weekend could be one of several EM elections this year (including Turkey and Argentina) that see opposition victories and a turn away from unorthodox policymaking. The experience from elsewhere in the emerging world is …
Being ranked by the Sunday Times as the top UK economic forecaster for 2022 is a great accolade and has generated a lot of interest in what we expect to happen next. Our forecasts for 2023 imply a tougher year than the consensus, with higher inflation …
20th February 2023
The Bank of Israel (BoI) hiked interest rates by another 50bp, to 4.25%, today and while it continued to point to signs of slower growth, it sounded more concerned about the strength of inflation than it did at its last meeting. It now looks likely that …
The minutes of the Riksbank’s latest policy meeting show that the previously dovish Executive Board members have become less so, and that the new members are on the hawkish side. That reinforces our view that the Bank will raise rates by 50bp in April …
EM investment surged far above pre-pandemic levels last year, but there was a clear divergence across countries and we think investment growth will slow in 2023. One worrying development is that investment has continued to lag behind in countries where it …
Bank deposits held by Chinese households have soared over the past year. But that mostly reflects a shift out of riskier assets rather than a surge in savings. In fact, our calculations show that household wealth declined in 2022 for the first time in at …
Rent inflation is set to approach 10% as the surge in net migration coupled with lower home completions has pushed rental vacancy rates to record low. But that rise will be overwhelmed by the slowdown in new dwellings purchases, underlining that the …
We expect MSCI’s Brazil Index to drop over the next couple of quarters in local-currency (LC) terms, before it begins to recover towards the end of this year. Since end-October, equities in Brazil have generally underperformed equities in other major …
17th February 2023
There are growing signs that stretched affordability is weighing on homeownership, particularly for the under 35s. We expect this to persist in the coming quarters. But there is a large pool of young adults waiting to purchase their first home once …
While more disinflation may yet benefit the US stock market by, for example, facilitating a renewed decline in TIPS yields and boosting profits from the rest of the world if accompanied by a weaker dollar, we don’t think it will prevent equities from …
This week’s data contained encouraging signs that inflationary pressures are fading, and the risks to our view that Bank Rate will rise to 4.5% this year now lie to the downside. The January MSCI data also included good news for investors, with …
Russia’s crude oil production has, up until now, been remarkably resilient in the face of Western sanctions. But the recent announcement of a voluntary cut seems to be the first concrete sign that Russia is concerned about its ability to maintain output …
The Mexican peso’s outperformance since the start of 2022 has pushed up its valuation substantially, and we think that this leaves it vulnerable to sharp falls against the US dollar if, as we expect, the US economy falls into recession later this year. …
16th February 2023
The UK avoided a recession last year partly because of more spending by households on restaurants and trains and partly because of more investment by businesses in aircraft, cars and cruise ships. This suggests the recovery from the pandemic cushioned …
EM core inflation jumped to its highest rate in almost two decades in January. That can partly be pinned on China, where core inflation has risen from a very low rate. In most other EMs, core inflation has passed its peak, which should allow policymakers …
We think French wage inflation will remain much stronger than in the pre-pandemic period this year. This is not least because of the automatic adjustments to inflation of the minimum wage and negotiated wages engrained in the French system. Charts 1 …
Inflation across most of Latin America has peaked, but this is mainly an energy story – core price pressures are proving much more persistent. And underlying price pressures are likely to ease only gradually over the coming months, which will keep …
A combination of higher interest rates and rising raw material prices have interrupted the long-term declines in the costs of renewables and battery power, and could push costs up further in the near term. However, such pressures will dissipate as policy …
The central bank of the Philippines (BSP) today raised its main policy rate by a further 50bps (to 6.00%) and increased its inflation forecast for this year significantly. We are revising our interest rate forecasts, and now expect two more 25bps hikes …
Bank Indonesia (BI) kept its main policy rate unchanged today (at 5.75%) and signalled that further rate increases this year were unlikely. This supports our view that the tightening cycle has now come to an end. We expect the policy rate to remain on …
Unseasonably warm weather provides little support The unseasonably warm start to 2023 provided little support to the housing market or construction, with sales and prices falling further in January while housing starts slumped to a 28-month low. As prices …
15th February 2023
The resilience of the economy and house prices, together with the strength of inflation, suggest that the Norges Bank will raise interest rates a bit further than we previously anticipated. We now forecast the Bank’s key policy rate to peak at 3.5% in …
No matter who wins the race to be Nigeria’s next president, the public debt-to-GDP ratio is likely to remain on an upwards path in the near-term. But victory for an opposition candidate could make the fiscal outlook considerably brighter further down …
Anecdotal reports and high frequency data suggest that ongoing civil unrest in Peru is beginning to choke off activity at key copper mines. But, if recent history is anything to go by, output can rebound rapidly so long as any closures are brief. The …
Surge in sales erases Q1 recession fears The massive 3.0% m/m surge in retail sales in January may have been partly related to the unseasonably mild winter in the Northeast but, alongside the unexpected strength of payroll employment, it nevertheless …
The roots of the crisis in China’s property sector lie in the worsening long-term outlook for demand. This has not improved. But sales started the year so beaten down that a short-run cyclical recovery is likely. Sales of new residential property fell …
Signs of softening labour markets across Central and Eastern Europe (CEE) support our view that intense wage pressures in the region will ease in the coming months. Even so, we still think that wage growth will generally remain above levels consistent …
A further decline in US inflation seems largely priced in to financial markets. But we still think investors are too optimistic about how quickly the economy will grow, and as such are sticking with our view that equities will come under renewed pressure, …
14th February 2023
The surge in employment in January highlights that some sectors are still recovering strongly and raises the prospect that the economy could avoid recession, although we still judge that a modest one is more likely than not. As the employment gains have …
While Singapore’s government has framed today’s budget as being designed to help poorer households cope with a rise in the cost of living, the main macro impact is a tightening of fiscal policy at a time when the economy is already facing several …
Prague retail saw an unexpected rental uplift at the end of 2022, ending three years of decline. But we think that will be a false dawn and expect that a subdued consumer outlook will combine with existing structural weaknesses to push rents down again …
13th February 2023
Central banks need wage growth to slow significantly before they can judge that inflation is firmly under control. The least painful way for this to happen is for the recent rise in “mismatch” between workers and vacancies to reverse. However, we think …
Given that US economic outperformance has tended to coincide with a stronger dollar, we suspect a “soft landing” in the US economy would provide a favourable backdrop for the greenback, if it also meant that growth in the US remained more resilient than …
10th February 2023
We think stock markets in several commodity-intensive countries will benefit from China’s ongoing reopening, which, in our view, will mean commodity prices rise further by the end of the year. The end of the zero-COVID policy and a renewed focus on …
Almost three years on from the pandemic, only middle-income households are yet to recover financially. In the face of a looming downturn, we expect this will drive growth for discounters as middle-income households trade down their spending habits, …
A plunge in credit spreads in recent months suggests to us that there is now limited scope for corporate bonds to outperform government bonds over the next couple of years, even if the global economy holds up relatively well. And if we are right about …
The raft of EM central bank meetings over the past couple of weeks reinforces the view that monetary tightening cycles have now drawn to a close or are very close to doing so, several months earlier than in their DM counterparts. Policymakers in some EM …
