We think that the euro-zone will enter a recession in the first half of this year and then experience a slow recovery. Our new GDP forecasts show a 0.5% contraction in 2023 and growth of only 0.8% next year. Data released this morning confirmed that the …
31st January 2023
Early data indicate that German offices saw the steepest increases in yields on record in late 2022. And we think that with policy rates set to go higher, it is too early to rule out further rises in 2023. That suggests a peak-to-trough fall in German …
It’s well known that, with the yield curve inverting the Fed is now racking up losses, but what is less appreciated is that the higher interest payments it is making are going mostly to foreign banks and money market funds. The Fed earns interest on …
30th January 2023
The shift away from floating-rate to fixed-rate mortgages presents risks as well as benefits. It will protect homeowners who are lucky enough to have a long time remaining on their fixed rate contract from higher mortgage payments. But that reduces the …
The conventional wisdom is that the annual spring wage negotiations (Shunto) are a bellwether for wage growth. In reality, the small number of employees covered by the talks and their bias towards workers in large manufacturing firms means that the Shunto …
A streak of stronger-than-expected economic data in the euro-zone has given markets there a boost this year. But with much of the good news seemingly already discounted, and, in our view, a still hawkish ECB, we expect rallies in equities and government …
27th January 2023
Our forecasts for house prices, mortgage rates and incomes over the next few years mean affordability will remain relatively stretched compared with the past 15 years. But there is good reason to think that mortgage payments as a share of income were …
While a “risk-off” period in markets may prompt it to pause in the near term, we expect the recent pattern of the US dollar retreating as non-US equities outperform to set the tone for the next couple of years. One major recent theme in global markets has …
Demand growth for industrial metals slowed sharply late last year. But attention is now geared towards the rebound in China’s metal demand. We think there is a good chance that the rebound disappoints. The CE Demand Proxies are our attempt to gauge the …
The reversal of temporary subsidies and changes to weightings will probably push headline German HICP inflation back up in January. But the bigger picture remains that the headline rate will fall sharply this year and that the ECB will continue to focus …
Euro-zone investment contracted sharply in Q4 2022 and we think further interest rate rises will prolong this weakness throughout much of this year. But we expect a recovery in transactions towards the end of the year, when economic activity should be …
Consumer spending in emerging markets initially recovered quickly from the pandemic, but it looks like high interest rates and inflation caused spending growth to slow sharply over the second half of last year. And we think consumer spending is likely to …
December’s euro-zone money and credit data show that the effects of rising interest rates were starting to be felt. Households and firms shifted their money into longer-term deposits which are less likely to be spent, and lending growth slowed. Overall, …
We held a Drop-In today to discuss the big economic and financial market development across Emerging Asia. (You can see an on-demand recording here .) This Update answers several of the questions that we received, some of which we couldn’t answer during …
26th January 2023
Although we think there is still a decent case for UK equities to continue outperforming those in the US over the next few years, we don’t expect the UK’s stock market to perform significantly better than stock markets in the euro-zone over that period, …
The South African Reserve Bank’s (SARB’s) smaller-than-expected 25bp interest rate hike today and large cuts to its growth forecast make clear that its focus is pivoting to concerns about activity rather than inflation. The next meeting will be a close …
China’s rapid move away from zero-Covid and the resulting rally in commodity prices present upside risks to our GDP forecasts, but we remain of the view that 2023 will be a challenging year for Latin American economies and that growth will slow sharply. …
China’s statutory retirement ages for men and women are low. But raising them would not make a big difference to the size of the workforce since most workers today keep working once they have passed retirement age. Only a quarter of men drop out of the …
25th January 2023
The Bank of Canada accompanied its smaller 25 bp hike with new guidance that it intends to hold the policy rate at the current 4.5% while it assesses the impact of the cumulative interest rate increases so far. While the Bank did not rule out future …
We think equities in Japan will come under renewed pressure in local-currency (LC) terms over the coming months, amid an economic slowdown and further strengthening in the yen. So far this week, equities in Japan have generally outperformed equities in …
China’s re-opening will have a significant impact on the rest of the emerging world by lifting commodity prices. That will improve the terms of trade of EM commodity producers, particularly Chile, Peru and the Gulf economies. However, we think that this …
Saudi Arabia’s economy enjoyed bumper growth in 2022, but there were signs that activity was slowing in the final months of the year and we expect this trend to continue into the early part of 2023. Saudi Arabia’s economy was one of the best performers in …
Markets still nervous over EU natural gas supply, despite high storage This is the first edition of a new monthly publication in which we will outline the latest moves in commodity futures markets and assess how they relate to our own view on …
S ince the end of last year, developments have been more positive in the retail sector. However, we still think 2023 will be a difficult year. The weak outlook for consumer spending and more spending online and in out-of-town shops point to rising high …
The Bank of Thailand hiked interest rates today by a further 25bps (to 1.50%), and hinted that more rate hikes were likely in the near term amid worries about rising underlying price pressures. We expect one more 25bps increase this year before the …
The losses which central banks are now incurring on the bonds they bought via their quantitative easing (QE) programmes are not a big cause for concern. These losses will not compromise central banks’ ability to operate monetary policy. And while …
Sri Lanka’s central bank (CBSL) kept interest rates unchanged today, and we expect it to leave rates on hold for the rest of the year as it aims to strike a fine balance between supporting a struggling economy and clamping down on high inflation. The …
The flash PMIs for January provide further evidence that the euro-zone economy has so far avoided the deep downturn that most economists anticipated, whereas the US and UK surveys still point to recessions in both cases. Supply shortages have become less …
24th January 2023
A closer look at Spain’s inflation data shows that there are significant measurement difficulties affecting both energy and core price data. However, we still expect measured headline inflation to remain lower in Spain than in most of the euro-zone and …
Recent data have shown that activity in the US is weakening as we had expected while that in the euro-zone has been surprisingly resilient. The resilience seems to reflect a combination of supply and demand factors, including easing shortages, lower gas …
The Central Bank of Nigeria (CBN) raised the benchmark rate by 100bp, to 17.50%, today in a surprisingly aggressive decision. But with incoming data likely to add to evidence of easing price pressures, we are not convinced that this hawkish tilt will …
While China’s reopening has improved the prospects for copper demand, the price has, in our view, surged by more than can be justified by developments there alone. We expect the copper price to drop back over the next few months as several advanced …
Pakistan’s central bank (SBP) raised its policy rate today by a further 100bps (to 17.0%), and we expect more tightening over the coming months amid concerns about high inflation and the worsening external position. Interest rates have now been raised …
23rd January 2023
Near term economic headwinds suggest the slowdown in investment activity in Scandinavia will continue in 2023. However, with policy rates near a peak, and improving economic activity and falling bond yields expected later in the year, we think that the …
We expect the slowdown in investment activity in the second half of 2022 to persist into the first half of 2023. But we think transactions will begin to recover later this year once interest rates have topped out and much of the valuation adjustment has …
20th January 2023
We now think German industry will continue to grow in the coming months as lower gas prices, easing supply shortages and high backlogs of orders support production. One of the reasons for the resilience of the German economy in the face of the energy …
With inflationary pressures easing and the global growth outlook improving, we no longer expect the US dollar to breach its late September peak. But we still think that souring risk appetite associated with recessions in developed markets will boost the …
The Year of the Rabbit that begins on Sunday will see a revival in outbound tourism from China that we expect to be stronger than recoveries seen elsewhere. China is reopening into a world that has already dismantled most virus controls. Its state-owned …
While the Bank of Japan pushed back against expectations that it would end its Yield Curve Control (YCC) policy yesterday, we think it is only a matter of time before YCC bites the dust. That suggests further upward pressure on the yield of JGBs and the …
19th January 2023
The Fed’s hawkish transformation has been so marked that, if its forecasts are to be believed, over the next couple of years it would effectively be adopting the same reaction function last followed during the Greenspan and Bernanke eras between 1987 and …
The theme of global economic fracturing, which was the focus of our Spotlight Series of research last September, is at the centre of economic discussion in 2023, including at Davos. We held an online drop-in session yesterday to update clients on our …
The account of the December meeting, along with data released since then and recent comments from policymakers, suggest the ECB will raise its deposit rate from 2% to 3% by March rather than May as we had previously expected, and that QT will accelerate …
Moderating core price pressures, the continued fall in inflation expectations and the sharp decline in wholesale natural gas prices mean we think inflation in Central and Eastern Europe (CEE) will fall a bit more quickly in 2023 than we had anticipated a …
Bank Indonesia (BI) today raised interest rates by a further 25bps (to 5.75%) but also appeared to signal there would be no further rate increases this year. We are changing our forecast in response, and now think the tightening cycle has come to an …
The Norges Bank eased off the brakes today by leaving policy on hold, but signalled that it will raise its policy rate at the next meeting in March. We suspect that will be the final hike in this tightening cycle, but the risks are skewed towards …
Malaysia’s central bank (BNM) unexpectedly left its main policy rate unchanged today (at 2.75%), but appeared to leave open the possibility of further rate hikes later in the year. However, with growth set to slow and inflationary pressures easing, we …
The powerful re-opening rally in China’s stock market has eroded a large part of the valuation gap that led us to judge that equities there were relatively appealing a couple of months ago. That said, we think there’s still some scope for it to continue …
18th January 2023
The election of left-wing candidate Lula for a third term as Brazil’s president is unlikely to accelerate Petrobras’ sluggish shift towards large scale biofuel production. We expect proposed oil sector reforms to weigh on biofuel demand, while ongoing …
The recent falls in the Egyptian pound pose a threat to Egypt’s fragile public debt dynamics but we think that the government will be able to muddle through. The key risk is that the government shifts fiscal policy in a looser direction, which could …
Movements in REIT pricing provide a good indication of where property capital values are heading. And the latest data are consistent with our expectation that all-property values will see a peak-to-trough fall of around 20% by the end of this year. But …
