We expect a recession in 2022/23 to be driven by high inflation, with a contraction in real consumer spending at its epicentre. But with household and corporate balance sheets still relatively healthy, we suspect the recession will be mild by historical …
11th August 2022
The rise in new delinquencies on consumer loans over the first half of the year mostly reflects rising interest costs. With debt levels low, real incomes on track to begin rising again amid a drop back in inflation and the labour market holding up well, …
10th August 2022
We held a Drop In yesterday outlining our latest forecasts for global financial markets. This Update answers some questions that we received during that Drop In but didn’t have time to address. What would have to go right for bond and equity markets to be …
Capital outflows from EMs have eased over the past month, helping to stabilise local asset prices. But we think outflows will pick up again before long. That’s a threat to those EMs whose current account deficits have widened or are widening sharply, …
With most workers who left during the pandemic mostly returned to the labour force by early 2022, it is little surprise that growth of the labour force has slowed. But the decline in the participation rate over recent months also appears to reflect some …
EU funds will provide a key boost to economies in Central and Eastern Europe (CEE) in the coming years as the region navigates a challenging macro environment and slowing global growth. Disputes with the European Commission over the rule of law in Hungary …
Deteriorating global economic growth over the coming quarters will weigh on industrial demand for cotton, natural rubber and lumber. That said, high oil prices will offer some support to cotton and natural rubber prices, and our expectation for rate cuts …
The fall in the Rhine’s water level is a small problem for German industry compared to the gas crisis, or indeed the recent shortage of semiconductors. But if it persists until December it could subtract 0.2ppts from GDP in Q3 and Q4 and add a touch to …
Pandemic-accelerated migration patterns were already driving outperformance in the southern states. But they have also brought the poor performance of weaker markets to the fore. With those structural changes likely to continue to play out over the next …
Ethiopia has been grappling with the fallout from its internal conflict and severe drought which, coming alongside spillovers from the war in Ukraine, will result in much weaker growth in the coming years and a sovereign debt restructuring is likely. Over …
The Bank of Thailand hiked interest rates today by 25bp (to 0.75%), but reiterated that the tightening cycle will be gradual. We are sticking with our view that the policy rate will peak at 1.5% next year. Today’s decision came as no surprise and was …
The extent to which neighbouring countries would be affected by an escalation of tensions between China and Taiwan would depend both on which sides they take and on the nature of restrictions imposed by the West and China. ASEAN countries are most reliant …
The 2.5% slump in productivity over the past year – the worst since records began in 1948 – is another illustration of the chasm that has opened up between the GDP and employment figures. The only plausible explanation to our minds is that one or both of …
9th August 2022
The sharp increase in retirements this year presents downside risks to our forecasts for employment and, with GDP growth already faltering, further raises the probability that economic activity will contract. The fall in employment over June and July is …
A rise in Bank Rate to a peak of 3.00% wouldn’t dent real consumer spending anywhere near as much as the drag from surging inflation over the coming quarters. That said, it would only compound the downward impact on spending, which reinforces our view …
Comparatively strong demand from flexible offices has helped the CEE occupier recovery from the pandemic. But a more limited flex pipeline this year means it is not likely to provide much offset to the weakening employment prospects in the region. A …
With Russia tightening its squeeze on supply of gas to Europe, governments are turning their attention to other major gas exporters such as Qatar to try to fill the gap. But Qatar’s gas sector is already operating close to capacity and, while the North …
Although the spreads of many “risky” bonds have risen significantly this year, some aren’t currently at levels that have typically been followed by substantial future outperformance of their “safe” counterparts. Credit spreads have generally increased on …
Taiwan matters far more to the world economy than its 1% share of global GDP would indicate. A further escalation in cross-strait tensions that cut Taiwan’s export off from the rest of the world would lead to renewed shortages in the automotive and …
8th August 2022
The Inflation Reduction Act passed by the Senate over the weekend will, despite its name, do little to rein in inflation, but the climate provisions will make a meaningful difference in efforts to reduce GHG emissions. The bill represents a cumulative …
While DM central banks are currently raising interest rates in earnest, the past week has brought signs that tightening cycles are now nearing an end in parts of the emerging world. Indeed, with interest rates now well above neutral in much of Emerging …
Commodity import volumes remained lacklustre in July , consistent with subdued activity in heavy industry and construction. We think import growth should tick up in the coming months in response to higher infrastructure spending and a modest pick-up in …
Concerns about the demand outlook have dragged the Brent crude oil price towards $90 per barrel this week. But, the supply-side concerns which pushed the price over $120 per barrel not too long ago haven’t entirely vanished. Indeed, following the OPEC+ …
5th August 2022
The odds are stacking up against first-time buyers (FTBs), an important demographic for homeownership. A very limited number of starter homes on the market, higher interest rates, tight credit conditions and a weak outlook for new home sales all point to …
Kenya’s general election scheduled for Tuesday is set against a challenging economic backdrop, and no matter the winner, the country’s outlook is likely to remain overshadowed by large macroeconomic imbalances and high public debt risks. Kenya is heading …
While China-Taiwan tensions haven’t yet caused ructions in global financial markets, any escalation that threatened to disrupt trade and/or financial flows almost certainly would. This Update explores the potential ramifications of such an event across …
The appointment of Sergio Massa as head of Argentina’s newly-created economic “superministry” provides some hope that the government will try to stick to its latest IMF deal. But it will be a major challenge to meet the Fund’s targets. And even if …
German prime office yields jumped in Q2 amid early signs that the weakening economic outlook is weighing heavily on the office market. And while there were strong rental gains in the first half of the year, we think growth will slow as economic headwinds …
The RBI today raised the repo rate by 50bps to 5.40% as we had anticipated, and struck a relatively hawkish tone despite inflation surprising to the downside in recent months. It’s clear that the tightening cycle still has legs and we expect another …
There is scope for inventory building to boost GDP growth in the near term but, as the US experience has recently demonstrated, this could raise the risk of GDP falling in the following quarters. Inventories are still unusually lean and would need to rise …
4th August 2022
The Czech National Bank (CNB) became the first major EM central bank to end its tightening cycle after it left its policy rate on hold at 7.00% today. The communications were not as dovish as we had expected, but the new-look MPC is clearly less inclined …
While raising interest rates by 50 basis points (bps) today, from 1.25% to 1.75%, the Monetary Policy Committee (MPC) suggested that rates will probably have to rise further to knock on the head the recent rises in price/wage expectations, but that a …
The statement to yesterday’s Brazilian central bank meeting, at which the Selic rate was hiked by 50bp to 13.75%, made clear that Copom is more confident that inflation will fall back and also more concerned about the slowing economy. We remain of the …
The trade sanctions introduced by China on Taiwan in retaliation for the visit of Nancy Pelosi are small in scope rather than serious efforts to force Taipei to shift course. China is constrained in the economic pressure it can exert unless it is willing …
3rd August 2022
Having fallen sharply in Q2, we think that the gold price is now close to a cyclical trough. What’s more, the price should revive a little in 2023 as markets factor in the prospect of US monetary tightening . We always expected the price of gold to fall …
Western sanctions have caused activity in certain sectors of Russia’s economy to collapse, but activity has held up reasonably well in key areas such as oil production and less import-dependent manufacturing. What’s clear, though, is that the full effect …
The sharper fall in job openings in June signals that labour demand is now beginning to ease more markedly, but with the quits rate little changed and no signs of a pick-up in layoffs, labour market conditions remain extremely tight . (See Chart 1.) …
2nd August 2022
While encouraging for the property risk premium, better transparency across Europe is unlikely to provide much support for property yields given the deterioration in the economic and interest rate environment. This is even the case for Emerging European …
As the cost-of-living crisis bites consumers will be forced to cut back on discretionary spending, with the leisure sector set to suffer as a result. At the same time, operators are facing shortages of labour and rising costs. We have therefore cut our …
Consumer price inflation in Korea increased to a new 24-year high last month, but we think it has now peaked. With headwinds to the economy mounting, we believe that the central bank’s tightening cycle will come to a finish before the end of the year. …
The Reserve Bank of Australia revised up its inflation forecasts sharply when it lifted the cash rate by 50bp today and we expect it to hike rates more aggressively over coming months than most anticipate. However, we expect the Bank to start cutting …
July’s fall in the global manufacturing PMI supported other evidence that the industrial sector is in or close to recession and the forward-looking indicators point to further weakness to come. At least the weakness of demand has caused backlogs of work …
1st August 2022
The drop in the S&P Global EM manufacturing PMI last month suggests that a fading re-opening boost in China and weak global demand have caused industry to slow. And in parts of Eastern Europe, the surveys point to sharp falls in output. The one crumb of …
The composition of spending changes as consumers age, with a greater proportion allocated to healthcare, food and drink, and less to education, transport and recreation. The experience of countries that have already aged significantly, such as Japan, …
We continue to expect the yields of 10-year emerging market (EM) local currency (LC) sovereign bonds to rise over the rest of 2022. But we anticipate smaller rises than we did previously, given our downward revisions to our Treasury yield forecast, and …
Spillovers from the war in Ukraine have caused Egypt’s large current account deficit to widen this year and, with the country struggling to attract stable forms of external financing, officials will need to stick to their shift to a flexible exchange rate …
China’s PMIs fell in July, weighed down by soft export orders. However, we think that China’s economy troughed in H1 2022, and that a modest pick-up in H2 should give some support to commodities prices . China’s official and Caixin manufacturing PMIs …
The rapid headline 11.8% y/y GDP growth recorded in Saudi Arabia in Q2 masked underlying weakness in non-oil sectors of the economy. Even so, Saudi Arabia is a relative bright spot in the global economy and the data cement our long-held view that the …
The current surge in homes under construction has few parallels with the building boom that preceded the house price crash in the late 2000s. The build-up of homes under construction has largely been caused by delays in sourcing materials and labour, …
29th July 2022
We still expect a higher 10-year Treasury yield, lower S&P 500 and stronger US dollar over the remainder of the year, but have pared back our forecasts for the rise in yields and fall in equities. In particular, we now suspect the 10-year yield is …
