Ukrainian refugees have boosted labour forces and consumer spending across Central and Eastern Europe (CEE) since the outbreak of the war, but this could prove short-lived if the conflict remains concentrated in Eastern Ukraine and more refugees return …
30th June 2022
Reports that the Saudi Central Bank (SAMA) has injected liquidity into the banking sector appears to be a consequence of a lack of FX intervention (despite high oil prices), tight fiscal policy and strong credit growth. SAMA appears keen to sustain robust …
As expected, this morning’s 50bp interest rate hike by the Riksbank, to +0.75% saw it join the ranks of the “50bp club”. But while policymakers resisted the urge to join “Club Fed” with a 75bp hike today, they indicated that they will front-load the pace …
While the current rise in inflation to near double-digit rates is clearly undesirable, it begs the question of at what point the costs of sustained higher inflation outweigh the benefits. We think that the tipping point is around 5%. This suggests that it …
There has been little sign that price pressures have eased yet, but the survey evidence suggests that supply shortages continue to improve. That reinforces our view that core goods inflation will fall over the second half of the year. The recent weakness …
29th June 2022
Clear signs of a slowdown, but no recession While our models suggest that recession risks are still low, the Fed’s rapid policy tightening will trigger a marked slowdown in economic growth, which means that the risks are likely to build over the coming …
Wage growth is a possible source of the “more persistent inflationary pressures” that the Bank of England has said would prompt it to act “forcefully” when raising interest rates. This Update highlights where to look for the early signs of either a …
Economic growth in Vietnam accelerated in the second quarter of the year, thanks mainly to a reopening boost and continued strong export demand. We expect the recovery to continue over the coming months, but with inflationary pressures relatively low, we …
High inflation in the euro-zone isn’t all down to energy prices and global demand-supply imbalances. Domestic price pressures are also very strong, bolstering the case for tighter monetary policy. Amid the external shocks hitting the euro-zone, the …
28th June 2022
The G7 proposal to impose a cap on the price of Russian oil and gas would introduce new supply-side risks by potentially disrupting Russian energy supplies. This could push global energy prices up further, but for now we still see Brent crude prices …
Aggregate EM food inflation has risen to its highest rate since 2008 and, while it should fall back in 2023, it’s likely to stay extremely high for at least the next four-to-six months. That will keep consumer spending under pressure and provide another …
Hungary’s central bank (MNB) stepped up the pace of tightening today with a much larger-than-expected 185bp increase in its base rate, to 7.75%, and the hawkish communications underline the view that further large rate hikes are likely to be delivered …
We think that rising oil production and high global energy prices will result in rapid GDP growth this year and next across the Gulf economies. Growth is likely to be well above consensus expectations . It goes without saying that hydrocarbon sectors are …
After reaching a record-high in June, we think that inflation in builders’ costs will soon start to ease. But even as cost pressures subside, construction volumes will slump as the housing market slows. Construction volumes strengthened in the first half …
Recent developments have further increased the chance that there is a complete end to Russian exports of gas to Germany. If this occurred, it would lead to a substantial fall in manufacturing output and make a recession – which we already think is likely …
We doubt that aggressive policy tightening by developed market (DM) central banks will be followed by a series of financial crises in major emerging market (EM) economies in the way that it has at times in the past. Even so, we still suspect that global …
27th June 2022
Russia’s government has now reportedly defaulted on its foreign-currency denominated debt for the first time since 1918, but this is a largely symbolic event that is unlikely to have an additional macroeconomic impact. Sanctions have already done the …
We think the prices of agricultural commodities will fall back in the coming months, but most will remain historically high owing to tight supply, concerns about future supply and high energy prices. Consumer food price inflation has been soaring in …
24th June 2022
Indicators that include a recently released investor sentiment survey and a sharp fall in REIT prices since the start of the year support our updated view that capital values will go into reverse in H2. In total, our latest forecasts call for a 6%-8% …
Measures of housing market activity and prices tend to follow a predictable sequence in downturns. In this Update we highlight the key US and UK variables that clients should follow to track the housing downturn and identify turning points. With most …
We held a Drop-In on Wednesday to discuss what the evolving outlook for monetary policy and global growth means for our markets forecasts. This Update recaps the key questions we addressed in the Drop-In and answers several of the questions that we …
With the outlook for the global economy worsening further and the Fed still on the war path, we have revised down our forecasts for many G10 “high-beta” currencies and several EM currencies . The US dollar has appreciated almost across the board this …
It is still too early to assess the lasting impact of the pandemic on productivity in developed economies. But we remain optimistic that the legacy could be a positive one. Productivity growth, in terms of output per worker, has swung about over the past …
Student enrolment remained robust during the last couple of years and is likely to continue growing strongly over the next decade. But supply of purpose-built beds has grown less rapidly and the pipeline points to a continued lag against demand. This …
A handful of EM central banks have ramped up FX sales to provide support to weakening currencies over the past couple of months. And with inflation high and the US dollar likely to strengthen further, others could follow suit. FX intervention is unlikely …
The Mexican central bank’s shift to a 75bp interest rate hike yesterday (to 7.75%) and the hawkish language in the accompanying statement make another 75bp move at the next meeting in August a done deal. And the risks to our end-2022 interest rate …
The latest Brazilian central bank communications give a strong signal that, when Copom stops hiking interest rates, it will act in a similar way to the end of the last tightening cycle in 2015. The lesson from that period is that rates will be kept high …
23rd June 2022
Having held up better than much of the data in recent months, the S&P Global PMIs have finally taken a considerable leg-down in the US and euro-zone. While the PMIs are still consistent with economic expansion rather than recession in Q2, they nonetheless …
Whilst OPEC+ has been failing to meet its production quotas in recent months, it will technically finish unwinding its pandemic-related supply cuts come September. We think OPEC+ will then move to a more liberal approach and allow the few members with …
The prospect of weaker economic growth has reduced the appeal of US banks’ equities, even though they may yet benefit from a renewed rise in long-dated Treasury yields and still appear relatively undervalued. In a Focus published last November, we argued …
High inflation, falls in the lira and aggressive monetary tightening elsewhere are clearly not enough to persuade Turkey’s central bank to lift interest rates, as it left its policy rate at 14.00% today. Disorderly falls in the lira are a major risk, …
Although it has fallen back a little recently, we continue to think the greenback will appreciate further against most currencies as global economic growth disappoints. In our view, “safe-haven” demand has been a key driver of the latest strength in the …
Bank Indonesia (BI) left interest rates unchanged again today, and the relative weakness of inflation means any tightening cycle is unlikely to be aggressive. We are maintaining our view the central bank will raise interest rates by just 25bps this year. …
This morning’s decision by the Norges Bank to raise its key policy rate by 50bps, to 1.25%, was in line with our non-consensus forecast. Also, as we predicted, the Bank all but confirmed that it will break with tradition and raise rates at the “interim” …
The central bank in the Philippines today raised its policy rate by another 25bp (to 2.5%), and signalled that further tightening was likely. However, with inflation set to peak soon and headwinds to the recovery mounting, we think the tightening cycle …
There is still scope for an improvement in labour supply in the US, UK and euro-zone, which might over time alleviate some of the tightness in their labour markets. But it could yet take a long time to materialise. Unemployment rates are now back at, or …
The minutes of the MPC’s June meeting – in which the repo rate was hiked by 50bps to 4.90% – show that combatting inflation remains the priority and suggest that tightening will continue to be frontloaded. The MPC voted unanimously to raise the repo rate …
22nd June 2022
We now think that the yields of 10-year developed market (DM) government bonds will peak earlier and, in some cases, at higher levels than we previously expected. That reflects a view that tightening cycles in many DMs will be more front-loaded and …
Inflation in South Africa has been close to the top of the central bank’s target range in recent months, but the country has avoided the surge in inflation seen across much of the world. And there are reasons to think that the headline rate will drop back …
21st June 2022
A threatened strike at Chile’s copper giant, Codelco, could knock as much as 0.3%-pts off quarterly GDP growth for every week that workers are on strike and worsen the country’s balance of payments strains. What’s more, it may not even be enough to give a …
By cutting GDP growth by about 0.3-0.4 percentage points (ppts) in Q2 and raising GDP growth by a similar amount in Q3, the impact of the extra bank holiday to mark the Queen’s Platinum Jubilee will all come out in the wash in the end. But it will add …
We suspect that the main reason for the hasty withdrawal of the Financial Policy Committee’s mortgage affordability test is that it was on course to become a severe constraint on many buyers’ financial firepower. If left in place, it could have led to a …
20th June 2022
We have previously argued that a mortgage rate of above 6% represents the threshold at which house price falls become likely. With rates recently rising above that level, we are therefore revising down our house price forecast. That said, the prevalence …
We think that stock markets in the emerging world will continue to struggle alongside their developed market (DM) peers over the next eighteen months or so, for four main reasons. The MSCI Emerging Markets (EM) Index has also struggled during the renewed …
Central and Eastern European economies are experiencing their worst bout of inflation since the late-1990s as surging food and energy prices have added to strong core price pressures across a broad range of goods and services. Monetary tightening cycles …
Egypt’s public debt dynamics look increasingly fragile due to a combination of the extremely short average maturity of its debt, rapidly rising yields, and a growing share of debt denominated in foreign currency. That said, for now, there are reasons to …
Left-wing Gustavo Petro’s win in the second round of Colombia’s presidential election is likely to spook investors and trigger a sell-off in the country’s financial markets. We suspect that Petro will still pursue moderate fiscal austerity, but not enough …
French President Emmanuel Macron faces five difficult years after losing his absolute majority in parliament. Proposed reforms, including to pensions and benefits, will be diluted if they happen at all, and the result suggests that the “extreme” parties …
The best way for the ECB to contain peripheral bond spreads would be via a new programme of unlimited, flexible bond purchases. This may be what happens eventually, but we suspect it will take longer than many anticipate to agree, meaning there is plenty …
17th June 2022
After a more severe downturn in 2020, Manchester office rental growth has caught up with other regional cities in recent quarters. While employment growth and occupier activity may remain fairly weak, tight new supply dynamics should see Manchester office …
