Hungary’s central bank (MNB) stepped up the pace of tightening today with a 100bp increase in its base rate, to 4.40%, and the hawkish communications underline the view that the central bank will respond to the deterioration in the inflation outlook with …
22nd March 2022
While the parallels with the 1970s have been building, we remain unlikely to see the scale of stagflation witnessed back then. The main difference now is the apparent determination of central banks to prevent high inflation becoming persistent. There is a …
Just as the supply problems facing euro-zone manufacturers showed tentative signs of easing, the war in Ukraine has created new headwinds. It would not be surprising if industrial output fell in the coming quarters. But rising services demand should mean …
In this Update , we roll out our sovereign debt heat map that provides a snapshot of debt risks across Sub-Saharan Africa. The pandemic has increased debt burdens across the continent and, with elections on the horizon in many places, governments are …
21st March 2022
A close look at banking sector linkages in Central and Eastern Europe provides encouragement that there is little direct exposure to Russia and Ukraine and that any indirect exposure through a Western European parent bank is likely to have minimal …
The Central Bank of Egypt’s (CBE) decision to hike interest rates by 100bp, to 9.25%, and devalue the pound by 10% against the dollar suggests that policymakers have finally woken up to the worsening external position. The move could pave the way for a …
Taiwan new export orders picked up again in February, but we don’t expect this strength to continue as high oil prices start to weigh on consumer spending around the world. Meanwhile, the risks to global supply chains from COVID-related disruption have …
Migration is rebounding much faster after the border reopening than we had anticipated. While that will slow the decline in the unemployment rate, the labour market is already historically tight and inflation is set to surge. The upshot is that the RBA …
We think the war in Ukraine and a more hawkish Fed will cause the yield of 10-year US Treasuries and the US dollar generally to end 2022 and 2023 a bit higher than we had previously anticipated. We now also expect DM equities to be a bit lower by the end …
18th March 2022
The post-meeting speech by Russia’s central bank (CBR) governor Elvira Nabiullina made clear that policymakers think sanctions and autarky are here to stay for the long term. But at the same time, officials at the CBR appear to want to revert back to …
Were Saudi Arabia to accept renminbi for its oil exports to China, it would be a symbolic move but it would also run into a number of economic practicalities, especially given that the Kingdom could quickly accumulate large holdings of renminbi. It may be …
The Bank of Japan kept policy settings unchanged today and signalled that it is more worried about the negative impact of higher commodity prices on activity than about inflation spiralling out of control. Indeed, we expect the Bank to keep policy loose …
Today’s 25bps hike takes interest rates up to the pre-pandemic and post-Global Financial Crisis high of 0.75% and, although the Monetary Policy Committee (MPC) sounded a bit less hawkish than it did at its past meeting in February, it still signalled that …
17th March 2022
We think the Fed’s tightening cycle will lead to the 10-year Treasury yield ending this year and next a bit higher than we had previously anticipated, although we still expect it to rise only gradually. The Fed has started its tightening cycle in a …
While Cyprus’s strong ties to Russia make it is vulnerable to recession, the country’s public finances and banking sector are in better shape than they were before the crisis which took place a decade ago. And any problems in Cyprus are very unlikely to …
The rise in mortgage rates implied by our new higher policy rate forecasts would reduce affordability by 12% over the next year which, in isolation, is not especially alarming when considering that the home sales-to-new listing ratio is still pointing to …
Their net fall since the invasion of Ukraine means the valuations of European equities are now even lower relative to those of US stocks. While valuations have a mixed track record at predicting returns over short periods, they are key to our view that …
Major oil producers are among the main beneficiaries of the rise in commodity prices due to the war in Ukraine. As a result, we’re becoming less concerned about Colombia’s external vulnerabilities. In most other EMs however, external positions are likely …
Taiwan’s central bank (CBC) today unexpectedly raised its main policy rate by 25bps to 1.375%, but we doubt this is the start of an aggressive tightening cycle given the mounting downside risks to growth and the relative weakness of inflation. We had …
Brazil’s central bank slowed the pace of its hiking cycle with a 100bp hike (to 11.75%) yesterday, but the hawkish tone of the statement suggests that Copom is more concerned about the coming jump in fuel inflation than we had thought. As a result, we …
Mortgage rates have been slow to respond to rising market interest rates, with lenders choosing to take a hit to their margins rather than fully offset increased funding costs. But we don’t think there is any more scope for rises in Bank Rate to be …
Bank Indonesia (BI) left interest rates unchanged at 3.5% at its meeting today, and the weakness of inflation and strong performance of the rupiah mean the tightening cycle is likely to be very gradual. The decision came as little surprise and was …
The Fed began its tightening cycle with a 25bp hike today and, despite the uncertainty caused by the war in Ukraine and China's efforts to contain the spread of the Omicron variant, officials look set to hike rates by an additional 25bp at each of the …
16th March 2022
Since the onset of war in Ukraine, we have revised down our forecast for world GDP growth in 2022 from 4.0% to 3.2%. Outside Russia and Ukraine, our biggest downward revisions have been to other economies in emerging Europe and to the euro-zone. There is …
Russia’s banking sector has held up better than might have been expected through the initial stage of the crisis due to large, timely and widespread policy support. But banks will now face the challenge of rising loan losses. While the capital buffers of …
Food inflation in the euro-zone is on the rise and the war in Ukraine will make matters worse. While policymakers might normally “look through” a period of high food inflation, with the headline rate already high there is a risk that rapid increases in …
The current virus wave will deal the biggest blow to China’s service sector since the original outbreak. If the lockdowns already imposed can suppress infections quickly then disruption to industry and construction should be modest. But we expect China’s …
Half of China’s exports are produced in areas that are now experiencing COVID outbreaks and three quarters of its exports are shipped from them. It is still possible that infections can be suppressed without causing widespread disruption to global supply …
Some of the effects of the war on markets have begun to unwind in recent days, but we think a few of the changes it has brought about will last even if the mood in markets continues to improve. While the situation remains volatile, at the time of writing …
The earlier spike in crude oil prices, slump in stock markets and the flattening of the Treasury yield curve have prompted fears that US economy is headed for a 1970s-style stagflation, but our recession tracking models suggest the risk of a downturn …
Central banks in the Gulf will have to follow the US Federal Reserve in raising interest rates by virtue of their dollar pegs, which will weigh on domestic demand and recoveries in non-oil sectors. And higher debt servicing costs could cause concerns in …
The surge in commodity prices brought about by the war in Ukraine will lead to a deterioration in India’s external position, with the current account deficit widening to almost 4% of GDP this year. While not as large as it was during the previous period …
We now expect inflation to reach a 21-year high of 5.2% in Q3 as fuel prices surge and firms pass on higher raw material costs to consumers. With the labour market nearing full employment and inflation expectations picking up, we reiterate our long-held …
Although they have fallen back over the past week, we expect the prices of most commodities to remain elevated relative to their recent past. We will be revising our currency forecasts to reflect these views. Our commodities service s are the best places …
15th March 2022
Chile’s newly-inaugurated President Boric is inheriting a slowing economy which is likely to slip into a recession this year. But his government will still have to push through significant fiscal tightening to repair the public finances and alleviate …
The latest surveys show that the war in Ukraine has severely dented euro-zone investors’ and companies’ perceptions of the outlook. This is consistent with our view that the war will cause a significant hit to economic activity, but for now, we still …
Russia’s government appears to be heading towards a default on its foreign currency debts for the first time since the Bolshevik revolution. This won’t affect the Russian government’s ability to finance itself (beyond what sanctions have already done) and …
14th March 2022
Concerns about inflation in Korea are rising, just as those about financial stability risks are starting to recede. Despite the worsening growth outlook caused by the surge in energy prices and war in Ukraine, we expect the Bank of Korea (BoK) to continue …
Cyprus is by far the most exposed euro-zone economy to the collapse in Russia’s economy and it now looks very likely to fall into recession in the coming quarters. In this Update , we take a look at the economic and financial links between the two …
11th March 2022
If the Russia-Ukraine war escalated, we would expect some of the recent patterns in relative asset market performance to continue to echo those during the 1973-74 oil crisis. That said, we wouldn’t expect US equities to perform as badly as they did then, …
Saudi Arabia has so far resisted pressure from the US to raise oil production in order to dampen prices but, with Russian oil production and exports set to be disrupted, we think that a move in this direction is now more likely than not. While the Kingdom …
Although a gap between euro-zone corporate and peripheral sovereign spreads opened up after the start of the Russia-Ukraine war, it has begun to close recently and we think that it will shrink further . The spreads between the yields of long-dated …
At the start of the Ukraine crisis, we felt the direct property impact would be modest, based on limited Russian ownership and capital flows. But as the conflict extends into a third week, concerns have risen about the macroeconomic impacts of the …
The war in Ukraine and sanctions on Russian oil trade have increased oil prices by as much as 40% so far this year, but we don’t think higher energy costs will derail the US stock market as they might have at times in the past. Oil prices have surged in …
Even if the West bans crude imports from Russia entirely, the Iranian experience suggests that there will still be ways for Russia to get its oil onto global markets. But any workarounds would take time to translate into a pick-up in exports, and at best …
The high cost of energy will continue to support metals prices due to the energy-intensive nature of metal refining. If energy prices continue to climb and power rationing is introduced, we expect metal refiners to be forced to cut production, choking …
Russia’s oil production is set to decline over the course of this year under the weight of Western sanctions, but the scale of the decline will depend on the extent of the sanctions. In this Update , we weigh up how a complete Western ban on imports of …
10th March 2022
We estimate that the impact of higher fuel, food and potentially goods prices triggered by the war in Ukraine will add roughly 1.0%-pt to headline inflation rates across major Latin American economies this year. One key lesson from the past year is that …
In today’s monetary policy statement, the ECB said the Russian invasion of Ukraine was a watershed moment for Europe, but it concluded that it does not require a big change in monetary policy. Indeed, the Bank announced an acceleration in the pace at …
The surge in commodity prices means that, after ending last year in deficit, the current account is set to move into a surplus of around 1.5% of GDP in the first half of this year. The fourth-quarter current account data, released last week, revealed a …
