It is highly likely that the war in Ukraine will accelerate Russia’s shift towards isolation and into autarky. (See here .) This will prevent Russia from catching up with more advanced economies, while the West will face some difficult choices as higher …
10th March 2022
There has been some discussion of possible FX intervention by the ECB to support the euro, but there is next to no chance of that being announced at today’s press conference, and unless the single currency falls much further we think likely the Bank will …
The latest surge in global commodity prices has intensified the dilemma facing the world’s major central banks: on the one hand it will push headline inflation (and inflation expectations) even higher, but on the other there’s little monetary policy can …
The South East jobs market turned a corner during the second half of 2021. But while occupier activity has picked up, vacancy has also risen. As a result of this, and the effects of economic headwinds and remote working, we only expect to see modest …
Yoon Suk-yeol’s victory in yesterday’s presidential election should lead to a shift away from the bigger and more active state that began under President Moon. But the lack of a parliamentary majority means he will struggle to pass large parts of his …
Surging commodity prices have led us to substantially increase our forecasts for consumer price inflation, but the negative impact of higher prices on household purchasing power, and therefore real consumption, should be more than offset by stronger …
9th March 2022
The EU is considering more joint bond issuance, reportedly of around €200bn or 1.4% of EU GDP. If this is agreed, the devil will be in the detail and the amounts involved may fall short of some expectations. But it could cover much of the additional …
The recent spike in energy prices will lift import prices in Japan by around 10%, but the increase would be twice as large if Russian energy exports were banned. Japan’s flagship manufacturing sectors have sufficient pricing power to pass on those cost …
Both job openings and quits have fallen back slightly over the past several months, which suggests that wage growth and underlying inflationary pressures should soon stabilise . (See Chart 1.) The Job Openings and Labour Turnover survey (JOLTs) for …
The US stock market has so far held up fairly well despite the Russia-Ukraine war. We think it will probably manage to make small gains over the rest of the year, although there are clear downside risks. The Russia-Ukraine war has sent tremors through …
While the plan to reduce Europe’s reliance on Russian gas this year seems achievable, it will only lock in higher-for-longer gas prices and prolong the squeeze on household incomes. The centrepiece of the European Commission’s “REPowerEU” package, …
The growing list of countries imposing restrictions on Russia’s energy exports has raised the likelihood of a deeper contraction in Russia’s economy this year and a wave of corporate defaults. This Update provides a primer on the composition of …
While we don’t think that 2021’s strong pace of prime office rental growth in Amsterdam will be sustained, we still expect growth to outperform the euro-zone over the next couple of years, averaging around 3% a year. Prime office rents in Amsterdam …
The rest of the world’s direct financial exposure to Russia has fallen in recent years and, in aggregate, is now small. This limits the risk of financial contagion from the collapse in Russia’s economy that is underway. If financial contagion does spread …
The surge in gasoline prices in recent days will only add to the drag on households purchasing power from fading stimulus and higher inflation over recent months. But with consumers able to cushion the blow in the near term by reducing their saving, we …
8th March 2022
The war in Ukraine has triggered renewed outflows from EM financial markets as risk aversion has taken hold, but there are few signs of severe financial contagion. And even if outflows were to intensify over the coming months, the macroeconomic fallout in …
The war in Ukraine has challenged our view that US equities will underperform those in other developed markets (DMs) over the next few years. We are not yet ready to abandon this view while the outlook is still so uncertain. But if real Treasury yields …
The National Bank of Poland (NBP) stepped up the pace of tightening today with a 75bp interest rate hike, to 3.50%, and the marked deterioration in the inflation outlook due to the war in Ukraine is likely to mean that rates rise much further in the …
After a small hit to activity earlier in the year on the back of the Omicron wave, Saudi Arabia’s economic recovery appears to have strengthened more recently. The Kingdom is not overly exposed directly to the war in Ukraine, but the possibility of a …
Argentina’s government reached a fresh IMF deal which, assuming it passes through Congress, will lead to a gradual shift towards more market-friendly policies. However, many of the economic assumptions underpinning the agreement seem overly optimistic and …
The State Bank of Pakistan (SBP) today left interest rates on hold at 9.75%, but the surge in oil prices mean it is likely to resume its tightening cycle soon. The consensus ahead of today’s meeting was split. Of the 46 analysts polled by Bloomberg, 21 …
In response to the news that the US is considering banning imports of Russian oil, which means that commodity prices will probably be higher for longer, we have raised our CPI inflation forecast and will soon cut our UK GDP growth forecast. To reflect the …
7th March 2022
We think that a complete ban on Russian energy imports would cause the prices of Brent crude oil and European natural gas to surge to $160pb and €300/MWh in the near term and settle at still very high levels into next year. The Russian economy would …
The 10-year/2-year gilt yield curve is closer to inverting than at any point since March 2020, supporting our view that GDP growth will slow this year. And while a yield curve inversion isn’t a good leading indicator of a recession in the UK, it’s clear …
The latest trade data show that China’s energy imports contracted in the first two months of the year in y/y terms. And even if the West were to cut off Russian energy imports altogether, we doubt that China would ramp up its imports of energy from Russia …
This Update discusses three ways in which the outbreak of war in Ukraine has called into question our asset allocation views. While the situation is fluid and the outlook especially uncertain, it also provides our initial thoughts on how things might play …
4th March 2022
The onset of other major conflicts and military-related crises have often seen global equity indices tumble, while moves in developed market government bond yields have depended on how energy prices and central banks responded. This suggests to us that …
The constraints on Russian supply will work in tandem with an improving demand-side picture from auto production to keep palladium prices elevated. As a result, we have revised up our price forecasts . Palladium prices have rocketed by almost 51% since …
With inflation surging, the currency coming under downward pressure and the country on the verge of a sovereign default, today’s 100bp rate hike in Sri Lanka won’t be the last in the current cycle. We have long said that the Central Bank of Sri Lanka …
This Update forms part of a set of publications that extend our existing office and apartment market analysis beyond the six major metros. This month we will be publishing our new, expanded metro forecasts for the office and apartment sectors, which will …
3rd March 2022
The Russia-Ukraine crisis has already pushed up global wheat prices and Egypt is particularly vulnerable due to its high dependency on imports from both countries. This could lead to a small widening of Egypt’s current account deficit, but – with …
The EU’s decision to suspend its debt reduction rule for another year gives countries the green light to ramp up spending on defence and cushion the blow from higher energy prices. Depending on how long the conflict lasts, and how severe the side effects, …
The recent surge in oil prices means that Colombia’s twin current account and budget deficits are unlikely to be a major concern over the next couple of quarters. However, it will still require a sustained fiscal squeeze to prevent the public debt-to-GDP …
The rise in commodity prices caused by the war in Ukraine will push up EM inflation and there are further upside risks from weakening currencies and potential supply chain disruptions. In terms of the policy response, central banks that are focused on …
While supply-chain links between the EU and Russia and Ukraine are small, shortages of seemingly obscure inputs can cause significant disruption, and add to price pressures, if alternatives cannot be sourced quickly. Aside from the most energy-intensive …
The sharp downturn in consumer confidence in February showed that the cost of living crisis was starting to bite even before the war in Ukraine began. But despite the worrying correlation between house prices and sentiment, our base case remains that …
Bank Negara Malaysia (BNM) today left its main policy rate on hold and the dovish tone of its statement supports our non-consensus view that rates will remain on hold throughout 2022. We think the market and consensus are wrong to expect hikes this year. …
While the war in Ukraine may well push down the yields of long-dated developed market (DM) government bonds further in the near term, we think that a sustained rally in bonds is unlikely unless the war causes a sharp fall in output in major DMs, which, …
2nd March 2022
While gilt yields could drop further if the war in Ukraine escalates much further and/or it becomes clear that it is significantly reducing economic activity in the UK, at the moment we think gilt yields are more likely to rise over the next two years. …
Higher commodity prices and stronger immigration from Ukraine are potential benefits for Canada’s economy from the war in Ukraine, but there is a risk that near-term real GDP growth disappoints due to higher inflation. Canada’s trade links with Russia and …
Chair (pro tempore) Jerome Powell indicated in his congressional testimony today that, with Russia's attacks on Ukraine roiling markets and creating additional uncertainty, he was inclined to support a 25bp hike later this month and that the Fed should …
The Bank of Canada’s decision to raise interest rates by 25bp today was widely expected and the statement supports our view that it will follow up with another hike next month, but there was little indication that the Bank intends to start quantitative …
As Russia becomes increasingly isolated, it will lean more heavily on China as a trading partner. That will present some opportunities for Chinese firms to take market-share from western suppliers and to purchase energy at a discount. But any such gains …
The financial sanctions that have been imposed on Russia by the West put significant practical constraints on China’s dealings with Russia even where they don’t restrict them directly. There is little that China could do, if it wanted to, to soften their …
One immediate effect of the war in Ukraine will be to push Russia several places down the league table of the world’s largest economies. However, the impact on the global economy over the long run will depend to a large extent on its political and …
As fears over Russian oil supply mount, negotiations between Iran and world powers on reviving the Iran nuclear deal have been advancing in Vienna. If the nuclear deal is revived, we think there will be an immediate increase in Iranian supply, but fears …
Russia has already suspended the transfer of coupon payments on local-law sovereign debt to foreign investors, and the likelihood that the government and companies are unable or unwilling to make external debt repayments (besides those already affected) …
The spread of Russian interbank interest rates over the central bank’s policy rate – which was hiked aggressively on Monday – has widened pointing to some stress in the banking sector. But for now it is far from the levels recorded during 2008/09 and …
The EU would have a number of options to help compensate if Russian gas supplies were to be turned off, but in practice we suspect that some degree of power rationing would be needed. Past episodes of energy rationing were not as damaging as one might …
1st March 2022
February's manufacturing PMIs point to decent industrial growth last month and support our view that the impact from Omicron waves on EM industry will be limited. However, the surveys suggest that supply chains remain stretched. And looking ahead, the war …
