The extra financial support for households announced by the Chancellor today will help millions of households cope better with the cost of living crisis. But it won’t relieve all the pain and may mean the Bank of England has to pull the interest rate …
26th May 2022
The risks of a recession in the euro-zone have risen. While we think a contraction will be narrowly avoided, this will remain a concern for property investors already facing the prospect of higher yields in the near term. Our recent European Economics …
We don’t expect long-term inflation compensation to continue to tumble, and think long-term government bond yields will bounce back before long . After increasing significantly over the past year or so, long-term inflation compensation has fallen quite …
With inflationary pressures remaining intense and policymakers keen to get the deposit rate out of negative territory, we now think the ECB is most likely to raise rates by 50bp in July and by 125bp in total this year. That said, we still think the …
The consensus among professional forecasters is that house price growth will slow but remain positive over the coming years, as a robust jobs market prevents forced sales. But even in the absence of financial distress, we think that a decline in prices is …
Despite the backdrop of inflation at 70% and the lira falling by falling by 10% against the dollar this month, Turkey’s central bank left interest rates on hold at 14.00% today. So long as President Erdogan is in power, rate hikes will remain off the …
The decision by the Bank of Korea (BoK) to hike its policy rate by 25bps, to 1.75%, is likely to be followed by more hikes to tackle elevated inflation. But the Bank is set to turn more dovish further ahead. Today’s unanimous move was no surprise, with …
The rapid rebuilding of inventories over the past few quarters has left it close to normal levels in some sectors. But the bigger picture is that economy-wide inventories are still exceptionally lean, suggesting that price pressures will ease only …
25th May 2022
Recession risk remains low For all the fears that the tightening of financial conditions over the past few months will push the economy into recession, our composite model still puts the risks over the next 12 months at close to zero, principally because …
The outsize role of agriculture in Sub-Saharan African economies and the tendency to rely on imported food products makes the region particularly vulnerable to the agricultural shock caused by the war in Ukraine. In addition to the risk of food shortages, …
Exports from Central and Eastern Europe (CEE) face growing headwinds, and this feeds into our below consensus view on economic growth in the region. The larger economies in CEE such as Poland and Hungary are particularly exposed to slower growth in the …
Rental growth in NYC reached 22% y/y in Q1 2022, one of the fastest rates in the country. But we expect growth to cool rapidly from here and underperform other cities. The past surge in rents largely reflects a reversal of large falls in 2020, which …
Recent falls in equity prices have not prompted downgrades to our global growth forecasts since the passthrough to the real economy is limited and part of the bad news has already been factored in to consumer confidence. But the correction will contribute …
The RBNZ sounded hawkish when it hiked rates by 50bp today, and we now think rates will rise to 3.5% by the end of this year. But the Bank endorsed our long-held non-consensus view that rate cuts will be required in the years ahead. We think the Bank will …
We held a Drop-In today to discuss our views on the ECB and what the chances are of a further hawkish surprise in the coming weeks. (You can see an on-demand recording here .) This Update answers several of the questions that we received, some of which we …
24th May 2022
The flash PMIs for May suggest that activity slowed in most DMs compared to April, and weaker growth in new orders points to a further slowdown to come. There were some positive developments on the supply front, given further evidence that shortages eased …
The Central Bank of Nigeria (CBN) delivered a surprise 150bp interest rate hike, to 13.00%, today amid mounting inflation and balance of payments concerns. We expect rates to be raised by another 100bp, to 14.00%, in July but further tightening seems …
We estimate that euro-zone households’ debt interest payments will quadruple as a share of income over the next couple of years as the ECB raises its policy rate. This will put yet further strain on households which are already struggling with higher …
The State Council has announced support measures totalling 1.7% of GDP. Most of this comprises incentives for banks to lend to struggling firms, rather than fiscal stimulus. The People’s Bank has also made a call for “all-out” efforts to boost lending, so …
Although Treasury yields have dropped back in recent weeks amid signs that inflation has peaked, we don’t think it makes sense to extend duration. Of course, the longer a bond’s remaining life, the greater the sensitivity of its price to a change in its …
Bank Indonesia (BI) left interest rates unchanged today and the dovish tone from the press conference suggests the central bank is in no rush to tighten policy. We are maintaining our view the central bank will raise interest rates by just 25bps this …
House prices are starting to fall across Australia earlier than we had anticipated. While we still expect the RBA to hike rates until early-2023, the experience from previous housing downturns points to an earlier end to the current tightening cycle. …
The recent tightening of export restrictions has been limiting the supply of staple agricultural commodities available to global markets and pushing up prices. In light of the ban on wheat exports from India, we’ve raised our forecast for the price of …
23rd May 2022
In this Update , we answer a number of key questions on Russia’s public finances, including the likelihood of a sovereign default, the impact of higher energy prices and the collapse of the economy on the budget position, and how the government would be …
High inflation and the fall in the currency were the two key factors behind the State Bank of Pakistan’s (SBP) decision to raise interest rates by a further 150bp today. More tightening looks inevitable, and much will depend on whether the government can …
The Bank of Israel (BOI) hiked its policy by a larger-than-expected 40bp today, to 0.75%, and the backdrop of a strong economy, tight labour market and mounting inflation pressures means that we think it will deliver further hikes at its upcoming …
Measures unveiled by Finance Minister Nirmala Sitharaman over the weekend including a cut to excise duties on petrol and ramping up of fertiliser subsidies should offer a small reprieve to households dealing with the sharp rise in fuel and food prices. …
The PMI surveys gave an overly optimistic steer of GDP growth in advanced economies in Q1. This partly reflected volatility in imports and inventories and the effects of COVID restrictions, all of which should fade from now on allowing the PMIs to give a …
A Labor government will probably keep fiscal policy looser than the previous Coalition government, putting more pressure on the RBA to hike interest rates. But while a Labor government will make greater efforts to decarbonise the economy, the bulk of …
The cost of living squeeze will push net energy importers including the euro-zone and UK close to, or into, recession. While this will have some disinflationary effects in the medium-term, we doubt that it will bring inflation down on its own. So central …
20th May 2022
While the government’s Budget was focused on equipping households to withstand surging living costs, by adding to demand we think it will cause inflation to be higher over the next year. That’s all the more reason for the RBNZ to continue hiking rates …
History suggests that the surge in energy prices over the past year means there is a good chance that the euro-zone will suffer a recession in 2022. It also suggests that it will be tricky for the ECB to tighten monetary policy without causing a recession …
Today’s reduction to the five-year Loan Prime Rate (LPR) should help drive a revival in housing sales, which have gone from bad to worse recently. But the lack of any reduction to the one-year LPR suggests that the PBOC is trying to keep easing targeted …
The surge in mortgage rates has led to a sharp deterioration in home affordability. But that doesn’t mean the mortgage debt service ratio, the share of disposable income spent on mortgage payments, will also surge from its current low level. Existing …
19th May 2022
Policymakers in South Africa upped the pace of tightening today, raising the repo rate by 50bp to 4.75%, as concerns about inflation (and inflation expectations in particular) have grown. We don’t think that the hawks will have their way for long though …
Record high rental growth at the start of the year is likely to mark a peak given signs that tenant demand is starting to ease. But strong wage growth and the rising cost of buying as mortgage rates rise mean rental growth is set to ease rather than …
The account of the ECB’s April meeting shows that a lot of policymakers thought the criteria for rate hikes had already been met. Since then, the case for rate hikes has only strengthened. While not our central forecast, a 50bp hike in July is …
Despite its struggles yesterday, we think the S&P 500 may have some way further to fall as the economy slows and more companies struggle to meet optimistic earnings expectations. Yesterday’s fall in the S&P 500 clearly stands out from what has already …
The central bank in the Philippines (BSP) started raising interest rates today, but with inflation set to slow later in the year and the economic recovery likely to weaken, the tightening cycle is set to be gradual and relatively short. We were among 14 …
The recent collapse in consumer confidence to a near-record low has added to the probability that the UK experiences a recession this year. But households’ large stock of savings and the tightness in the labour market means that weak confidence may not …
With Japan’s terms of trade set to improve only modestly and interest rates differentials moving further against the yen, we expect the exchange rate to fall to 140 against the dollar by year-end. But this currency weakness will provide only a small boost …
The Turkish lira has come under renewed pressure in recent weeks but interest rate hikes to shore up the currency are off the cards. Instead, further sharp and disorderly falls would most likely be met by formal capital controls and more strident …
Net capital outflows from EMs appear to have picked up over the past few weeks amid the general risk-off mood in global financial markets. This is a worrying development for countries with fragile external positions, notably Turkey and some smaller …
18th May 2022
Saudi Arabia’s economy grew at its fastest pace in a decade in Q1 and we think this strength will carry on over the rest of this year. The combination of rising oil output and the increasing likelihood of looser fiscal policy underpin our above-consensus …
After a post-pandemic rebound in 2021, we expect growth in global demand for natural rubber (NR) to slow this year in tandem with a downturn in industrial activity, notably in the NR-intensive auto sector. That said, the market will remain in a deficit …
The current struggles of the S&P 500 don’t have much in common with most previous “bear markets”, but we still think one is likely as the Fed presses ahead with monetary tightening . Although it has recovered a bit lately, at the time of writing the S&P …
Headline inflation in Saudi Arabia rose to 2.3% y/y in April and we think that it will continue to accelerate over the coming months. Unlike in other parts of the emerging world, however, inflation will not surge to multi-year highs and, if anything, the …
We estimate that a rise in Bank Rate from 0.10% last November to a peak of 3.00% would mean that GDP is around 2.0% lower than if Bank Rate had stayed at 0.10%. That is a smaller drag than the Bank of England has incorporated into its forecasts. We do not …
17th May 2022
We expect US equity REITs to remain under pressure between now and the middle of next year, given our view of the US stock and bond markets. Nonetheless, we doubt they will underperform US equities substantially given their relative valuations – we see no …
Despite surging global food and fuel prices, inflation across most of Emerging Asia looks set to remain relatively low. This is the key reason why tightening cycles in the region will be much more gradual than elsewhere. Inflation has risen across …
