The Q4 GDP data released over the past week underline the fact that the two largest developed markets – the US and euro-zone – have so far experienced very different crises and recoveries. These differences help to explain why economic growth in the …
1st February 2022
Finance Minister Nirmala Sitharaman delivered a more growth-friendly Union Budget than most had expected today. But rather than unveiling measures to shore up support ahead of state elections, new spending plans are largely focused on ramping up capital …
The RBA today ended its bond purchases, revised up its inflation forecasts and no longer signalled that wage growth needs to be “materially higher” to meet its inflation target on a sustained basis. We expect the first rate hike in August . The Bank’s …
The surprisingly hawkish shift on Colombia’s central bank board at Friday’s meeting, when the policy rate was increased by 100bp to 4.00%, suggests that the tightening cycle will be more aggressive than we had thought. We now expect the policy rate to …
31st January 2022
The Socialist Party’s victory in yesterday’s election means there will be no substantial change in economic policy, but the government should be more stable. In any case, Portugal’s economy is set to grow rapidly this year, from a fairly low base, as the …
The latest PMI data out of China suggest that demand for commodities softened again in January. And with Chinese demand unlikely to bounce back meaningfully this year, we continue to expect sharp falls in industrial metals prices by year-end as …
By re-electing Sergio Mattarella as president and ensuring that Mario Draghi remains prime minister, Italy’s political establishment has achieved what appears to be the best possible outcome. The Recovery Plan should remain on track and Mr Draghi could …
There is a perception that a shift in workspace preferences brought about by the pandemic has redirected demand towards higher quality office space. But while there is some evidence of a flight to quality in Central London office data, the evidence is …
28th January 2022
The announcement by Argentine President Fernández that the government has reached a new agreement with the IMF, the 22nd in their history, will give some relief to international bondholders in the near term. But this is just the start of a long journey to …
We expect governments in advanced economies to take action to prevent public sector debt ratios from spiralling out of control as their populations age. However, this is uncertain, and the risk is some countries will end up on an unsustainable debt …
While we think the direct risks to property from the pandemic have reduced, the uncertain impact of structural change and our expectation that interest rates will now be increased from late this year reinforce our view that Stockholm property returns will …
We expect the major central and eastern European (CEE) currencies to depreciate against the euro this year. We think that the Czech koruna will continue to fare better than the other CEE currencies, although not by as much as last year. To recap, the …
27th January 2022
The South African Reserve Bank pressed ahead with its tightening cycle by raising the repo rate from 3.75% to 4.00% today as policymakers’ concerns about upside inflation risks and the global monetary policy backdrop increased. Overall, though, the …
The decision by Chile’s central bank to deliver a surprisingly large 150bp rate hike yesterday, to 5.50%, supports our view that the tightening cycle will go further than the path it had previously signalled. That said, we think that the dramatic upward …
The early data indicate that Paris offices recovered last year, though much of this reflected strength in the core CBD market. With the economic background supportive and supply relatively contained, we expect further prime office rental growth at a touch …
The sell-off in Russia’s financial markets in response to the reassessment of the likelihood of conflict with Ukraine has pushed up the risk premium on Russian assets to a similar level to that which followed the annexation of Crimea in 2014. There is …
The Fed’s announcement that it will “soon be appropriate” to raise interest rates and the numerous hints dropped by Chair Jerome Powell in the post-meeting press conference all but guarantee that a March rate hike is coming. Meanwhile, the Fed set out a …
26th January 2022
Saudi Arabia’s economic recovery has hit a bump in the road over the past month or so as the Omicron variant has caused activity in the Kingdom’s non-oil economy to slow. But the experience from other countries suggests this disruption will be brief and, …
The Bank of Canada kept policy unchanged today but judges that the conditions to start raising interest rates have now been met, suggesting that it will hike its policy rate at the next meeting in March. Markets had given the Bank a green light to start …
Trimmed mean inflation will probably climb above the upper end of the RBA’s 2-3% target band in Q1, which would add to the case for the RBA to start hiking rates in May. However, the RBA hasn’t changed its policy rate in an election month since it started …
A Russian military invasion of Ukraine would adversely affect the euro-zone economy by further disrupting the market for energy, pushing up inflation and reducing households’ real incomes. However, any economic fallout would probably be fairly small and …
25th January 2022
The Central Bank of Nigeria (CBN) kept its benchmark rate on hold at 11.50% today as it shrugged off the unexpected rise in inflation in December and maintained its focus on supporting the recovery. We think that the current accommodative policy stance is …
Euro-zone inflation would be even further above target if owner-occupied housing costs were included in the region’s headline measure. Their formal inclusion won’t take place for a few years yet, but the ECB has pledged to take them into account in the …
The Monetary Authority of Singapore’s (MAS) surprise move to tighten policy today, ahead of its usual April meeting, probably won’t be its last. We think the added uplift to inflation from a domestic outbreak of Omicron will force the MAS to tighten again …
The Flash PMIs for January suggest that Omicron has dealt a big blow to both industry and services sectors in the US in recent weeks, while other DMs have got off more lightly. But with new cases falling in several DMs, we think the economic hit will …
24th January 2022
The State Bank of Pakistan (SBP) left interest rates on hold today at 9.75% and indicated that further modest tightening is likely later in the year. We think the central bank will take a breather over the next few months, but we doubt today’s meeting …
Our baseline forecast envisages that US corporate bond spreads rise only slightly as the Fed raises interest rates over the next couple of years. But we think the risks to this forecast are skewed to higher spreads. We think that the Fed will hike …
21st January 2022
Italy’s presidential election, which will begin next week, threatens to reignite political uncertainty that has been quiescent since Mario Draghi became prime minister last year. While we agree that losing Mr Draghi as prime minister would put the …
We forecast that equities in other developed markets (DMs) will outperform US equities over the next couple of years. By contrast, we expect equities in many emerging markets (EMs) to underperform their US peers. That divergence in performance relative to …
The long and detailed account of December’s Governing Council meeting underlines that there are significant differences of opinion about the inflation outlook. We suspect that the balance of opinion will shift in the coming months towards forecasting …
20th January 2022
The looming squeeze on real wages means that the near-term outlook for consumption and GDP has weakened. That said, we don’t expect anything as bad as the squeeze in 2008-14. In fact, real household disposable income may well recover by early 2023. Real …
The industrial sector had its best year in over three decades in 2021 as demand soared and supply struggled to keep up. Although we expect the sector to perform well again this year, we don’t think that yields can continue to fall at the rate seen in …
Turkey’s central bank (CBRT) followed kept its one-week repo rate on hold at 14.00% today and, even though inflation is likely to breach 40% in the coming months, President Erdogan is unlikely to permit interest rate hikes. We think it’s more likely that …
Bank Indonesia (BI) left interest rates unchanged at 3.5% at its meeting today, but the decision to raise the reserve requirement ratio (RRR) from March suggests that rate hikes will come sooner than we had previously expected. The decision to leave rates …
After twelve years in the job, Øystein Olsen was never going to spring a surprise at his last meeting in charge of the Norges Bank. Instead, the Bank left its policy rate unchanged at 0.5% and reiterated that it “will most likely be raised in March”. We …
While ongoing supply shortages have led us to revise up our forecasts for crude oil and wholesale gas prices, we still expect significant falls this year which would reduce headline inflation in major developed markets by around 2ppts. But there are …
The dovish tone of Bank Negara Malaysia (BNM) as it left rates on hold today only strengthens our non-consensus view that policy will be left on hold this year to support the recovery. In contrast, the analyst consensus is for 50bps of tightening, while …
The 50bp rate hike made by the Central Bank of Sri Lanka (CBSL) today – after it stood pat for two meetings as foreign currency dried up and inflation soared – is likely to prove too little too late. The CBSL today raised its deposit and lending rates by …
Today’s reductions to both the one-year and five-year Loan Prime Rates (LPR) continue the PBOC’s efforts to push down borrowing costs. We expect additional easing to follow in the coming months, including measures to push down deposit rates. But …
Office incentives packages rose to unprecedented levels in 2021, which supports our view that market conditions are weaker than asking rents suggest. Given our expectation that vacancy will remain elevated in the coming years, incentives are likely to …
19th January 2022
A rise in mortgage rates to 4.0% by end-2022, coupled with the 25% rise in house prices seen since mid-2020, will boost mortgage payments as a share of earnings to their highest since mid-2008. That will lead to a 4% fall in existing home sales this year, …
Oil prices have risen sharply since the start of 2022 and natural gas and coal prices have remained high. We continue to expect energy prices to fall this year, but the latest developments on supply suggest that they will not fall by quite as much as we …
With the notable exception of Turkey, net capital outflows from emerging markets have eased over the past month. However, the global backdrop for EMs this year will be challenging, particularly for those countries where external vulnerabilities are high …
A breakdown of house price growth over the past two years confirms that remote working has altered the nation’s housing needs. But what households can afford, rather than what they desire, will be a more important driver of house prices over the next few …
The shift to current account surpluses in Indonesia and South Africa suggest that these economies may be better placed to weather any fallout from rising US interest rates than in the past. But current account deficits have become an increasing cause for …
18th January 2022
While we now expect the ECB to start its tightening cycle earlier, we don’t think the change is significant enough to prevent further property yield compression over 2022-23, albeit at a slower pace than in 2021. We recently revised our ECB policy view …
The Bank of Japan today upgraded its assessment of inflation risks to “broadly balanced” for the first time since 2014. However, it reiterated its pledge to keep expanding the monetary base until inflation exceeds 2% and also signaled that it will keep …
When it comes to developed markets (DMs), we suspect that fx-hedged returns will be significantly better than unhedged returns for US dollar-based investors in foreign-currency-denominated assets. As Chart 1 shows, for US dollar-based investors hedging …
17th January 2022
Having been hit hard in 2020, improving economic conditions supported flexible office take-up in 2021, albeit caution and consolidation limited the net increase in space. While we expect take-up to remain low compared to the pre-virus period, we think it …
The People’s Bank (PBOC) has stepped up its efforts to loosen monetary conditions, following up last month’s reduction to the Loan Prime Rate (LPR) with cuts to the rates at which it lends to banks. Another LPR cut this month is now a given and we expect …
