The end of the stamp duty holiday may do little to dampen demand and homes for sale are in short supply. The upshot is that house price growth will remain strong into next year, so we have revised up our forecast for house price growth in 2022 from 3% to …
16th September 2021
Falling foreign exchange reserves, a declining currency and a high level of foreign currency debt mean the risk of a sovereign default in Sri Lanka is growing. While the country should be able to muddle through for the next few months, it faces a crunch …
The most recent commercial property data have been surprisingly upbeat and have raised the possibility that the recovery could be stronger than expected. But we think investors may have run ahead of themselves and this trend is unlikely to be sustained …
A deeper dive into the CPI figures supports our initial analysis that the bulk of the jump in inflation from 2.0% in July to 3.2% in August is due to base effects linked to falling consumer prices in August last year rather than a widespread and …
15th September 2021
Following a surge in inflation across the region this year, we think that headline rates are at, or close to, a peak in major Latin American economies. But strong underlying price pressures will prevent inflation from falling below central banks’ targets …
The root of Evergrande’s troubles – and those of other highly-leveraged developers – is that residential property demand in China is entering an era of sustained decline. Relaxation of regulatory controls on the sector wouldn’t change this fundamental …
Jordan’s public finances deteriorated sharply last year and fiscal consolidation is needed to put the debt position back on a sustainable footing. Sticking to austerity may prove difficult given the economic and political backdrop and the composition of …
South Africa’s hard activity data for July underscored the severe blow to the retail and manufacturing sectors from violent unrest and tighter virus restrictions. While much of the hit has probably unwound more recently, weak growth momentum increases the …
A victory for United Russia in the Duma elections this week will strengthen the government’s recent focus on state intervention in the economy. Social redistribution has become a key priority for the government and large businesses may end up paying for …
Net capital outflows from emerging markets appear to have eased over the past month, helped by a pickup in portfolio flows into South East Asia and India. Looking ahead, even if rising US Treasury yields were to trigger renewed outflows in the coming …
We doubt that any independent review of Australia’s monetary policy framework would result in a change to the RBA’s 2-3% inflation target. But the Bank could be forced to put more emphasis on house prices, reduce the frequency of Board meetings, and …
Our inflation forecasts already incorporate some passthrough of pipeline pressures including higher shipping costs to consumer prices. But given that maritime shipping costs have never surged anywhere near as much as they have done during the past year, …
14th September 2021
Apartments kept getting smaller in the second quarter of this year, with the median floor space of units falling to under 1,000 sq. ft., the lowest since records began in 1999. That trend seems at odds with rising demand for larger units to accommodate …
Measures by the Reserve Bank to drain banking sector liquidity have caught attention over the past few days. But with liquidity still abundant, interbank rates at the very bottom of the rate corridor and financial conditions exceptionally loose, these …
This Update compares the valuations of the twelve different “risky” asset classes that we cover on our Asset Allocation service, both relative to one another and to the yields of “safe” assets, as well as explaining how those valuations inform our …
13th September 2021
With authorities having shown no appetite to reimpose restrictions on activity and new virus cases now levelling off, the Delta variant is still unlikely to have as big an impact on the economy as previous waves. That said, it adds to a range of other …
The recent surge in the prices of natural gas and coal, and therefore electricity too, has boosted energy inflation and suggests the risks to our near-term forecast for headline inflation lie to the upside. But the effects of this will start to fade next …
Our financial conditions indices show that conditions remain loose by historic standards in most EMs. The key exception is Latin America, where conditions have tightened sharply this year due to rising interest rates and fiscal risks. This could pose a …
Russia’s central bank (CBR) slowed down its monetary tightening cycle with a 25bp interest rate hike, to 6.75% at today’s meeting and the accompanying communications suggest that there may be just one more 25bp rate hike, to 7.00%, in this cycle. The …
10th September 2021
Coal and natural gas prices have soared around the world on the back of unseasonable weather and disruptions to supply. And even if the weather normalises and supply rebounds soon, we expect prices to remain high at least into the start of 2022 as stocks …
Yesterday’s larger 50bp rate hike, to 1.00%, delivered by Peru’s central bank (BCRP) suggests it is becoming increasingly concerned about the inflation outlook. With inflation set to stay above the 1-3% target range over the coming quarters, and GDP …
While uncertainty remains about the implications of the resignation of Japan’s PM Suga for the country’s equities, we think the big picture is that they will see relatively small gains over the next couple of years. The resignation of Japan’s Prime …
Evergrande’s collapse would be the biggest test that China’s financial system has faced in years. Policymakers’ main priority would be the households that have handed over deposits for properties that haven’t yet been finished. The company’s other …
9th September 2021
The ECB today confirmed that it will slow its asset purchases slightly but this is a long way from a “full taper”. We think inflation will drop even further than the ECB expects over the medium term and expect the Bank to continue with asset purchases of …
The costed election platform released by the Conservatives this week suggests that, if they were to form a government after this month’s election, they would run a similar fiscal policy to the Liberal Party. The opinion polls suggest that Prime Minister …
Supply shortages may continue to limit growth and put upward pressure on prices for several months to come before a new wave of COVID infections is brought under control, economies reopen, and spending patterns normalise. Shortages have related to both …
In his Jackson Hole speech, Fed Chair Jerome Powell highlighted alternative measures of inflation, including the Dallas Fed trimmed-mean PCE and inflation ex-durable goods, which he claimed were consistent with inflation falling back close to the Fed’s 2% …
Malaysia’s central bank (BNM) left interest rates unchanged at 1.75%, and won’t be in any rush to adjust rates soon. Although the economy should start to rebound now that virus restrictions are being eased, output is likely to remain below potential for …
Economic activity in New Zealand took a significant hit as the country was plunged into its strictest level of lockdown in August. But New Zealand’s success at taming the virus means output should return to its pre-Delta path by Q1 and the RBNZ will begin …
The continued surge in job openings and elevated quits rate in July suggest that labour shortages are still intensifying, which will put further upward pressure on wages. (See Chart 1.) There is little evidence that the return to in-person schooling or …
8th September 2021
There are some emerging downside risks to the economic outlook both domestically and globally but, after taking a well-anticipated pause at this meeting, we do not expect those risks to prevent the Bank from tapering its asset purchases at the next …
Although world trade volumes are likely to hold up for a while yet, a reversal of some of the shift in spending patterns caused by the pandemic is likely to weigh on commodity demand. This is another reason to expect most commodity prices to end the year …
We think that the increase in long-dated Treasury yields which we forecast will push up the yields of equivalent emerging market (EM) local-currency (LC) bonds. Based on historical relationships, we expect yields to rise by less than in the US in most …
We estimate that households in Poland, Czechia and Hungary have accumulated “excess” savings worth 4% of GDP so far during the pandemic and this stockpile looks set to grow further in the coming quarters. We don’t expect these excess savings to be spent, …
Singapore’s decision to reimpose some restrictions despite the country’s rapid vaccine rollout raises questions about its long-term strategy of living with COVID-19. The government’s caution will hold back the recovery in the near term, and its recent …
The fact that the Swedish GDP indicator was nearly 2% above its pre-virus level in July puts a question mark over the wisdom of the Riksbank’s plan to exhaust its asset purchase envelope by end-2021. We think there is a rising chance that policymakers …
Ethiopia’s escalating internal conflict has reignited concerns about the country’s public debt position. While debt dynamics may not look that worrisome on the surface, the political situation threatens the country’s otherwise strong economic growth and …
With more hybrid working post-pandemic, the view is that office rents will be under pressure for many years. This raises questions about which locations could be more resilient and if rents in central business districts (CBDs) will perform better than …
Kono Taro is emerging as the favourite to succeed Mr Suga as PM. While Kishida and Takaichi are viewed as safer hands by LDP party elders, the outspoken Kono’s popularity with the public gives him the edge on the eve of a general election where the ruling …
The shortage of heavy goods vehicle (HGV) drivers in the euro-zone appears to be nowhere near as acute as in the UK. We therefore don’t expect to see a surge in drivers’ wages that would lead to widespread upward pressure on pay throughout the euro-zone …
7th September 2021
The net effect of today’s announcements on social care reform may provide a very small boost to GDP. But perhaps more important is that by funding more spending on social care by raising taxes, the government has some room to increase spending further, …
Saudi Arabia’s economic recovery lost some steam in Q3 but, with virus restrictions easing further and oil production rising, GDP growth will strengthen over the rest of this year and next. The Q2 flash estimate of Saudi GDP showed the economy expanded by …
China’s imports of key commodities rose almost across the board in August, but we doubt that this is the start of a new upwards trend. Instead, with many of the factors that had boosted demand now fading, we expect China’s commodity imports to resume …
This year’s monsoon has so far been weaker than usual. This won’t have as big an economic impact as it would have a couple of decades ago. But it will harm employment and energy production. Some comfort can be taken from the fact that food inflation is …
While the RBA pressed ahead with tapering its asset purchases today, the financial markets are too optimistic in pricing in rate hikes as soon as next year . The RBA kept its interest rate targets unchanged at 0.10% as widely anticipated, but the more …
After climbing to multi-year highs in May , the zinc price has stayed strong, with much less volatility than its counterparts. However, we feel weaker economic growth in China and US tapering of monetary policy will work in tandem with the ongoing …
6th September 2021
Climate change is already making extreme weather events more frequent and more intense, which will worsen as the planet warms further. This is most likely to cause short-term disruptions to economic growth in some EMs. What’s more, it could result in more …
Weak near-term rental prospects and squeezed valuations mean that we expect Swiss office returns to perform poorly in the coming years, particularly in Zurich. Swiss office values have been more resilient to the pandemic than we had first expected. Having …
We don’t think tapering by the Fed will cause long-term Treasury yields to rise sharply, although it may contribute some upward pressure. But we do think those yields will rise quite a bit anyway, mainly because of the outlook for inflation in the US. …
3rd September 2021
We think that there is a risk of a period of moderately higher inflation in some major emerging markets (EMs) over the coming years. If that came to pass, it would probably be bad news for local-currency sovereign bonds in these markets, but not …
