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Households have a slightly larger savings buffer The upward revision to real GDP growth in Q3 and Q4 of last year suggests that high inflation took a slightly smaller toll on the economy than we previously thought. But with around two-thirds of the drag …
31st March 2023
BoJ facing dilemma The economic data released this week underline the dilemma facing incoming Bank of Japan Governor Ueda. On the one hand, price pressures continue to strengthen. Inflation excluding fresh food and energy rose from 3.1% to 3.4% in the …
Economy still headed for recession While industrial production bounced back and retail sales recorded a strong increase in February, we still think that the economy entered a recession this quarter . The 4.5% m/m rebound in industrial output was much …
Labour market conditions starting to loosen, upside risks to inflation Labour market conditions loosened in February and should continue to do so over coming months due to a recession. Meanwhile, Tokyo CPI data showed a large increase in underlying …
Rebound in industrial output won’t prevent recession While industrial production bounced back and retail sales recorded a strong increase in February, we still think that the economy entered a recession this quarter. The 4.5% m/m rebound in industrial …
Unemployment still has higher to climb, upside risks to inflation The unemployment rate rose from 2.4% to 2.6% in February, and the job-to-applicant ratio fell for the second month running from 1.35 to 1.34. Those movements are largely in line with our …
The latest mortgage market data show that the banking crisis has, so far, had a minimal impact on the housing market. While spreads have increased, overall mortgage rates have dropped and applications for home purchase have increased since SVB collapsed. …
30th March 2023
With the dust settling on the recent turmoil in US and European banks, economists from across our financial markets coverage assessed the damage to the outlook for bonds, equities and FX. Chief Markets Economist John Higgins and the team held an online …
Headline inflation tumbling, core peaking The big falls in headline inflation in Germany and Spain should provide some relief for struggling households in the coming months. And core inflation in Germany may now have passed its peak. However, with …
We expect the March employment report to show that the labour market was cooling even before the recent banking turmoil, with non-farm payrolls rising by a more modest 200,000 and annual wage growth falling close to a two-year low. The March report comes …
Canada’s banks do not face the same immediate risks as those elsewhere. The bank sector is far more concentrated than in the US, limiting the chance that problems at small lenders will trigger a broader crisis of confidence. But the latest area of …
While households and businesses took further advantage of rising interest rates in February by moving money into bank accounts with higher rates, they are not withdrawing money from the overall banking system. We doubt this significantly changed after the …
The partial reversal of the spike in mortgage rates following the “mini” budget has helped to stem the deterioration in housing market demand. Our measure of the average quoted mortgage rate has fallen from a peak of 5.7% in October to 4.7% in February, …
Japanese banks have nearly doubled their lending to overseas non-bank financial intermediaries over the past decade. Some of this reflects purchases of collateralised loan obligations, most of which are highly-rated. But the bulk of that lending is very …
We think Germany’s inflation rate fell sharply in March (12.00 BST) The central bank in South Africa will probably hike its policy rate by 25bp… (14.00 BST) … while policymakers in Egypt may deliver an aggressive 300bp hike Key Market Themes During the …
29th March 2023
Overview – The economy made a strong start to 2023, but we continue to expect a moderate recession this year as high interest rates feed through and the banking issues in the US weigh on exports. The downturn will help to pull CPI inflation to 2% by the …
Overview – Acute bank stress will prompt a further tightening in credit conditions, which leaves us even more convinced that the economy will fall into recession this year. With core inflation remaining stickier than we had originally expected, however, …
Net lending turns negative as investors hold back Net lending to property turned negative in February, as investors held back in the face of falling capital values. But the decline was small and even though the recent banking crisis will lead to some …
Higher interest rates continue to hurt housing more than consumer credit February’s money and credit data suggest that higher interest rates were a further drag on lending in February, particularly in the housing market. That’s before the effects of the …
Mortgage lending still depressed despite slight recovery Reflecting the partial unwinding of the spike in mortgage rates following the “mini” budget, mortgage approvals rose to their highest level for three months in February. However, with mortgage rates …
Higher interest rates continue to hurt housing more than consumer credit February’s money and credit data release suggests that higher interest rates were a further drag on lending in February, particularly in the housing market. That’s before the recent …
The RBNZ will temper rate rises, but continue hiking to 5.25%. The Bank will look past the disruption to activity driven by Cyclone Gabrielle. Even so, recession-induced disinflation will pave the way for rate cuts by year-end. With the latest economic …
RBA has signalled that it will consider pausing its tightening cycle next week On balance, the economic data are consistent with a pause Final 25bp rate hike in May to be followed by cuts in Q2 2024 The RBA has signalled a pause in its tightening cycle at …
Sharp slowdown in inflation will prompt RBA pause next week The further sharp fall in inflation coupled with the softness of consumption will probably prompt the Reserve Bank of Australia to pause its tightening cycle next week, though we still expect one …
The 2023 Budget projects a much larger deficit than the prior Fall Economic Statement and, as a result, the government now agrees with our forecast that the debt-to-GDP ratio will rise. Roughly half of the hit to the budget projection is due to weaker …
28th March 2023
While CPI inflation will fall from 10.4% to around 3.5% this year, we think a recession involving a peak-to-trough fall in real GDP of around 1.0% is needed to ensure that domestic price pressures weaken to levels consistent with the 2.0% inflation …
Overview – The euro-zone economy is set to perform much worse than consensus forecasts suggest over the next two years, with a recession looking likely. That is mainly because monetary policy and bank lending conditions are tightening. We expect …
House prices still falling slowly, but more to come House prices continued to nudge lower in January, taking the total fall since their June 2022 peak to 3.0%. But with affordability still stretched, we expect price falls to continue over the coming …
As countries age, falling working-age populations will make it harder to sustain growth in the size of the labour force. Lessons from countries that are already advanced in the ageing process suggest that the drag can be offset by raising female labour …
Softness in retail sales raises risk of RBA pause The tepid rise in retail sales in February all but locks in a contraction in sales volumes in Q1. We think that a stronger rise in services spending will help keep private consumption buoyant this quarter. …
Softness in retail sales raises risk of RBA pause The tepid rise in retail sales in February all but locks in a contraction in sales volumes in Q1 and adds to the case for the RBA pausing its rate hiking cycle next week. The 0.2% m/m rise in retail sales …
We expect Hungary’s central bank to leave policy unchanged (13.00 BST) US Conference Board data may give an indication of any recent hit to sentiment (15.00 BST) Sign up here for tomorrow’s Drop-In on the risks around commercial real estate (16.00 BST) …
27th March 2023
Resilience unlikely to last The fifth successive monthly increase in the Ifo Business Climate Index (BCI) in March suggests that Germany is still benefitting from falling energy prices and easing supply problems but has yet to feel the full effects of …
The surge in credit card spending over the past year hasn’t been any larger than the increase in overall consumer spending. And with personal credit accounting for a small share of overall credit, a surge in business loan defaults would pose a far greater …
Deposits flow from small to big banks The Fed’s H.8 release shows that deposits at small banks declined by $120bn, to $5456bn, in the week ending Wednesday March 15 th . (SVB collapsed on the preceding Friday afternoon.) Borrowings increased by an even …
24th March 2023
Fears over small regional banks in the US have focused on the unrealised losses on debt securities (see Chart 1 ) and deposit insurance but, in what would have echoes of the savings and loan crisis, maybe we should be more worried about deposit flight due …
The flash PMIs for March suggest that not only did advanced economies avoid recession in Q1, but the outlook for activity has improved as well. However, we still think the hit from higher interest rates will intensify . And with services price pressures …
As we discussed in our “Drop In” webinar after this week’s Bank of England policy decision (see here ), the 25 basis points (bps) hike in interest rates, from 4.00% to 4.25%, could prove to be the end of the tightening cycle. But it is the data on the …
The Fed will need to wait at least another few weeks for clearer evidence of the impact from the recent banking sector turmoil, but we expect economic weakness will convince officials to move to the side-lines before long. Although the Fed pressed ahead …
The ongoing struggles of the banking sector in the US and elsewhere has muddled the outlook for the dollar. But while we think the balance of probability has shifted against the greenback, we continue to expect a near-term rebound in the dollar, in …
Investment weakening even before banking woes The 1.0% m/m fall in durable goods orders in February indicates that business equipment investment was weak even before the banking turmoil arose. With business confidence likely to have taken a hit in recent …
Investment weakening even before banking woes The 1.0% m/m fall in durable goods orders in February indicates that business equipment investment was continuing to weaken even before the banking turmoil arose. With business confidence likely to have taken …
Bank failures have had only a modest impact on UK banks’ wholesale funding costs to date, reflecting an assessment that lenders are in good health which we think seems fair. Greater investor scrutiny could still lead to more caution in mortgage lending, …
Fading domestic price pressures could mean yesterday’s rate hike is the last The flash PMIs suggest the economy’s strong start to the year was sustained in March. But with the full drag from high interest rates yet to be felt, our hunch is still that …
Activity remains resilient, despite global banking issues The flash PMIs suggest the economy’s strong start to the year was sustained in March. But with the full drag from high interest rates yet to be felt, our hunch is still that the economy will enter …
Too soon to conclude February’s rebound will be sustained The further rebound in retail sales volumes in February suggests the recent resilience in activity hasn’t yet faded. But we doubt this will last as the drag on activity from higher interest rates …
Too soon to conclude February’s rebound will be sustained The 1.2% m/m rise in retail sales volumes in February was much better than the consensus forecast of a +0.2% m/m rise (CE +0.5% m/m). That suggests the recent resilience in activity hasn’t yet …
No visible uptick in financial risks There have been no signs of stress in Japan’s financial markets as a result of the banking crises in the US and the demise of Credit Suisse. For starters, there hasn’t yet been a spike in the Bank of Japan’s foreign …
The dovish tone of the RBA's March minutes has heightened the risks to our forecast for two more 25bp rate hikes in April and May. However, the Board did reiterate that its decision regarding a pause would hinge on the economic data released before its …
