Productivity crunch creates dilemma for RBA The RBA has been ringing the alarm bells about dismal productivity gains for a while now. In the minutes of its May meeting, the Board noted that if productivity growth did not return to the modest pace recorded …
19th May 2023
Inflation should fall rapidly in H2 on stronger yen, weaker wage growth Underlying inflation pushed past 4.0% for the first time in 40 years partly due to a spike in food inflation. Meanwhile, services inflation set a fresh 30-year high, largely …
Underlying inflation to rise further before falling due to stubborn food price pressures Headline inflation rose from 3.2% to 3.5% in April, despite a 4.4% fall in energy prices. As was the case with Tokyo, that was largely due to a rise in underlying …
Mexico’s central bank held its policy rate at 11.25% at today’s Board meeting, bringing the tightening cycle to an end. But with inflation unlikely to return to target until late-2024, policy will probably stay tighter than most expect over the next …
18th May 2023
While banking sector strains have become less acute over recent weeks, core money markets remain tense as uncertainty grows around the potential fallout from even a temporary default on US Treasuries. Despite the recent failure of First Republic and …
Our best guess is that the impact of monetary policy tightening on euro-zone economic activity will be less than five percent of GDP, which is the lower end of a range estimated in an ECB Economic Bulletin paper this week. However, even that could be …
We expect Mexico’s central bank to deliver a final 25bp hike, to 11.50% (Thu.) We think inflation in Japan climbed further in May (Fri.) Canada’s retail sales probably fell in March (Fri.) Key Market Themes The S&P 500 has posted solid gains in 2023, but …
Sales in a slump Existing home sales fell back towards their recent lows in April, not helped by a very tight inventory. The high cost of a new mortgage is acting to discourage homeowners with a low fixed-rate mortgage from moving, which is disrupting …
Egypt stepping up reforms to attract investments The first privatisation deal in nearly a year took place in Egypt this week and the prime minister outlined fresh steps to overhaul the business environment, but loosening the central bank’s grip on the …
Growth in Chile’s economy accelerated at the start of the year, but the headline figure masks signs of pronounced weakness. We expect the economy to struggle over the coming quarters amid tight monetary policy and project a 0.3% contraction over 2023 as a …
Economies across Central and Eastern Europe (CEE) have significantly underperformed the euro-zone and the rest of the world in recent quarters, which has its roots in the scale of the inflation shock that the region suffered and the impact on domestic …
A quick solution to South Africa’s energy crisis is nowhere to be seen. Not only will power cuts remain a drag on economy but there are growing concerns that they are fuelling inflation, threatening the country with a period of stagflation. That presents …
Any impact of QT has so far been modest and swamped by the effects of higher policy rates. Asset disposals might put some upward pressure on yields in the euro-zone in the near term, but the process of balance sheet normalisation will be slow and in some …
The aggregate supply of labour in the euro-zone has recovered comparatively well from the pandemic, albeit with big differences between the major economies. But despite this, the labour market is very tight throughout the region and wage growth looks set …
The central bank in the Philippines (BSP) today left interest rates unchanged (at 6.25%) but stated it was ready to resume its tightening cycle later in the year. However, with inflation falling back and headwinds to the economy mounting, we expect rates …
Fears among investors have continued to grow that Egypt’s government will default on its debt in the coming years although, for now at least, there remains a path to avoid such an outcome. Taking that path will require the government to step back from …
Our in-house metals demand proxies show that growth held steady in February. While growth will accelerate in the coming months due to base effects, we think that underlying demand is more subdued. The CE Demand Proxies aim to measure physical demand for …
Tightening cycle at an end The central bank in the Philippines today left interest rates unchanged (at 6.25%) but stated it was ready to resume its tightening cycle later in the year. However, with inflation falling back and headwinds to the economy …
The weakness in April’s jobs data suggest that the labour demand is starting to cool. Admittedly, there continue to be some pockets of resilience in the labour market. However, with wage growth remaining sluggish, we think it’s more likely than not that …
Labour market will loosen further The labour market is showing signs of cooling, reinforcing our view that the RBA’s tightening cycle is over. The 4,300 fall in employment in April was much weaker than most had anticipated (Refinitiv Consensus: +25k, …
Exports outlook improving in Q2, but not for long The trade deficit narrowed in April as export values rose faster than import values, largely reflecting the faster fall in import prices. Export climate readings suggest export volumes will continue to …
Falling energy imports supported trade balance The trade deficit narrowed in April as export values rose faster than import values. That’s more a reflection of lower energy prices, which decreased the value of fuel imports. Export values increased by 2.6% …
The rapid turnaround in the housing market and the upside surprise to CPI inflation in April have raised the case for another interest rate hike from the Bank of Canada, which we now judge is slightly more likely than not. The potential for US debt …
17th May 2023
Commercial stocks build, prices likely to remain subdued Commercial stocks rose for a second consecutive week even as production fell and refinery utilisation picked up. Releases from strategic reserves supported stocks and are likely to continue to do so …
Q1 acceleration, on track for full-year growth The smaller-than-expected 1.9% y/y contraction in Russian GDP in Q1 suggests that the economy has turned a corner and that growth accelerated in q/q terms at the start of this year. Industry and retail sales …
After stalling at the end of last year export growth seems to have provided a boost to the euro-zone economy in the first quarter of 2023. However, we doubt that exports will be a major source of growth over the rest of the year given our downbeat …
We think the Philippines’ central bank will pause its tightening cycle… (08.00 BST) …but expect Egypt’s central bank to hike its policy rate by 200bp A number of US data releases tomorrow may show signs of weakness Key Market Themes We think the recent …
May’s IPF Consensus Forecasts highlighted another upgrade to short-term euro-zone office rental expectations. Our figures remain significantly weaker for 2023. From next year, our view is closer to the IPF average, though we still think the consensus …
Inflation is now on a downward trend and interest rates are at, or very close to, a peak. But central banks will only cut interest rates once there are clearer signs that underlying price pressures are under control. That could be as early as later this …
Weakening economy to weigh on starts Homebuilders have turned their attention to finishing off the large number of homes under construction rather than starting new ones, keeping single-family starts close to their recent lows in April. While starts …
A sharp rise in Korean interest rates over the past 18 months is leading to a steep downturn in the property market. Encouragingly, the banking sector looks well placed to cope, but the broader economy is unlikely to escape unscathed. The problems in the …
Skirting technical recession, but power cuts threaten stagflation March’s activity data out of South Africa suggest that the economy is likely to have skirted a technical recession, but the outlook is bleak as the intensification of power cuts weighs on …
Mexico’s economy has put in a decent performance over the past year or so, but we think that most of the factors that have supported robust growth have now run their course. Tight policy and a looming recession in the US mean that the economy is likely to …
Core goods inflation declining, services inflation sticky Data published today confirmed that both headline and core inflation were little changed in April and that while core goods inflation has begun to fall, services inflation reached an all-time high. …
Following a surge in property yields over the second half of last year, property moved closer to fair value again in Q1. Admittedly, on our measure the all-property score is still sitting in overvalued territory. (See Chart 1.) But that is largely due …
The RBNZ will lift its OCR by 25bp next week. With upside risks to inflation persisting, we’ve pencilled in another 25bp hike in July. However, we still think the Bank will pivot to rate cuts by year-end. The latest data don’t tell a compelling story as …
Sluggish wage growth suggests RBA is done tightening The Q1 wage price index showed that quarterly wage gains were a bit softer than the RBA had anticipated which supports our view that the Bank won’t raise interest rates any further. The 0.8% q/q rise in …
Exports downturn to drag economy into recession in H2 GDP surprised to the upside last quarter, mainly because of stronger performances in private consumption and business investment than preliminary data had indicated. That suggests that there is …
Decent rebound in GDP as investment surprised to the upside GDP surprised to the upside last quarter, mainly because of stronger performances in private consumption and business investment than preliminary data had indicated. That suggests that there is …
We think Japan’s economy expanded by 0.2% q/q in the first quarter (00.50 BST) Euro-zone data will probably confirm HICP inflation ticked up to 7.0% in April (10.00 BST) Sign up here for a Drop-In to discuss our long-term energy forecasts (15.00 BST) …
16th May 2023
Resilience of activity likely to fade Solid gains in retail sales and manufacturing output in April indicate that the economy remains resilient to the impact of higher interest rates and tightening lending standards. That said, real consumption growth is …
Many academic studies underplay the extent to which higher temperatures could affect economic activity over the long run. Nonetheless, even in a scenario in which the global average temperature rose by more than 3 ° C from its pre-industrial average, …
The renewed acceleration in the monthly changes in CPI-trim and CPI-median in April leaves us doubting our view that the Bank of Canada will be ready to cut interest rates as soon as October. While the rise in headline CPI inflation to 4.4%, from 4.3%, …
Surveys suggest April strength will soon be reversed The 1.0% m/m surge in manufacturing output in April adds to the evidence that the economy enjoyed a strong start to the second quarter, helped by renewed strength in the motor vehicle sector. But the …
Overview – Most commodity prices have moved lower over the past month as concerns about demand have intensified and risk appetite has soured. We think prices will continue to struggle over the next few months as tight monetary policy feeds into slowdowns …
A step backward The renewed acceleration in the monthly changes in CPI-trim and CPI-median in April, combined with the recent rapid turnaround in the housing market, leaves us doubting our view that the Bank of Canada will be ready to cut interest rates …
Having picked up sharply in April, inflows into EM bond and equity markets have weakened in the past few weeks. Inflows into India and Turkey remained strong over the first half of the month, but in the latter this is likely to reverse after the …
Real consumption growth still slowing The 0.4% m/m rebound in retail sales in April indicates that higher interest rates and tightening lending standards are yet to deal a major blow to consumers. That said, with the April gain coming after two months of …
South Africa has traditionally sought to be non-aligned and, in our ‘ mapping decoupling ’ work, we placed it in neither the US nor the China camp. But recent developments suggest that it could be leaning towards the latter. If that’s the case, it might …
