This report is the second of a three-part mini-series that establishes a framework for assessing the outlook for the EU carbon price. It sets out our approach for modelling the fundamental price of an EU carbon permit [1] over the rest of this decade. In …
22nd February 2024
This report is the first of a three-part mini-series that establishes a framework for assessing the outlook for the EU carbon price. It starts by explaining what an emissions trading scheme (ETS) is and how the ETS has evolved since its introduction in …
Set for a weaker first quarter The strong rise in December means that retail sales volumes rose by close to 5% annualised last quarter, supporting the preliminary estimate that GDP growth turned positive again. With sales volumes broadly unchanged in …
Tunisia: threat of messy crisis and default builds Tunisia managed to meet a Eurobond repayment this week but only by draining its already-low FX reserves. In the meantime, steps were also taken towards deficit monetisation, taking Tunisia further down …
Growth pick up is likely to be short-lived Nigeria’s GDP growth rebounded to 3.5% y/y in Q4 but we doubt that this strength will last. Tighter monetary policy, coming alongside the pernicious effects of further weakness in the naira and ongoing struggles …
Inflation drops back, March rate cut in play The drop back in Mexico’s headline inflation rate to 4.5% y/y in the first half of February leaves Banxico on course to begin an easing cycle at March’s Board meeting. That said, the rise in core services …
New governor committed to the tight policy stance The hawkish statement accompanying the Turkish central bank’s decision to leave interest rates unchanged at 45.00% today supports our view that a shift to monetary easing remains some way off and we still …
Carbon prices have been falling on the back of lower natural gas prices and reduced European industrial activity. There’s a case for recovery, driven by a combination of macro, market and regulatory factors – but when and how strong will it be? To mark …
Now that mortgage rates have stopped falling, can the recovery in house prices continue? What will that mean for transaction levels and mortgage lending? And following the record increase in rents last year, can they continue to surge in 2024? Our UK …
This page has been updated with additional analysis since first publication. Lingering price pressures may continue to concern the BoE The small rise in the composite activity PMI, from 52.9 in January to 53.3 in February (CE forecast 53.0, consensus …
Domestic demand to drive the recovery Poland’s activity data for January suggest that the reacceleration in wage growth at the start of this year supported domestic demand, while the export-orientated industrial sector struggled. We think that a further …
PMIs point to stagnation, stubborn price pressures The flash PMIs for February suggest that the economy is still struggling and that price pressures are, if anything, intensifying. This does not dramatically change the picture for the ECB, but it does …
The Bank of Korea left its policy rate on hold today (at 3.5%) and attempted to push back against expectations for an early rate cut. However, with inflation likely to be back to target soon and domestic demand struggling, we expect easing to begin in …
This page has been updated with additional analysis since first publication. Manufacturing and services activity likely to remain robust The flash composite PMI reading for February suggests that the economy continues to perform exceptionally well. …
The Bank of Japan has succeeded in creating tight labour market conditions through ultra-loose monetary policy and is now reaping the benefits in the form of stronger wage growth. The upshot is that we expect the Bank to end negative interest rates at its …
Central banks in both Australia and New Zealand are likely to remain in “wait and watch” mode in the near term, given lingering risks to the inflation outlook. However, we think concerns about inflation persistence are overdone. Goods inflation is already …
On hold again, easing coming soon The Bank of Korea (BoK) kept its main policy rate unchanged today (at 3.5%), but with inflation cooling and growth set to struggle, we don’t think cuts are far away. The decision was correctly predicted by all 38 …
This page has been updated with additional analysis since first publication. The recovery in activity this quarter will be modest February’s PMI readings saw a drop almost across the board with the composite PMI, manufacturing PMI, services PMI and new …
Minutes lean a little hawkish, but don’t rule out May rate cut The minutes of the Fed’s late January policy meeting included support for both hawks and doves although, somewhat disappointingly, there was no attempt to quantify what gaining “greater …
21st February 2024
So far this year, the US dollar has moved in tandem with the relative performance of US equities. While that may continue over short time horizons, we doubt the rally in US equities we anticipate over the next couple of years will be a significant …
How strong was Chinese commodities demand at the start of 2024? What do official growth and spending targets signal about demand over the coming year? Where will demand be strongest in commodities markets this year? Economists from our Commodities and …
The economy continues to appear impervious to higher interest rates and, although we expect growth to slow over the first half of this year, that slowdown is likely to be modest. But we don’t expect continued economic resilience to prevent inflation from …
Almost all major emerging market (EM) currencies have fallen against the US dollar so far this year, and we think they will remain under pressure until interest rate expectations in the US shift lower again. EM currencies have been no exception to the …
The fiscal restraint shown by South Africa’s finance minister in today’s Budget was received positively in local financial markets, but the reality is that the government will struggle to meet its goals (indeed, it’s already doing so). And pressure on the …
An AI productivity boom. A Chinese structural slowdown. Aging workforces. In the coming decades, the global economy will be shaped by forces that will dictate which countries will make strides and which will stumble. Our Long Run Economic Outlook presents …
The S&P Global PMI surveys have not been fully reliable guides to activity in major advanced economies over the past few years. But their relationship with GDP outside the US is still fairly strong and the detail in the surveys offers useful information …
Europe Commercial Property Valuation Monitor (Q1 2024) …
The outcome of Russia’s presidential election is a forgone conclusion. But there are big questions about what will happen in Vladimir Putin’s fifth term to the course of the war in Ukraine, to Russia’s commodity exports and to its economy. Economists from …
Rise in core inflation will give cause for concern to the SARB South Africa’s headline inflation rate picked up to 5.3% y/y in January and the rise in core inflation is likely to spook an already-hawkish SARB, possibly pushing the start of an easing cycle …
Bank Indonesia left its policy rate on hold at 6.00% at its meeting today, and once again reiterated its plans to start loosening policy later in the year. We expect the central bank to start cutting rates in Q2. Today’s decision was correctly predicted …
This page has been updated with additional analysis since first publication. Chancellor won’t have huge amounts of cash to splash We will be discussing what the policies announced in the Budget mean for the economy and the financial markets in a 20-minute …
This page has been updated with additional analysis since first publication. Wage pressures will gradually ease over 2024 The pickup in wage growth in Q4 was driven by larger pay packets for public-sector employees. By contrast, private-sector wage growth …
This page has been updated with additional analysis since first publication. Export growth will still drive GDP growth this year The trade balance turned positive in January, mainly a result of a large fall in imports. Net exports contributed roughly half …
Unlike most bubbles, this one hasn’t been accompanied, at least so far, by obvious signs of high and rising leverage. On the other hand, the share of funds invested in ‘passive’ products is now much higher than in prior bubbles. This Update considers how …
20th February 2024
EM sovereigns have issued a record amount of FX debt at the start of this year, capitalising on a window created by the decline in US Treasury yields since October. The issuance has been concentrated among highly rated sovereigns and borrowing does not …
We will be discussing what the policies announced in the Budget mean for the economy and the financial markets in a 20-minute online briefing shortly after the Budget at 3pm GMT on Wednesday 6 th March. (Register here .) Using most of the fiscal headroom …
We expect China’s bonds, currency and equities to rally over the rest of this year. After declining to cut its benchmark MLF rate on the weekend, the PBOC restarted its easing today with a larger-than-expected reduction in its 5-year Loan Prime Rate. (See …
All-property values are down by 15% since mid-2022. But, with cap rates set to climb toward 5.5% by the end of the forecast period, we think capital value falls have some way to go still, with the total decline set to reach 26%. For offices, the …
The UK Chancellor may use his 6 th March Spring Budget to splash the cash and try to win voter support for the beleaguered Conservative party ahead of an expected election this year. But will his spending plans make much difference to the British economy …
Nigeria saw sluggish growth over the second half of last year, and the latest falls in the naira mean inflation is set to rise even further over the coming months, which should prompt the central bank to finally spring to action with large interest rate …
Headline inflation in Brazil has declined in recent months, but a deeper dig into the data shows that underlying price pressures are starting to build again. Although another 50bp cut in the Selic rate at the next central bank meeting in March is nailed …
After a couple of years in the doldrums, property construction in Korea is rebounding. The recovery in the sector should provide an important prop to economic growth this year. There are encouraging signs that the worst is over for Korea’s property …
The AI revolution should deliver substantial productivity gains in the coming decade, particularly in advanced economies. But with working age populations falling in key areas and China’s economy in structural decline, we expect global growth to slow …
Better news on core inflation While the larger-than-expected drop in headline inflation in January was partly driven by weaker than expected energy inflation, the Bank of Canada will be pleased to see the more marked easing in its measures of core …
Production growth to remain subdued in 2024 Global aluminium production was unchanged in January compared to December. This reinforces our view that production growth will soften this year. According to the International Aluminium Institute, global …
The main spillover to the global economy, so far, from the Israel-Hamas conflict has been major disruptions to shipping, but there has been a bigger and broader economic impact in the MENA region. While the effects on the Gulf economies has been and will …
Capital Economics is 25 years old. Founded by Roger Bootle in 1999, the company has grown from a handful of employees (and clients) to a global enterprise which today provides macro and market insight to tens of thousands of decision-makers across …
14th February 2024
Euro-zone construction output picked up in December, but remained well below last year’s peak. We expect it to drop again in 2024, in part due to a continued dismal performance by the sector in Germany. Data released today showed that euro-zone …
