Indonesia’s GDP figures lack credibility – economic growth has been far too stable over the past few years to be believable. We think a better guide to the health of the economy is our own Indonesia Activity Tracker (IAT). This shows that economic growth …
11th November 2019
Although the Office for Budget Responsibility (OBR) won’t expose the full deterioration in the public finances when it updates its forecasts on Thursday, it’s clear that it is only a matter of time before borrowing smashes through the targeted level. That …
6th November 2019
Our central scenario is that cutting interest rates to 0.5% will be enough to weather the economic slowdown in 2020. And if required, fiscal policy and macroprudential tools could be used to help stimulate demand. However, if the global economy slows more …
5th November 2019
The September attacks on oil facilities in Saudi Arabia re-ignited discussion of the “risk premium” in the oil price. Since the risk premium is not directly observable, we have created a methodology to estimate it indirectly . Our model found that, based …
31st October 2019
Three years after the shock announcement that the bulk of India’s bank notes were being withdrawn, any benefits from “demonetisation” should be evident by now. But the promised gains haven’t materialised and the inadvertent economic positives that have …
30th October 2019
As part of its forthcoming review under Christine Lagarde, the ECB is likely to change its inflation target and make its voting system more transparent. Further ahead, it will have bigger issues to resolve, including deciding which tools it could use in a …
29th October 2019
In the near-term, we think that the ongoing consequences of CVAs and the large share of over-rented property will exacerbate the structural reduction in demand for retail property, causing rental values to fall sharply. But, with consumer demand expected …
25th October 2019
Globalisation has probably peaked and could be partly reversed as a result of technological change and protectionist policies. This would have significant implications for asset markets, which have generally benefitted from increased economic and …
24th October 2019
One way or another, the UK is destined for looser fiscal policy. How much and in what form is unclear, but the one thing that is clear is that it will require a new set of fiscal rules. There are many options and we do not know for sure what the …
The recent protests in Lebanon highlight that it is politically impossible to push through the fiscal austerity needed to stabilise the government’s debt-to-GDP ratio. A debt restructuring is inevitable. There are lots of ways that this could play out. …
23rd October 2019
Brazil’s pension reform bill should help to stabilise the public finances and lift a dark cloud over the outlook. The government has a long to-do list of further fiscal reforms, although the political situation suggests that some of these will be delayed, …
22nd October 2019
While the downside risks of a global trade war are often overstated, we think the bigger concern is that the world splits into competing regional blocs that do not cooperate on trade or investment. This could cause global supply chains to splinter and …
Underlying inflation was moored well below the lower end of the RBA’s 2-3% target band even as the housing market was booming and the labour market was tightening. With the unemployment rate set to rise to 5.5% next year and interest rate cuts …
21st October 2019
The rift that has widened between China and the US was caused by China’s emergence as a geopolitical competitor to the US, rather than the personality of Donald Trump. Decoupling will continue whether or not the two reach a deal on tariffs. This may spur …
17th October 2019
The two key economic challenges facing President Joko Widodo in his second term are boosting GDP growth and reducing Indonesia’s external vulnerabilities. We don’t think he will succeed in either. Following his decisive election victory in April, Joko …
15th October 2019
Globalisation has peaked, with any further major integration unlikely. In fact, a policy-driven period of de-globalisation is increasingly likely. Flows of trade and foreign direct investment have flattened off as a share of nominal GDP over the past …
Globalisation has peaked, with any further major integration is unlikely. In fact, a policy-driven period of de-globalisation is increasingly likely. Flows of trade and foreign direct investment have flattened off as a share of nominal GDP over the past …
Upcoming state elections could help determine the pace of economic reform in India over the coming years. A win for the BJP in Haryana could provide reassurance for state assemblies elsewhere that contentious reforms need not be electorally unpopular. …
The Polish Law and Justice Party’s second term in power is likely to be much less impressive than its first, marked by slower economic growth, higher inflation and a poor financial market performance. Law and Justice went into Sunday’s election with a …
14th October 2019
We estimate that the current wave of globalisation is responsible for around a third of the pick-up in global per capita income growth since 1990. Almost all of that reflects an improvement in productivity growth in emerging economies. For advanced …
10th October 2019
History shows that waves of globalisation are driven by both technology and policy, but protectionist shifts alone tend to end them. In some cases, like in the 1970s, a moderate pushback by policymakers can cause globalisation to stall. But the experience …
8th October 2019
A continued decline in the natural rate of unemployment over the past 15 years means that there is probably a little bit more slack in the labour market than indicated by the near-record low unemployment rate. As a result, wage growth is unlikely to …
2nd October 2019
With question marks hanging over the outlook for global economic growth, it has become increasingly difficult to get a handle on the true state of physical copper demand. Therefore, we have turned to the Capital Economics Copper Demand Proxy for answers. …
This short Focus is a primer on our Asset Allocation Service , which we launched in September 2019. It is split into three sections. Section 1 provides an overview of the service. Section 2 outlines our methodology for projecting returns. Section 3 …
27th September 2019
War with the US would cause a collapse in Iran’s economy that would directly knock around 0.3%-pts off global GDP – equal to the damage from the US-China trade war so far. More important to the rest of the world, though, would be the resulting surge in …
20th September 2019
Weak economic growth and low inflation mean Emerging Asia’s rate cutting cycle has further to run. In contrast, the consensus and financial markets think the easing cycle will soon end in many countries. Having raised interest rates steadily throughout …
18th September 2019
Since securing re-election this year, the Modi government has made it a formal aim to almost double the size of India’s economy to US$5trn by March 2025. In our view, the government is likely to fall short of this lofty ambition. Even so, we think that …
17th September 2019
Negative policy rates have had some positive effects in the economies where they apply and the direct adverse consequences have been small. But the policy has contributed to a fall in long-term interest rates which is doing greater damage to banks’ …
5th September 2019
The inversion of the yield curve and the deterioration in survey-based indicators have raised fears that the US is headed for a recession, but the hard economic data and other financial indicators suggest the risks remain low. To cut through the …
The acquisition of reserve assets by the Swiss National Bank (SNB) has seen it take on a role more suited to fund managers than central bankers. Faced with the prospect of negative bond yields further and further along the curve, we think that …
21st August 2019
A lower cost of funding via foreign liabilities, a higher return on overseas assets and falling capital goods imports should all support Australia’s current account over the next couple of years. However, we think that those tailwinds will all be …
20th August 2019
OPEC the exception, not the rule Most commodity cartels have failed to manipulate prices for very long, and we think that any future cartels in commodity markets will be no different. Arguably, the Organization of Petroleum Exporting Countries (OPEC), the …
15th August 2019
Emerging Asia has not only been the fastest growing region since the global financial crisis, it has also been the most stable. Regional growth has also been less volatile compared with the period before the financial crisis. This “great moderation” is …
14th August 2019
The upcoming economic slowdown brings with it the risk of a rise in mortgage delinquencies. However, tighter mortgage lending standards since the financial crisis means borrowers today are more resilient to shocks. That will minimise payment problems from …
8th August 2019
Hopes that President Cyril Ramaphosa can quickly revive South Africa’s economy are fading. The real problems are all structural, so even if he does make bold policy changes – far from guaranteed, given political obstacles – these would take years to take …
7th August 2019
China is left with few good options to hit back at the US in ways that wouldn’t be self-defeating. Rather than direct retaliation, officials are therefore likely to focus their efforts on broader measures to offset the drag from US tariffs, including …
5th August 2019
Were the UK an emerging market the hedge fund vultures would already be circling following the rise in the current account deficit to 4% of GDP last year – the largest in the developed world. While the UK won’t have an emerging-markets style balance of …
22nd July 2019
In view of the wider interest, we are also published this Global Markets Focus to clients of our UK Economics Service. While we think that the twists and turns of the UK’s journey out of the European Union will have a bearing on Gilts and sterling, that …
17th July 2019
While we think that the twists and turns of the UK’s journey out of the European Union will have a bearing on Gilts and sterling, that won’t be the only factor driving them. What’s more, we doubt that Brexit will matter much for UK equities. There are …
Our central scenario is that cutting interest rates to 0.5% will be sufficient to restore growth and eventually return underlying inflation to the RBA’s target. If more stimulus were required, the government would probably remain reluctant to loosen …
The strength in consumer spending has been crucial to the economy’s resilience over the past year but there are three reasons why many people think that the consumer sector is living on borrowed time – namely an unfavourable outlook for incomes, low …
15th July 2019
Mounting geopolitical tensions between the US and Iran have prompted fears of a full-blown military war in the Gulf region. The most important impact would clearly be the loss of life. From the perspective of the energy market, if war were to break out, …
11th July 2019
We think that the all-property to bond yield spread will narrow from its current elevated levels, although this is not likely to happen before late 2020. But, structural changes mean that the property to bond yield spread won’t narrow to the early-1990s …
While it is recognised that political developments, such as a no deal Brexit and a Labour government, have the capacity to send the economy in different directions, it’s not as well known that three economic trends are in train regardless – looser fiscal …
The trade war between the US and China so far appears to have had a small negative impact on most of the region, although some countries, most notably Vietnam, look to be benefiting as US demand has shifted away from China towards alternative …
26th June 2019
Recent comments by Mario Draghi suggest that the ECB will loosen policy sooner than we had anticipated. We now expect the Bank to strengthen its forward guidance in July and cut its deposit rate in September. Mr Draghi is then likely to go out with a bang …
With productivity slowing and working age populations set to start falling across most of Asia, we expect regional growth to slow to just 3.5% in a decade’s time. This compares with average growth of 6.0% over the past 10 years. Our forecasts are much …
12th June 2019
