The industrial sector would bear the brunt of any power rationing imposed as a result of Europe’s shift away from Russian energy, but the direct economic impact of this would be smaller than one might expect. However, the knock-on impact from higher …
30th March 2022
We estimate that euro-zone governments’ fiscal deficits will be around 1% higher than expected this year, as a result of the war in Ukraine, mostly due to government subsidies for energy, support for refugees and higher defence spending. This will soften …
29th March 2022
We think that property markets are the weak link when it comes to the impact of tightening monetary policy. A modest rise in interest rates might only cause price falls in a few obvious candidates. But rates might have to rise only a bit further than we …
25th March 2022
The Chancellor, Rishi Sunak, provided more support to the economy than we had expected over the next few years in today’s Spring Fiscal Statement, but he could have gone further in 2022/23. Instead, he chose to bank some extra cash so there’s scope for …
23rd March 2022
For the most part, EMs are well placed to withstand rising US interest rates, but there are pockets of vulnerability where external financing needs are significant. Among the large EMs, Turkey (unsurprisingly) stands out, and current account risks are …
22nd March 2022
The Chancellor, Rishi Sunak, will use his Spring Statement on 23 rd March to soften the blow for households facing rising energy and food costs. However, any hopes that he will announce a big handout may be disappointed as he tries to strike a balance …
16th March 2022
We think that most of the fall in the size of the UK’s labour force since the onset of the COVID-19 pandemic should eventually be reversed. Even so, we wouldn’t be surprised if this took another two years or so. That suggests to us that the labour market …
14th March 2022
Efforts by overseas governments to combat climate change will result in mining falling from 10% of GDP last year to 5% by 2050. Rising exports of “green” metals are unlikely to offset falling coal and iron ore exports and slower growth in liquefied …
9th March 2022
Current labour shortages are not purely the result of short-term absenteeism related to the virus. Indeed, we estimate that around 80% of the shortfall can be explained by factors that will prove more persistent, such as a fall in migration. It is hard to …
8th March 2022
The economic plans that have been detailed at the National People’s Congress signal that China’s leadership is expecting much weaker growth this year than the relatively upbeat GDP growth target might suggest. However, it does not appear that policy will …
7th March 2022
Rental growth hit record highs last year as a wave of pent-up demand, plenty of savings, the need for more space and lack of homes for sale all drove rental household formation higher. But some of those factors supporting demand are now starting to fade, …
4th March 2022
Korea’s presidential election on 9 th March will have major implications for the country’s economic future. A pledge by the ruling DPK’s candidate to introduce a universal basic income could bring some important benefits. However, ensuring that it is both …
3rd March 2022
This week’s Budget in South Africa will probably see the government reaffirm its commitment to fiscal consolidation. But we think that officials will struggle to stay on this path in the next couple of years, leaving the debt-to-GDP ratio on an upwards …
22nd February 2022
With equilibrium interest rates in developed markets probably still close to record lows, actual interest rates are likely to peak at a far lower level in this cycle than in most previous ones. The main risk to our forecasts is that cyclical inflationary …
16th February 2022
A perfect storm of surging house prices, a further worsening of supply shortages, and a pick-up in labour mobility would be needed to cause an inflation surge in Japan. Even if inflation did reach 2%, this wouldn’t necessarily trigger a policy response by …
8th February 2022
We expect that falls in commodity prices will cause current account positions to worsen across the region this year. While external positions will remain secure in most major Latin American economies, those in Colombia and Chile are an underappreciated …
4th February 2022
The “new economic model” adopted by Turkey’s government is likely to mean low real interest rates and a persistently weak lira, but it will come alongside a shift towards capital controls, ever higher inflation and growing fiscal and banking sector risks. …
18th January 2022
While the strength in New Zealand’s economy will cause the RBNZ to hike rates further this year, we think the RBNZ will end its hiking cycle earlier than the financial markets anticipate. What’s more, we think a housing downturn in 2022 will weigh on the …
12th January 2022
One possible upside of the current labour market shortages in developed economies is that they could push firms towards expanding output by raising investment and productivity instead of relying on cheap labour. However, any gains in productivity may not …
2nd December 2021
US inflation hit its highest level since the 1990s in October and has now reached a rate that, historically, has coincided with very poor stock market returns. Notwithstanding the uncertainty around the impact of the “Omicron” variant of the coronavirus, …
1st December 2021
Inflation hasn’t emerged as a concern across Emerging Asia in the same way it has in the rest of the emerging world, in part because food price inflation in Asia is much lower, but also because the region has experienced much less disruption from the …
22nd November 2021
After soaring towards the tail end of 2020, steel prices in Europe have eased back in recent months. And we think that prices will fall much further over the next couple of years, as a combination of healthy profit margins and low inventories continue to …
18th November 2021
The pandemic’s most significant economic legacy in India will be a heavily-damaged banking sector that is likely to constrain investment over the years ahead. This underpins our view that the economy could be 5% smaller over the long run than it would …
17th November 2021
We expect the ECB to interpret a period of above-target inflation as “transient” even if it lasts for well over a year. Although it will end its emergency PEPP programme next March, we think the Bank will step up the pace of its conventional asset …
15th November 2021
The UN’s annual climate change conference, COP26, will not have any discernible impact on Norway’s intention to keep pumping oil and gas over the coming decades. The irony is that Norway’s success in handling its resource windfall means that it is well …
10th November 2021
This year, the EU announced reforms to its Emissions Trading Scheme (ETS) which, if introduced, would boost the price of each carbon permit and ultimately help the bloc to rapidly reduce its greenhouse gas emissions. In the first of a two-part Focus …
Europeans are returning to cities, though the return to offices has been much slower and this has had negative effects on city retail. Looking ahead, weaker demand for office and retail will weigh on performance in cities with large concentrations of …
2nd November 2021
We have long been sceptical of the conventional view that inflation expectations have been an important determinant of inflation in advanced economies. At the same time, though, we doubt that expectations are as ‘anchored’ at low levels or at central bank …
1st November 2021
This Budget was perhaps more notable for what the Chancellor didn’t do rather than what he did. The OBR handed Rishi Sunak a significant upgrade to its forecasts for the public finances but, while the Chancellor spent some of the windfall a substantial …
27th October 2021
Americans are returning to cities, but the return to the office has been much slower. We see suburban areas being net winners in the residential and retail sectors, although the picture for downtown versus suburban offices is less obvious than the …
22nd October 2021
We expect rising wage inflation in the US to squeeze the profits of the non-financial corporate sector, which were a record high as a share of its output in Q2. This is one reason why we think the upside for the stock market there is limited, despite …
A renewed tightening of the labour market next year means that wage growth will accelerate further. That pick-up will be underpinned by a stronger minimum wage hike, the lifting of caps on public sector wage growth and more employees switching jobs. And …
21st October 2021
Suggestions that Brazil’s government will raise welfare spending – and circumvent the spending cap in doing so – add to the evidence that there’s little appetite for the long-term fiscal squeeze needed to stabilise the public finances. Taken together with …
20th October 2021
Central and Eastern Europe is one of the regions of the world where we think that the risk of sustained higher inflation in the next few years is greatest. The Phillips curve is alive and we think the combination of a cyclical recovery in demand for …
13th October 2021
With supply shortages set to persist for the next 6 to 12 months, the current period of “stagflation-lite” will persist a while longer. But it is likely to remain a pale imitation of the 1970s stagflation episode. Meanwhile, we do not share the pessimism …
7th October 2021
Current supply shortages have been driven by several forces which look set to persist for six to twelve months. They have caused sharp increases in some prices (most notably energy and used cars) and also limited output. Central banks are unlikely to …
6th October 2021
The Czech parliamentary election that kicks off on Friday looks to be one of the most unpredictable for some time. A victory for the incumbent ANO party would continue the recent trend of loose fiscal policy and support GDP growth, but at the cost of …
We expect underlying inflation in the US to be significantly higher over the next decade on average than it has been over the last one. Nonetheless, we don’t think that it will climb sharply from here, or that it will coincide with much weaker economic …
29th September 2021
We think that for the extra one million footloose American workers created by the pandemic, the cost of living has become far more important to their decision of where to live than in the past, while the “desirability” of a metro and its climate have also …
28th September 2021
Low inflation is here to stay in much of the emerging world. However, there is a significant risk that inflation rises, albeit moderately, over the medium term in several countries. This risk isn’t limited to the usual suspects like Turkey and Argentina. …
27th September 2021
We think a sustained period of inflation in the region of 3-4% over the coming years could be dealt with relatively easily by central banks. But if inflation were to rise much further than this, policymakers would have to raise rates more aggressively and …
23rd September 2021
A period of moderately higher inflation could be a good thing for many economies, but there is a risk that policymakers become too accepting of the situation. We judge that the costs of higher inflation would start to outweigh the benefits in advanced …
21st September 2021
There are good reasons to think that the natural stalling in globalisation underway won’t do much damage to Japanese manufacturers. And while an abrupt severing of supply chains between China on the one hand and the US and its allies on the other would be …
The Indian government’s aim to significantly ramp up infrastructure investment through its flagship National Infrastructure Pipeline (NIP) has suffered less disruption than might have been expected during the pandemic. That is a positive for long-term …
20th September 2021
China and countries that align more closely with it than with the US together account for around half of the world’s population. But the China bloc is far smaller economically than the US bloc and far more dependent on the rival bloc as a source both of …
17th September 2021
Demand was always likely to rebound strongly as economies re-opened and confidence returned. Beyond this, though, there are reasons to think that we could now be in for a period of sustained strong aggregate demand in developed economies. Initially, this …
16th September 2021
When contemplating whether we are entering a new era of higher inflation, it makes sense to first reflect upon the lessons from history. While there are several insights that apply to the current debate, a unifying theme is that sustained high inflation …
14th September 2021
The pandemic is likely to inflict lasting damage on potential growth in economies in much of Latin America, Africa and South and Southeast Asia, adding to the structural headwinds that they already faced. However, the risk of permanent scarring in many …
9th September 2021
The interactions between Brexit, the deterioration in Scotland’s fiscal situation and the continued lack of an easy option for the currency have made the economics of Scottish independence even more challenging than at the time of the first referendum in …
7th September 2021
Housing market valuations in Sweden are even more stretched than on past occasions when the Riksbank has “leant against the wind” – that is, set policy tighter than needed to contain consumer price inflation. While we think the Bank is unlikely to raise …
1st September 2021
