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With central banks across Central and Eastern Europe (CEE) raising interest rates to tackle inflation, we think the risks of a wage-price spiral are low. Even so, persistently above-target inflation, tight labour market conditions and strong domestic …
5th January 2022
Given the huge surge in cases throughout December, the COVID-19 situation is once again set to be the biggest determinant of the performance of the economy over the first few months of 2022. We aren’t factoring in any additional UK-wide restrictions, but …
December’s PMIs suggest that EM manufacturers ended last year on a firm note, with headline indices rising in much of Emerging Europe and Emerging Asia. Encouragingly, input and output price components dropped back in many EMs, suggesting that inflation …
4th January 2022
The National Bank of Poland (NBP) raised its policy rate by another 50bp, to 2.25% today and we expect at least another 75bp of tightening, to 3.00%, in the next few months. But with energy bills set to surge and wage pressures strengthening, the risks …
The recent sale of a 25% share of the Bluewater shopping centre has provided further evidence of the slump in retail values. And while there are signs that the worst of the correction may now be over, we don’t think that a turnaround is likely soon. The …
24th December 2021
Despite tight supply and the boost to demand from e-commerce, we think Turkey’s recent currency crisis will further weigh on Istanbul industrial rents and that rental growth will slow sharply after this year. Echoing the trend seen elsewhere in Europe, …
23rd December 2021
This year’s surge in natural gas prices means that HICP inflation may be up to one percentage point higher next year than it would otherwise have been. However, aggregate energy inflation is still likely to come down during 2022, because transport fuel …
22nd December 2021
The Czech National Bank (CNB) hiked rates by 100bp (to 3.75%) today and Governor Rusnok struck an incredibly hawkish tone after the meeting. The tightening cycle clearly has further to run and we now think the CNB will bring interest rates to 4.50% by …
International travel restrictions and domestic containment measures have dealt the hotel sector a massive blow over the last two years. The outlook for the sector is more positive, but a slow relaxation of restrictions, tourist hesitancy and reduced …
We always expected European natural gas prices to remain high over the winter because of low stocks, but heightened uncertainty about supply from Russia has caused prices to skyrocket again. Assuming supply isn’t affected, though, our expectation is that …
21st December 2021
A new scheme announced by Turkey’s President Erdogan last night, which compensates holders of lira deposits for exchange rates losses, has triggered a sharp rally in the lira and will help to mitigate some of the risks that had started to crystalise in …
Foreign investors have been net sellers of EM assets for much of this year and tighter monetary policy in the US and a stronger dollar suggest that the environment for EMs next year will remain challenging. The good news is that most major EMs should be …
20th December 2021
The pandemic-driven boost in scientific research and development will support demand in the European life science sector, at least for the next few years. This bodes well for several markets we forecast, including Warsaw and Copenhagen. The shift to more …
Following yesterday’s interest rate cut in Turkey, the lira has plunged again and is now faring worse than other Emerging Europe currencies have done during recent sudden stops. There are some signs of stress emerging in the banking sector. These aren’t …
17th December 2021
Russia’s central bank (CBR) stepped up the pace of its tightening cycle today with a 100bp interest rate hike, to 8.50%, and the hawkish communications reinforce the message that it will not hesitate to raise interest rates further. We now expect a 75bp …
While the hike in Bank Rate from 0.10% to 0.25% came a little earlier than we expected, it does not change our view that the overall rise in interest rates over the next couple of years will be modest. However, the continued strength of both inflation and …
16th December 2021
The ECB confirmed today that it will reduce the pace of its monthly asset purchases to €40bn by April next year. It plans to reduce them to €20bn by October and then continue as long as necessary. We have brought forward our forecast of the first rate …
The surprise hike in interest rates by the Bank of England today, from 0.10% to 0.25%, could just be a case of the Bank moving a bit quicker than expected, but the hawkish tone of the commentary suggests to us that it is now also willing to move a bit …
Yesterday’s Fed meeting confirmed a hawkish shift. Turkey aside, we doubt that this is likely to cause major strains in the balance of payments of most EMs. But the Fed’s hawkish turn may cause domestic monetary policy to be tightened slightly more …
Turkey’s central bank shrugged off a currency crisis, rising inflation as well as the recent hawkish turn from the Fed and remained obedient to President Erdogan by cutting its one-week repo rate by another 100bp, to 14.00%, today. The accompanying …
While the Swiss National Bank maintained the status quo once again this morning (yawn), the Norges Bank continued its tightening cycle, as expected, and opened the door to another rate hike in March. We are sticking to our hawkish forecast that rates will …
Given the fast-moving virus situation in Europe, and mindful of the fact that Omicron won’t be taking a festive break, this Update identifies five key areas of uncertainty to watch over the coming weeks. Europe was labelled the epicentre of the pandemic …
15th December 2021
Investment activity has bounced back sharply after the initial COVID-19 shock and is on track to hit a three-year high in 2021. But we expect more modest growth in 2022 as softer economic activity and structural factors in some sectors weigh on …
The decision by Hungary’s central bank (MNB) to raise its base rate by 30bp, to 2.40%, at today’s meeting is largely symbolic. The key point is that the central bank struck a clear hawkish tone and will continue to push up interbank interest rates …
14th December 2021
Reports that the surge in Omicron COVID-19 cases is causing some people to stay away from work, schools, pubs and restaurants increases the downside risks to our December and January GDP forecasts. But the big step down would happen if there were another …
While mortgage lending slowed in Q3 as the stamp duty holiday was tapered, an easing of deposit requirements supported first-time buyer demand. Meanwhile, the Financial Policy Committee’s plan to withdraw its affordability stress test will allow banks to …
Consumers will feel a squeeze on their finances next year as inflation and taxes rise. That will take some wind out of the housing market’s sails, but it will not cause a correction. A spike in inflation and a hike in National Insurance contributions in …
13th December 2021
Italy will elect its next president in January, with prime minister Mario Draghi widely touted as a favourite to take up the post. If he did so, the current government would probably fall apart, making it more difficult to pass necessary economic reforms …
Office space under construction declined for a third consecutive quarter according to the Winter London Crane Survey, despite an uptick in new starts. Given the challenges the office sector faces, we believe that activity is likely to decrease even …
10th December 2021
The Omicron variant has heightened the near-term risks for both the economy and UK commercial property. The latest restrictions show that there is still considerable uncertainty, but our estimates suggest that the downside is limited and the sector should …
9th December 2021
Tighter Covid restrictions and increased consumer caution appear to be causing euro-zone activity to decline. We have revised our euro-zone Q4 GDP growth forecast down to 0.2% q/q and the risks are still to the downside. Although there is still a lot of …
8th December 2021
The National Bank of Poland’s decision to slow the pace of its tightening cycle with a 50bp interest rate hike (to 1.75%) seems a bit inconsistent with its more hawkish tone on inflation in the accompanying press statement. Even so, we think the backdrop …
The tightening of Covid restrictions in the Netherlands in response to the resurgence of the virus there in recent weeks will put a temporary brake on GDP growth in Q4. But we think that the underlying strength of domestic demand and an increase in net …
Banking sectors in Emerging Europe have come through the pandemic with few scars and vulnerabilities generally remain low, but we identify three potential areas of concern, including deposit dollarisation in Turkey, frothy lending growth in Russia as well …
7th December 2021
Poland’s industrial sector as a whole has shaken off widespread materials shortages in recent months, in part due to its more diversified sectoral make-up than the rest of CEE. But it also reflects the fruits of recent investments into new production …
2nd December 2021
November’s PMIs offered tentative signs that the worst of the supply disruption may have passed, but the bigger picture is that manufacturers in the emerging world remain stretched. And while it’s still too early to tell, the Omicron variant could …
1st December 2021
Given the uncertainty around Omicron, and the revealed preference of the SNB in recent weeks to largely stay out of the FX market, we would not be surprised to see the Swiss franc rise further against the euro in the near term. But any upside is limited, …
The confirmation earlier today that far-right pundit Eric Zemmour will stand in France’s presidential election next spring comes as no surprise given his rise in the polls. But French President Emmanuel Macron still looks on course to win a second term, …
30th November 2021
The latest data suggest that the upward pressure on wage growth from labour shortages has a bit further to run. Admittedly, the discovery of the Omicron variant has clouded the near-term outlook for wages and the labour market, with higher virus …
After surprising on the upside this year, we think that the broad-based decline in Central and Eastern European (CEE) property yields will continue in 2022, albeit at a more modest pace. But with higher bond yields eventually weighing on valuations, we …
It is still very early days in assessing the effects of the latest Covid variant, but we suspect that Omicron has the capacity to cause a new decline in economic activity in the coming months but that it will probably have a relatively small impact on …
29th November 2021
There’s a lot that we don’t know about the new Omicron variant. But if it proves more virulent, the economic fallout would probably be largest in EMs in parts of Africa and South and South East Asia that have lower vaccination rates, more limited fiscal …
The restrictions announced by the government on Saturday in response to the new Omicron COVID-19 variant increase the downside risks to our GDP forecasts and the chances that the Bank of England delays increasing interest rates until next year. And …
The most comprehensive statistics on housing supply confirmed that the pause in construction in Q2 2020 caused completions of new homes to drop back. Housebuilding activity has since recovered but materials shortages, the end of the Help to Buy Equity …
The account of October’s ECB meeting suggests that it is by no means guaranteed that net PEPP purchases will end in March. And even if they do, the Bank may well leave open the possibility of re-starting PEPP purchases later in 2022 if needed. Meanwhile, …
25th November 2021
Over the last two years, serviced offices have seen more upheaval than most other real estate sectors. But there have been some encouraging signs over recent quarters and long-term trends may have moved in their favour, though we don’t expect improved …
Some commentators have pointed to the slump in the Baltic Dry Index as a sign that shipping bottlenecks are easing. But we think it is more a symptom of lower Chinese steel output and plunging iron ore prices . The Baltic Dry Index (BDI) is a composite …
In comparison to the chaotic scenes in the Riksdag yesterday, the Riksbank’s November meeting was a more sedate affair. While the Bank is in no rush to raise the repo rate, the insertion of a rate hike into the end of its three-year projection period …
The Israeli shekel has appreciated sharply in the past few weeks, making it one of the best performing currencies during the pandemic. While we don’t expect this recent strength to continue in the very near term, we think that Israel’s macro fundamentals …
24th November 2021
The Turkish lira’s sharp fall yesterday looks similar to the experience of sudden stops elsewhere. In those instances, central banks usually responded with interest rate hikes of around 600bp as well as other regulatory measures, which supported a …
