The fallout from COVID-19 will probably keep inflation subdued in the near term . But there is a risk of significantly higher inflation further ahead if earlier policy stimulus starts to push prices up sharply and central banks either fail to nip it in …
28th September 2020
Having instructed many firms to cease trading during the lockdowns, governments understandably pulled out all the stops to prevent them from going under. However, we expect this support to be gradually withdrawn, causing the number of bankruptcies to …
Commercial property has outperformed both Treasuries and equities in the last two decades, but the fast-forward of structural change caused by COVID-19 will mean that in the next decade property is again likely to underperform equities. Over the last two …
25th September 2020
Short-time work schemes are not being used as much as they were in the spring, but they still account for about 5% of the labour force. So as euro-zone governments reduce support for jobs (in the way that the UK government announced this week), …
Despite falling back a little this week, we still expect most currencies in the Asia-Pacific region to make headway against the dollar over the next couple of years, led by a stronger renminbi. As we set out here , we have changed our view on the Chinese …
The Central Bank of Egypt (CBE) cut interest rates by 50bps at Thursday’s MPC meeting after a six month pause to the loosening cycle. Policymakers are likely to remain cautious about future easing, but we think rates will be reduced gradually over the …
The surge in lending growth during and immediately after lockdowns is well and truly over. But with the authorities tightening virus containment measures again and signs that the economic recovery is grinding to a halt, we wouldn’t be surprised to see …
Continued trade tensions between the US and China are providing a significant boost to economic prospects in Taiwan and Vietnam. Having also successfully contained the virus without significant economic damage, Taiwan and Vietnam are likely to be the only …
The experience from second virus waves in Australia, New Zealand and Japan is that consumer spending falls even if governments don’t impose major restrictions. However, there are three key reasons why second waves may be less damaging to economic activity …
Although a vaccine against COVID-19 may not dramatically alter the near-term economic outlook, we expect it would structurally improve the demand prospects for many commodities and therefore boost prices, particularly for crude oil . As a ‘second wave’ of …
24th September 2020
The policy measures announced today by the Chancellor will go some way to cushioning the blow to the economic recovery from the new restrictions to contain COVID-19 and limiting the long-term hit to unemployment. But these actions won’t eliminate the hit …
The Turkish central bank’s (CBRT’s) decision to hike its policy rates by 200bp today is a response to the recent lira weakness, and should help to restore the Bank’s battered credibility. The move gives the CBRT more room to tighten monetary conditions …
We are not convinced the Fed is sowing the seeds of the next crisis by pursuing very easy monetary policy, even if this contributes to higher asset prices. Instead, history suggests the main factors inflating bubbles that pose serious risks to the economy …
A number of EMs – notably Brazil, Mexico and Korea – have experienced strong increases in food inflation in recent months, which have pushed up headline rates. But we think that food inflation in the worst-affected countries is close to a peak. Even if it …
Some policymakers at the ECB have hinted recently that further policy loosening could be on the way. There is little to be gained from announcing an expansion to QE at this stage, but we wouldn’t be surprised to see the Bank make its TLTROs more generous, …
The fact that policymakers at the SNB and the Norges Bank left policy settings unchanged this morning came as no surprise. Both banks are likely to leave policy unchanged throughout our forecast horizon and, in the case of the SNB, probably until at least …
Asian central banks have taken their foot off the gas in recent months – no central bank in the region has cut rates since July. But we think this represents a pause rather than an end to the easing cycle. With GDP still well below pre-crisis levels in …
While the government still needs to gain support for its throne speech and then back it up with budgetary action, the array of policy proposals confirms it is ready to take a far more activist approach to fiscal policy. This could lead to GDP growth being …
23rd September 2020
The number of confirmed virus cases in the euro-zone has continued to increase rapidly in recent weeks and poses a growing threat to the economic recovery. Some countries, including Italy and Germany, have been little affected so far and the number of …
Despite the recent falls in the prices of precious metals, we still expect the gold price to edge higher over the coming year as US real yields drift a little lower . The gold price surged from March to early August owing to the plunge in US real yields, …
The new restrictions to contain COVID-19 won’t prevent some sectors from continuing to recover, but they will cause others to go backwards. And based on an assumption that restrictions are more likely to be tightened further than loosened, we think …
Low utilization of office space supports our expectations of weak short-term demand. And, despite some firms raising concerns over productivity as the current remote work “experiment” continues, there are good reasons to think that these will not have a …
September’s weak batch of flash PMIs suggest that the rebound in activity in DMs seen over the past few months is losing steam, even in the countries where virus numbers are falling. The risk now is that renewed containment measures in the UK and the …
The Turkish lira has continued to weaken in recent weeks and, with the response by policymakers likely to fail to placate investors, we now expect the currency to fall to as low as 9.25/$ by the end of next year. What’s more, the risks lie firmly towards …
With new virus cases still high, capital controls more pervasive, and fiscal policy unlikely to stay loose, we are nudging down our Argentina GDP forecasts. We now expect an 11% drop this year and just a 4% rebound in 2021 (previous forecasts -10% and …
The Bank of Thailand’s (BoT) decision to leave interest rates unchanged at 0.5% came as no surprise, and rates look set to remain unchanged for some time to come. The central bank hinted at further measures to support demand, but the onus will be on the …
The Reserve Bank of New Zealand (RBNZ) continued to set the stage for negative rates today and we think the OCR will be cut into negative territory early next year. As expected, the Bank did not adjust the overnight cash rate (OCR) or its asset purchase …
Sweden has so far avoided a second wave of virus cases and the prospect of it sticking to its light-touch approach, rather than tightening restrictions in line with much of Europe, means that the risk of a renewed drop-off in economic activity in Q4 is …
22nd September 2020
Today’s decision by the Central Bank of Nigeria (CBN) to lower the benchmark rate, from 12.50% to 11.50%, shows that policymakers have put aside their concerns about inflation and are increasingly spooked by the weakness of the economy. We think that the …
News that the government has extended the ban on commercial property evictions will be welcomed by tenants, especially in the hard-hit retail and hospitality sectors. But, already facing high levels of rent arrears, this will be a further strain on …
The decision by Hungary’s central bank to leave its base rate on hold at 0.60% today highlights that the central bank is in a bind due to high inflation and concerns about the forint. Further interest rate cuts are likely to remain off the table and the …
Rising food inflation in Brazil is likely to remain a cause for concern among politicians over the rest of the year, but with core inflation extremely weak, it’s not going to spook the central bank (BCB). One of the most notable features of the recent …
The rapid bounce-back in construction and industrial activity in China, reflected in our revamped China Activity Proxy, looks set to continue in the coming months as additional fiscal support is introduced. This underpins our forecast that most industrial …
The fact that most governments were caught on the backfoot in the early stages of the pandemic meant that they had little alternative but to respond with widespread lockdowns. Six months on, a combination of a better understanding of the virus and …
The Riksbank’s decision to leave the repo rate on hold at zero this morning was never in doubt, but it left the option of a rate cut firmly on the table, linking it explicitly to moves in inflation expectations. We think it more likely than not that the …
Success in bringing the COVID-19 outbreak under control in Pakistan, Sri Lanka and to a lesser extent Bangladesh has enabled activity in these places to rebound much faster than in India, where new infections continue to surge. This supports our view that …
A tightening in restrictions designed to quash the resurgence in new COVID-19 cases would set back the economic recovery. We’ll be in a better position to quantify the impact once the government announces its plan tomorrow. But if the government resorted …
21st September 2020
While we continue to forecast that equity markets will make further ground in the next few years, the rapid increase in COVID-19 cases in Europe poses a downside risk to our projections. We have been arguing for a while that with the major economies …
Pakistan’s central bank (SBP) left interest rate unchanged today at 7.0% and appeared to signal the end of its recent easing cycle. With the economy recovering well from the coronavirus crisis and inflation concerns increasing, we expect rates to remain …
Commercial banks left the Loan Prime Rate (LPR) on hold today. With the economy now largely back to its pre-virus path and the PBOC appearing reluctant to keep monetary policy loose for longer than needed, we think the next move in the LPR will be an …
Our analysis suggests that UK commercial property is fairly valued when compared to the pricing of alternative assets. However, with that finding based on the assumption that current income streams are sustained, we think that it is unlikely to provide …
18th September 2020
The decision by Russia’s central bank to leave its policy rate on hold at 4.25% today is likely to mark a pause rather than an end to its easing cycle. The central bank will maintain its cautious approach to policy over the coming months as inflation …
China’s economic rebound has been about as v-shaped as one could reasonably hope for – but it isn’t boosting growth elsewhere. One important point that gets missed in the debate over the likely shape of the post-virus recovery is that different economies …
Strong demand from China will put a floor under corn and soybean consumption in 2020/21. But with record expected yields in the US, we expect corn and soybean prices to come off the boil . In the September World Agricultural Supply and Demand Estimates …
We don’t think the surge in high-LTV interest rates signals an incoming credit crunch. Rather, it probably reflects lenders prioritising demand from less risky borrowers. As the surge from pent-up demand wanes in the coming months, we expect high-LTV …
Today’s decision by South African Reserve Bank’s to keep its benchmark rate unchanged probably means that further easing is unlikely to materialise. Even so, monetary conditions are likely to remain very loose in the coming years and we expect rates to …
17th September 2020
There are several reasons why a second wave of the coronavirus should be far less disruptive for the economy than the first, and we think that GDP will continue to grind higher even if cases pick up further. While the number of new daily cases of Covid-19 …
As the Bank of England already has a QE programme in place and financial markets have remained calm, it was no surprise that the MPC voted unanimously to keep policy unchanged in September. But we think that it will loosen policy further, most likely in …
