Policymakers in a few emerging markets have turned to unconventional monetary policies to combat the economic fallout from the coronavirus pandemic, and some may go further into outright financial repression . This note sets out some of the potential …
31st July 2020
A more favourable economic outlook should support occupier demand and thereby prime Dutch office rents over the next few years. And while the shift to more remote working poses a risk, we think that the Netherlands might be better placed to deal with the …
The Saudi economy has embarked on a recovery in the past couple of months, but fiscal austerity and oil production cuts, as well as the ongoing suspension of pilgrimages, mean that it is likely to be slow going. The latest activity data suggest that Saudi …
30th July 2020
A combination of official travel restrictions and caution from holidaymakers is likely to hit Spain, Greece and Portugal particularly hard. Germany should get off lightly thanks to its comparatively small tourism sector, relatively small number of foreign …
The outlook for the Polish economy is better than in much of Europe. However, we still expect retail rents to end the year lower than in 2019, with the recent rebound in retail spending unlikely to be sustained. Despite the Polish economy holding up …
While the Fed left its policy settings unchanged and opted not to strengthen its forward guidance at the conclusion of its meeting today, its downbeat assessment of the economic outlook still suggests they will provide more accommodation in the months …
29th July 2020
Reforms in Chile that allow households to withdraw some of their pension savings may help to boost the economic recovery over the next year. But the way in which the reform was passed adds to the sense that public pressure will result in a higher social …
We think the Bank of Canada’s GDP forecasts are too weak given it assumes there will not be a second wave of the virus. Even if there is one, the Bank is likely underestimating the potential for inflation to rise. The Bank’s July Monetary Policy Report …
The unprecedented surge in household formation and the homeownership rate in the second quarter is not a sign that Americans are fleeing rental apartments in the city to buy homes in the suburbs. Rather, issues with data collection due to the coronavirus …
Spain’s economic recovery was already set to be one of the weakest in the euro-zone but the resurgence in virus cases over the past week and subsequent re-imposition of restrictions deals a fresh blow to the outlook. A return to normality looks even …
Today’s depreciation of the Turkish lira marks the first significant departure from the de facto peg that has been in place over the past month and, if tensions with the EU continue to escalate, sharper falls lie in store. These could ultimately force the …
28th July 2020
A surge in new domestic coronavirus cases is the biggest downside risk to our forecast that it will take two years for the economy to return to its pre-crisis peak. It could mean that the recovery takes even longer. And if it coincided with the winter flu …
Retail sales rebounded to near pre-virus levels in June, but this partly reflects a shift in spending from services to goods. Accordingly, the strong recovery in sales overstates the health of total consumption. The May retail sales data released last …
27th July 2020
A new type of recession requires new tools to measure it. It has become clear that the activity PMIs will be of little use in gauging the extent and pace of the recovery from the coronavirus crisis. Our new “Capital Economics BICS Indicator”, which is …
Policy measures from governments and the ECB to keep banks lending during lockdowns appear to have been successful, but as we have argued was likely to happen, loan growth is now slowing. Consumers’ and firms’ ability and willingness to borrow will be …
Over the past few months, the euro and the BTP-Bund spread have moved closely together, with the euro strengthening as the BTP-Bund spread narrowed and vice versa. (See Chart 1.) We think that this pattern will persist over the remainder of this year . …
24th July 2020
Jumps in the European PMIs and further increases elsewhere were another sign that activity in advanced economies continued to improve in July. However, the pace of the recovery is now likely to ease. We estimate that the developed markets composite PMI …
Russia’s central bank cut its policy rate by 25bp, to 4.25%, today and continued to provide signals that further easing lies in store. But the communications suggest that the pace of easing will slow. We maintain our forecast for the policy rate to be …
Prolonged weakness in demand and high production will keep the cotton market in a surplus in 2020/21. As a result, we forecast that cotton prices will remain low over the next 18 months . Since the beginning of this year, the price of cotton (ICE Cotton …
In recent months, cargoes of US LNG have been cancelled in record numbers as countries around the world struggle with the virus-related economic slump. After exports surged by nearly 60% y/y in the first half of 2020, we expect their subsequent collapse …
The economy is on life support, but this can’t last forever. This Update highlights the key dates to watch as the policy support is phased out, in particular the end of the furlough scheme on 31 st October and the winding up of a cluster of other measures …
The strength of industrial take-up in Q2 was driven by a ramp-up in delivery capacity, particularly by supermarkets and Amazon. Along with the continued upward trend in the MSCI monthly data, this suggests potential upside risk to our industrial rental …
China’s rapid economic recovery from the Global Financial Crisis did not play as big a role as is commonly assumed in supporting growth in the rest of Asia. We doubt a strong rebound in China from the current crisis will provide much support to demand in …
Despite the stronger-than-expected rebound in US high street sales, retail property still faces greater uncertainty than any other commercial sector. Not only does the upsurge in virus cases present a renewed near-term risk, but the inexorable rise in …
23rd July 2020
Divisions on South Africa’s MPC suggest that some policymakers are keen for the easing cycle to be brought to an end following today’s 25bp cut (to 3.50%). And that seems to be the view priced into markets. Even so, with growth and inflation likely to be …
Turkey’s central bank kept interest rates on hold today and it’s clear from the accompanying statement that inflation concerns are preventing further easing. We think that rates will now be left on hold for the next couple of years. But given high rates …
The coronavirus crisis is a new type of recession, but all the normal reasons why business investment recovers slowly from downturns still apply and the uncertainty about Brexit is an additional drag. The upshot is that business investment will lag behind …
Saudi Arabia has grown increasingly frustrated with other oil producers’ failure to comply with the OPEC+ oil output cuts and, while we think that the current deal will remain intact for now, the risk of another price war will grow as demand improves. …
Although banks expect to tighten lending standards, we think that the underlying situation is much better than pre-GFC and that government schemes will continue to provide support, which should limit financial strains for European property owners. Given …
Today’s fiscal update was a damp squib as the Treasurer didn’t present fiscal forecasts beyond June 2021 and didn’t unveil fresh fiscal support. While the government’s current forecasts are very close to our own, policymakers will probably unveil …
The push by Brazil’s government to change the tax system provides a welcome sign that the government’s reform agenda is still progressing, despite the political infighting caused by the handling of the coronavirus crisis. If implemented, the main benefits …
22nd July 2020
Despite the deterioration in the rental outlook, attractive property valuations justify investor interest in Portugal, especially compared with its southern European peers. CBRE data confirmed that investment in Europe was hit hard in Q2 because of the …
The final agreement on the Recovery Fund was a compromise reached after four days and nights of acrimonious negotiations and is less generous than first proposed. Nonetheless, it marks a historic step towards a limited form of fiscal union and, as such, …
21st July 2020
We have raised our forecast for the gold price, as we expect real yields to drift a little lower and remain low for some time. We now think that the price of gold will finish the year at $1,900 per ounce ($1,600 previously) and will remain elevated over …
The government will extend the JobKeeper wage subsidy by six months. Unemployment benefits will be made less generous which should encourage many of those having dropped out of the labour force to seek a job. Even so, the JobKeeper extension supports our …
The recovery in EM capital flows stalled last month, but this is only a minor setback – net outflows were very small. The main culprit appears to have been softer foreign demand for EM equities, with appetite for bonds continuing to strengthen. If we’re …
20th July 2020
Although the US dollar has stabilised over the past month or so as fears about a second wave have held back the rebound in risky assets, we continue to think that it will lose further ground over the rest of 2020, unless the resurgence of new cases …
Following today’s decision to keep interest rates on hold, we think that Nigerian policymakers will cut interest rates once more this year as inflation stabilises and the economic recovery proves weaker than the central bank expects. Following a surprise …
It may seem surprising that the MSCI USA Index has broadly kept up with the MSCI Europe Index in common-currency terms since 8 th June, given the simultaneous surge in cases of COVID-19 in the US while the virus has remained under much greater control on …
Commercial banks left the Loan Prime Rate (LPR) on hold today. Further rate cuts seem increasingly unlikely as the focus of monetary policy appears to be shifting from stimulating activity to containing financial risks. The one-year rate was unchanged at …
At face value, the rally in the copper price to above its pre-virus level suggests that the coronavirus pandemic has led to an overall improvement in the metal’s fundamental outlook. While a little counter-intuitive, we think this idea is less far-fetched …
17th July 2020
We don’t think that the valuations of equities in general are particularly stretched. In any case, valuations are like pieces of elastic – they can stretch a lot before they snap. In our view, valuations won’t prevent equities from gaining more ground, …
The detailed breakdown of China’s Q2 GDP data published today raises some questions about the purported speed of the recovery. Generally though, it is consistent with broader evidence of a sharp rebound, led by industry and construction. Conditions in the …
The housing market looks far stronger than we thought it would a few months ago and we are changing our forecasts accordingly. We now think prices will be broadly unchanged over the rest of 2020, before resuming their march higher in 2021, as the economy …
16th July 2020
Debt covenants generally look less stretched in this downturn than during the GFC. And, although interest cover ratios are relatively low in some REIT sub-sectors, the short, sharp, fall in capital values that we are forecasting means that it is unlikely …
New data released by the London Metal Exchange (LME) confirm our view that there has been an increase in off-exchange stocks this year, particularly for aluminium. Admittedly, there are limitations to the data, but they still underpin our forecast that …
Unseasonably hot weather in Siberia in recent months has weighed on wheat production and damaged industrial infrastructure. Scientists think that future heatwaves in the region will become more common in the coming decades due to climate change. This …
At the press conference following today’s Governing Council meeting, ECB President Christine Lagarde dampened any suggestion that the Bank may not use the full €1.35 trillion in its emergency purchase programme. In fact, we still think it is likely to …
