Canadian banks and households are in some respects better placed to deal with the side-effects of negative interest rates that their peers elsewhere have faced. But in contrast to the banking sectors of economies with negative rates, Canada’s is very …
15th May 2020
The future of the coronavirus and measures to contain it are highly uncertain and beyond economists’ expertise. Nonetheless, both will be important in determining the outlook for the global economy and we have therefore made assumptions based on what is …
The Central Bank of Egypt’s decision to keep interest rates unchanged today was not a major surprise given that efforts to prop up the pound have taken precedence over supporting the economy. If the IMF manages to persuade the central bank to loosen its …
14th May 2020
Consumers now expect house prices to fall 2% over the next 12-months, the first negative reading since 2011. That will cut the amount buyers are willing to pay and, alongside a drop in rents, supports our below-consensus call for annual house price growth …
With the Office for Budget Responsibility’s (OBR) government borrowing forecasts only including the cost of just one of the extra four months of the Job Retention Scheme and no medium-term scarring effects of the crisis, borrowing is likely to end up …
We think it is far more likely that the Bank of England will use further rounds of Quantitative Easing (QE) to boost demand rather than cut interest rates into negative territory as the market is suggesting. Over the past few days money markets in the UK …
Wage subsidy schemes in place throughout the euro-zone have so far been effective at preventing a surge in unemployment. In this Update , we answer five questions about how these schemes will evolve as lockdown measures are eased and the impact of these …
The early evidence suggests that, even in states which have begun to ease lockdown measures, demand is initially recovering only gradually. It also points to the recovery completely bypassing some sectors – suggesting that GDP will stage only a partial …
Our best guess is that business surveys, such as the PMIs, understated falls in activity in April and we suspect that the next batch of surveys, released as early as next week, will do so again in May. Despite the risk that the surveys are misrepresenting …
Colombia’s public debt ratio will rise sharply this year and we disagree with the consensus view that it will fall back from 2021. This is likely to limit any recovery in the Colombian bond market over the coming years. The hit to Colombia’s fiscal …
The additional $16bn of spending in today’s Budget along with a relatively fast relaxation of the Covid-19 restrictions should reduce the number of job losses in New Zealand. Add in a sharp reduction in labour force participation, and we now think the …
The new fiscal stimulus will substantially push up India’s already-high public debt ratio. Policymakers may have to resort to unusual steps to keep borrowing costs in check, including further financial repression and a return to partially monetising the …
While we generally agree with the USDA’s latest projections for 2019/20, we suspect that they are being too optimistic on agricultural supply in 2020/21. Nevertheless, we expect a pick-up in corn output will shift the market into a surplus, which will …
13th May 2020
Our initial expectations that office landlords would see only a limited and short-lived fall in occupier demand have given way to a growing likelihood of a more adverse outlook. We have therefore downgraded our forecast for rent growth this year from …
The broad-based decline in inflation across the emerging world since the pandemic struck has been driven in part by a dip in fuel inflation, but core inflation is softening in many countries too. We expect inflation to fall further, which should embolden …
Although employment should partially rebound once lockdown measures are lifted, the pandemic is still likely to result in a sustained increase in labour market slack, which will push wage growth sharply lower. Average hourly earnings growth surged to a …
Prime Minister Modi’s 10% of GDP support package sounds impressive but the details just announced make clear that it has been bulked out for effect. Extra demand-boosting measures are worth less than 4% of GDP. The new support limits the downside risks …
Now that restrictions are being lifted, governments are inevitably facing calls to ensure that firms emerging from virus-imposed stasis have sufficient demand to stay open – not least in the German car sector. However, government support for autos will …
The federal government’s spending measures are dwarfed by those in the US, and the Bank of Canada’s plans look underwhelming compared to those of the Federal Reserve. But the overall fiscal packages look similar once we incorporate likely provincial and …
The ban on home buying activity has been lifted by the government. But a weakened economy, uncertainty and behavioural shifts from the coronavirus will hamper the housing market recovery. By the end of the year, we expect housing sales to still be well …
The Reserve Bank of New Zealand (RBNZ) massively expanded its annual target for asset purchases at its meeting today and we still think the Bank will cut rates into negative territory before long. The Bank’s decision to keep rates on hold at 0.25% was …
Vietnam’s central bank (SBV) today cut its main policy rate by 50bp to 4.5%, and further rate cuts are likely given the poor economic outlook. Although life in the country appears to be slowly returning to normal after the lockdown came to an end late …
12th May 2020
The recent performance of different “factors” in the US stock market may seem surprising during the outbreak of coronavirus, given the adverse implications for the economy of the measures taken to control its spread. Like several other ongoing …
With its lockdown being extended again today, the Philippines faces at least two more weeks before the economic recovery will begin. We think GDP will contract by 6% this year, which would make it one of the hardest-hit countries in the region from the …
Industrial output slumped in March and more timely evidence from the manufacturing PMI, electricity consumption and vehicle production strongly suggest that the sector has come to a near standstill in April and May. What’s more, with lasting damage …
The usual suspects are already claiming that the surge in the growth rates of the monetary aggregates will trigger a marked rise in inflation. (See Chart 1.) But the pick-up, which is a direct result of the Fed’s asset purchases, is not going to put …
South Africa’s public debt ratio will rise sharply this year and it would take an implausible degree of austerity or reduction in borrowing costs to stabilise the debt ratio in the following years. A debt crisis isn’t imminent, but it could be …
The border closure will result in a collapse in revenue from foreign tourists and a marked fall in revenue from foreign students in Q2. And while the government will probably allow foreign students to enter the country before long, tourism revenue is set …
The austerity measures announced by the Saudi government today reinforce our view that it will rely on fiscal consolidation rather than a devaluation to make the adjustment to cheap oil. The measures mean that households may end up bearing a larger burden …
11th May 2020
Low oil prices, OPEC+ production cuts and delays to investment should reduce global oil supply by over 6% this year. This is one reason why we expect prices to end the year higher . By way of background, global oil production rose to 100.5m bpd in 2019 …
One major difference between Argentina’s current crisis and the historic 2001/02 episode is that the hit to private sector balance sheets should be smaller. So even though the coronavirus will cause a steep contraction in GDP this year, we don’t expect a …
With the incoming economic data likely to be less reliable than usual, we think that investors should focus more on the timely low-level activity data and the changing shape of infection curves to judge which EMs sit where in the crisis. Meanwhile, …
The Treasury’s plan to issue more long-term debt is sensible enough when long rates are at ultra-low levels, but a more marked shift in debt issuance policy could signal that policymakers are hoping to engineer a rise in inflation to help bring the …
The Fed has developed a habit of caving in the face of market pressure in recent years, but we still think the chances of it pushing the fed funds rate into negative territory are low. Fed officials have been united and consistent in arguing that the …
Low transactions volumes have made house price indices volatile and inaccurate. Indeed, the ONS has suspended publication of the official UK House Price Index, while the Halifax and Nationwide data for April are wildly divergent. Looking ahead, we may …
Except for India’s, banking sectors across Emerging Asia went into the crisis in good shape. The economic recession now underway will cause a sharp rise in non-performing loans (NPLs), but most banks are well-placed to absorb the losses. This reduces the …
Data from Europe suggest that the relationship between working from home and office space per worker is weak. And even if working from home becomes more prevalent in the next few years, we think that the most important driver of occupier demand will be …
The Czech central bank delivered a larger-than-expected interest rate cut at today’s MPC meeting but also disappointed those that had expected some unconventional measures to be announced to support the economy. Policymakers’ cautiousness and conservatism …
7th May 2020
The household saving rate is set to surge from 3% to a 25-year high of 11% in the second quarter, but higher savings are unlikely to prompt a splurge in spending once the restrictions on activity are lifted. We said last week that the Canada Emergency …
The surprising resilience of the Markit PMIs and ISM indices this month is more a function of the survey design than an indication that the economic hit is not as bad as the hard data suggest. The surveys are likely to do a poor job at capturing the shape …
The surge in mortgage borrowers seeking forbearance stands in contrast to a more modest rise in missed rental payments and suggests many have requested mortgage holidays as an insurance policy, rather than because of a pressing need. Accordingly, while …
China’s commodity imports have held up well so far this year, but weak external orders and subdued domestic demand point to lower volumes in the months to come . China’s exports rebounded strongly in April, rising by 3.5% y/y in US dollar terms (see our …
This morning’s 25bp rate cut by the Norges Bank, to a fresh record low of zero, took the consensus by surprise, but was in line with our forecast. That said, the Bank gave a strong signal that it has now reached the end of string of rate cuts, and we now …
While the Monetary Policy Committee (MPC) left its interest rate and quantitative easing (QE) policies unchanged this morning, it implied that an expansion of QE is imminent. This leaves our existing call that the MPC would expand QE by around £100bn at …
The lack of clear movement in the Q1 commercial property data has put other indicators into focus. These paint a much bleaker picture, particularly for the retail sector. The key Q1 commercial property data have so far held up well. Indeed, prime rents in …
Economic activity in New Zealand has started to rebound after its severe lockdown has come to an end. But there are a number of reasons why output won’t return to normal anytime soon. New Zealand moved from a severe level 4 lockdown that restricted …
Given growing worries about public health and the devastating economic impact of India’s lockdown, the current rate of inflation should not constrain the actions of policymakers. Further ahead though, the likelihood that inflation remains low will allow …
The Brazilian central bank’s 75bp cut in the Selic rate last night and the dovish tone of the accompanying statement has prompted us to pencil in a further 50bp of cuts (to 2.50%) in the coming months. Elsewhere, the Chilean central bank gave little away …
The coronavirus-induced collapse in economic activity means that state & local government tax revenues will plunge over the coming months. With balanced budget rules in most states meaning that lower revenues must be offset by lower spending, budget cuts …
6th May 2020
In light of the pandemic, our forecasts for developed market commercial property returns have been revised lower. Nevertheless, the relativities between the key markets are broadly unchanged, meaning that we still expect the US to outperform the UK and …
