Worsening relations between the Brazilian presidency and legislature threaten to delay the much-vaunted pension bill and will keep markets on tenterhooks in the coming weeks. It still looks like the reform will be approved, but the latest events suggest …
3rd October 2019
While the hike to Japan’s sales tax means its economy will probably contract in Q4, we suspect that the impact on bonds and equities there will be fairly small. However, we still think that Japan’s stock market will fall by the end of this year, as waning …
Chile’s economic slowdown this year was mostly due to weaker private consumption, caused by a fall in consumer confidence. But with the labour market strengthening and copper prices likely to rise next year, we expect that consumer spending growth will …
When put on a like-for-like basis, the Bank of England’s assumptions for how weak the economy would be in the 12 months after a no deal Brexit are not that different to our own. And both we and the Bank think that after a no deal economic growth would …
Aggregate emerging market growth is likely to stabilise at close to 4% y/y in the coming quarters, but within this several different economic cycles are playing out. The recent resilience in Central Europe and, importantly, China, is unlikely to last. But …
South Korean capital flows into European commercial property have surged so far this year. Against the backdrop of cheap credit and robust fundamentals in many markets, these flows look set to continue for at least another couple of years. However, …
Kenya’s economy remained weak in Q2, but there are signs that the key agricultural sector has held up pretty well given this year’s drought. With the drag from the sector easing, GDP growth will pick up over the remainder of this year and into 2020, when …
Dubai’s economy slowed in 2018 and the activity data for this year suggest that growth has stayed weak. The 2020 World Expo will provide a fillip to the economy, but a number of other factors mean that GDP will grow at rates of 1-2% over 2019-21, well …
2nd October 2019
Having cut its key interest rate by 25bps this morning, we now expect the Central Bank of Iceland (CBI) to stay in easing mode over the coming months and to reduce rates to 2.75% by year-end. The reduction in the seven-day deposit interest rate in Iceland …
We think that the ECB will increase its monthly bond-buying next year by purchasing more corporate debt. This would lead to a marked pick-up in bond issuance, but only a small increase in investment. The divisions on the ECB’s Governing Council become …
There has been a dramatic expansion in the co-working office sector globally over the last five years. As these operators use a different approach to traditional landlords, this brings new risks to office markets, though we feel it is probably too soon to …
We still believe that the unemployment rate would have to fall to 4.0% to meet the RBA’s definition of full employment. With the actual unemployment rate now at 5.3% and rising, that means that the RBA has more work to do. We reiterate our forecast that …
The rise in the EM manufacturing PMI to a six-month high in September adds to our view that EM growth is stabilising, even as advanced economies continue to lose momentum. The EM manufacturing PMI rose from 50.4 in August to 51.0 in September. While it …
1st October 2019
The Liberals would loosen fiscal policy by more than the Conservatives if they won October’s election, but neither parties’ plans would seriously transform the economic outlook. On Sunday the Liberals released the cost breakdown of their policy proposals, …
We estimate that the direct and indirect effects of the slump in vehicle production account for around half of the downturn in German industrial production since the beginning of last year. A sustained recovery will not take place until the sector is back …
The dissolution of congress by President Martín Vizcarra and his heated stand-off with the opposition will likely cause a sell-off in markets and further political gridlock. But as things stand, we doubt that this will prevent Peruvian GDP growth from …
The global manufacturing PMI picked up again in September, but this was largely due to a jump in China’s index that we don’t think will be sustained. While it is still too early to call time on the downturn in global industry, it is at least of some …
The RBA cut interest rates to 0.75% as widely anticipated and we think it will lower rates to 0.5% by the end of the year. Rates approaching the zero lower bound will inevitably invite speculation about quantitative easing but the RBA’s forceful response …
India’s current account deficit narrowed a touch in the four quarters to Q2 and looks unlikely to balloon any time soon as imports of key commodities remain in check. Meanwhile, FDI inflows edged up in Q2 and are likely to rise over the coming quarters as …
Suggestions that the recent rise in interbank rates was caused by the ECB’s new tiered interest rate system are wide of the mark. Instead, the increase reflects investors’ re-evaluation of the outlook for policy rates. They now anticipate a single 10 …
30th September 2019
Although we forecast a correction in the US stock market later this year, we think it will outperform Treasuries by a large margin in 2020-21. This view rests on an assumption that inflation will remain quite low, but positive. Other inflation outcomes …
The latest business surveys from Switzerland indicate that the woes in Germany are posing an increasing drag on activity. We have therefore revised our forecasts for Swiss GDP growth down to just 0.5% this year and next, which puts us well below the …
China’s official and unofficial PMIs rose in September, but we think this is unlikely to mark an economic turnaround not least because global demand looks set to weaken further. What’s more, signs of slower construction activity have particularly negative …
Data released over the weekend suggest that Vietnam grew strongly in the third quarter of the year, and we think it will remain one of the fastest growing economies in the region. The possibility that the US will introduce tariffs on its imports from …
Tomorrow’s tax hike is likely to do less immediate damage to economic growth in Japan than previous increases. But it is still likely to trigger a sizeable fall in GDP in Q4. A rapid rebound next year is unlikely. The sales tax was introduced at 3% in …
The giveaways to households and firms announced by French finance minister Bruno Le Maire yesterday do not alter the fact that there will be a tightening in France’s fiscal stance in 2020. Indeed, the French government has not got the will (nor the scope …
27th September 2019
Investors’ continued optimism about corporate earnings in the US is hard to square with our view that economic growth there and in the rest of the world will remain weak. That is the key reason why we expect US equities to perform poorly during the rest …
We have revised up our forecasts for India’s Sensex equity index following the corporate tax reform there. And more generally, we expect it to be one of the best performers among EM stock markets over the next few years, even if it falls back a little …
A further downgrade to the euro-zone growth outlook means that additional monetary loosening is on the cards. While this doesn’t substantially shift our expectations for property yields over the next few years, it will keep the supply of capital strong …
Mexican policymakers cut their policy rate from 8.00% to 7.75% yesterday, and we think that they will continue to loosen policy over the coming quarters. We now expect a 25bp cut in both of the remaining meetings this year, taking the rate to 7.25% rather …
Assessing investors’ expectations about the future path of policy interest rates in Norway is not as straightforward as it is in other countries, not least neighbouring Sweden. In this Update we answer ten key questions to provide a primer on how to gauge …
A surge in demand for refinancing has stretched lenders’ capacity, lengthening the time it takes to close a mortgage. That has disrupted the usual relationship between pending and existing home sales. While that disruption should not last long, it means …
26th September 2019
The Central Bank of Egypt shrugged off the market volatility following recent protests across the country and lowered interest rates by another 100bp, to 13.25%, at today’s meeting. So long as the protests don’t escalate, weak inflation pressures mean …
Ethiopia’s investment-focused economic model has attracted widespread praise, but has also created dangerous external vulnerabilities. Were domestic instability or EM-wide risk aversion to cause funding to dry up, the country would quickly face a painful …
Rising tensions in the Middle East present a significant upside risk to our oil price and inflation forecasts, and could force a handful of EM central banks to abandon easing cycles or even hike interest rates. But a majority of central banks would …
The Bank of Canada’s latest research implies that home equity extraction has had only modest effects on consumer spending and GDP. Once we consider the total wealth effects, however, the significance of previous gains in house prices is much larger. The …
Today’s cut to the policy rate by the central bank in the Philippines (BSP) from 4.25% to 4.00% is unlikely to be the last in the easing cycle. With growth likely to disappoint and price pressures set to remain subdued, we expect more cuts in the coming …
Most of the recent outperformance of Switzerland’s manufacturing sector relative to Germany’s reflects strong growth in pharmaceuticals. But this has masked struggles in more Germany-facing sectors. The Swiss manufacturing sector has outperformed its …
Given that the SNB’s policy rate is already at -0.75%, fears of hitting the so-called ‘reversal rate’ are likely to make it unwilling to cut rates much further. With the ECB once again in easing mode, we put the odds of the SNB having to reinstate a …
25th September 2019
Following a bold start to the year, office take-up in Barcelona looks set to record its strongest year since 2005 which, coupled with falling vacancy rates, should boost rental growth. Indeed, Barcelona is set to outperform its peers for the next few …
EM capital outflows persisted last month and, with the US-China trade war unlikely to abate, we think that they will continue in the coming quarters. However, the scale of outflows should remain modest, which in turn should limit the macroeconomic …
The Bank of Thailand (BoT) left interest rates unchanged at 1.50% today, but with economic growth set to remain weak and concerns about the strength of the baht mounting, we think the central bank will loosen policy again before the end of the year. …
Nigeria’s latest budget plan has strengthened our view that the fiscal position is unsustainable and that the country will face some kind of debt crisis within five years. Nigeria’s new fiscal framework makes for sobering reading . The document not only …
The combination of a broad-based easing cycle in emerging markets and strong demand for risky assets has pushed local currency emerging market (EM) sovereign yields down sharply in 2019. However, we expect that rally to go into reverse by the end of the …
The Reserve Bank of New Zealand sounded more comfortable with its position when it left rates on hold today but we still think the Bank will cut rates to 0.75% by early next year. The decision to leave rates unchanged at 1.0% following the dramatic 50 …
Flash PMIs for September suggest that advanced economies ended Q3 on a weak footing. The surveys also point to weaker exports, jobs growth and core inflation. The fall in the euro-zone composite PMI, to a 75-month low, indicates that the economy almost …
24th September 2019
We are cutting our forecast for euro-zone GDP growth in 2020 and expect inflation to stay close to 1%. Moreover, we think the ECB will revise its inflation target in the coming months, then cut its deposit rate to -0.8% and further step up QE next year, …
The ruling by the Supreme Court in the UK that the Prime Minister’s decision to prorogue Parliament was “unlawful, void and of no effect” and that the suspension should be “quashed” as soon as possible increases the chances of a delay to Brexit and …
The Bank of Japan’s announcement that it will “re-examine economic and price developments” at its meeting at the end of October has been widely interpreted as opening the door to a shift on policy. In this Update , we highlight the indicators that will …
