Inflation is now on a downward trend and interest rates are at, or very close to, a peak. But central banks will only cut interest rates once there are clearer signs that underlying price pressures are under control. That could be as early as later this …
17th May 2023
A sharp rise in Korean interest rates over the past 18 months is leading to a steep downturn in the property market. Encouragingly, the banking sector looks well placed to cope, but the broader economy is unlikely to escape unscathed. The problems in the …
Mexico’s economy has put in a decent performance over the past year or so, but we think that most of the factors that have supported robust growth have now run their course. Tight policy and a looming recession in the US mean that the economy is likely to …
Having picked up sharply in April, inflows into EM bond and equity markets have weakened in the past few weeks. Inflows into India and Turkey remained strong over the first half of the month, but in the latter this is likely to reverse after the …
16th May 2023
South Africa has traditionally sought to be non-aligned and, in our ‘ mapping decoupling ’ work, we placed it in neither the US nor the China camp. But recent developments suggest that it could be leaning towards the latter. If that’s the case, it might …
The sharp rise in unsecured bank lending has probably helped to support consumption and boosted bank profitability over recent quarters. But it also leaves the banking sector at risk of rising defaults, a concern that is exacerbated by the relatively low …
The stronger-than-expected Q1 GDP data from Colombia suggest that the risks to our forecast for the economy to expand by 0.8% over 2023 as a whole are skewed to the upside. That said, there were signs of underlying weakness in the data and we expect the …
The RBA’s balance sheet has barely shrunk since it decided to stop reinvesting the proceeds from maturing bonds. While pressing ahead with quantitative tightening would make it easier for the Bank to engage in quantitative easing during future downturns, …
Housing continues to shrug off high interest rates House prices rose by even more than we anticipated in April and the sales-to-new listing ratio points to further gains ahead. Housing starts also jumped last month, but the rising inventory of newly …
15th May 2023
The recent strength of services exports has helped to offset much of the impact of the drop in goods exports and – along with a pull-back in import values – is another reason to think that the current account deficit will narrow this year. Data for April …
The downturn in the housing market appears to have paused in many countries in recent weeks. However, we doubt that this marks the bottom of the market. With higher interest rates yet to take their full effect, and affordability generally still stretched, …
Turkey’s presidential election on Sunday was close, but Erdogan performed better than recent polls had suggested and he now has the edge ahead of a second round run-off on 28 th May. Hopes of an opposition victory and a return to orthodox policymaking …
Thailand’s general election has delivered a massive victory for the main opposition parties, but this may not be enough to allow them to form the next government. This Update answers five key questions on the election and what it means for the economy. 1) …
Borrowing over a longer period significantly reduces monthly mortgage payments. So the accelerated shift towards loans with a term of 35 or 40 years rather than 25 has probably helped to mitigate the drag on buyer demand from higher interest rates. Higher …
We think that investors are underestimating the scale of interest rate cuts in the UK next year. If we’re correct, that could propel Gilts to the top of the class for local-currency returns over the rest of 2023. Local-currency returns from ICE BofA’s …
12th May 2023
The sharp rise in US manufacturing construction over the past two years is likely to continue into the medium term as firms take advantage of favourable government incentives. But as these expire, demand for the sector will wane as firms look overseas for …
We doubt sterling’s strong run will continue; we still think that an economic downturn in the UK and other advanced economies will lead to renewed downward pressure on sterling later this year. Despite falling back a bit, to ~1.25 against the US dollar, …
Sovereign debt risks are back in focus as some frontiers appear to be drifting closer to default. We remain most concerned about default risks in Tunisia and Pakistan, particularly in light of this week’s unrest and IMF deals now appear further away. Debt …
We don’t think long-dated Treasuries are bound to fare worse than the S&P 500 in the coming weeks, even as the risk of US sovereign default looms larger. Our US Economics Service is the place to look for detail on the evolving debt ceiling spat, which …
11th May 2023
The recent downgrading of Swedish property company SBB’s credit rating to “junk” and the ensuing market fallout have highlighted financing fragilities in the Swedish property market. But, while SBB is not alone in facing a sizeable financing challenge, we …
Substantial yield compression over the past two years meant that by the middle of 2022 industrial had become the most overvalued sector since our measure began in 1992. That helps explains the subsequent 26% crash in capital values. Perhaps worryingly, …
Today’s 25 basis point (bps) rise in interest rates from 4.25% to 4.50% takes rates to our long-held forecast and may be the last hike, although one or two more hikes are possible. We suspect the subsequent holding phase will be fairly long, lasting until …
We were in the Gulf last week visiting clients and this Update takes stock of the key talking points that emerged, from a sense of optimism surrounding the Gulf economies to despair and fear regarding Egypt and other parts of North Africa. One thing that …
The looming impeachment trial of Ecuador’s president Guillermo Lasso marks a further intensification of the country’s political crisis and suggests that the recent experiment with market-friendly governments is on borrowed time. There are lots of ways in …
10th May 2023
With China’s economic rebound losing momentum and investors’ attention shifting back to concerns about the country’s political and economic model we think the near-term prospects for Chinese equities have become less bright. We now envisage the MSCI …
Although recent data suggest that Paris offices had a slow start to the year, we think this weakness will be short-lived. Indeed, with demand prospects looking favourable and new supply set to slow, we think Paris prime rental growth will outperform other …
Greece has arguably been the positive surprise in the euro-zone over the past few years and near-term prospects look good. However, the forthcoming election may usher in a coalition government which is less committed to reforms and fiscal stability than …
Most EM central banks have drawn their monetary tightening cycles to a close now and, if history is any guide, it looks like the conditions will be in place for an easing cycle to start from around July/August. EM central banks were quick off the mark to …
Note: We discussed Turkey’s election in an online briefing on 10th May. Watch it here . There’s a lot of optimism that the opposition will emerge victorious in Turkey’s elections, which would pave the way for a return to orthodox economic policy. Were …
The 2023/24 Budget unveiled yesterday by Treasurer Jim Chalmers was something of a mixed bag. On the one hand, the modest spending measures proposed by the government will not break the bank, thanks in large part to the government’s commodity-driven tax …
Flash GDP figures showed that Saudi Arabia’s economy contracted in Q1 on the back of OPEC+-agreed oil output cuts, but growth in the non-oil economy remained strong. The “voluntary” oil production reductions announced last month will continue to weigh on …
9th May 2023
While the hiking cycles of all major central banks will soon be in the rear-view mirror, most of their impact on activity lies on the road ahead. Based on the latest national accounts data, we estimate that there is still plenty of scope for higher …
We think migration patterns of footloose workers will continue to play the largest role in driving the rental outlook across metros. But rent as a share of income will also have a bearing, weighing on prospects in major markets such as NYC, LA and Boston, …
China’s commodity imports were generally weak in April. We suspect that import volumes generally could soften a bit further as any reopening effect on commodity demand fades and export demand deteriorates owing to sluggish growth in the rest of the world. …
While world trade fell further in February, the available data point to a rise in March, especially due to a strong rebound in China. But that rebound looks to have already reversed in April. And with high interest rates set to weigh on demand for goods …
The recent turmoil in the banking sector doesn’t appear to have triggered a severe further tightening in credit conditions, but since lending standards were already being tightened to a degree only previously seen during recessions, the lack of any …
8th May 2023
Concern about banks and the US debt ceiling will keep the gold price historically high in the next few months. However, once these worries fade, we think that longer-term headwinds will come into play. At around $2,010 per ounce today, the gold price …
5th May 2023
Our central scenario is that Italy’s public debt-to-GDP ratio will decline gradually in the long-run. However, the government will need to maintain sizeable primary budget surpluses to make that happen. The European Commission has recently made a series …
While home sales have plummeted, house prices have fallen just 3% so far and eked out a small gain in February. We think this reflects the role that tight supply is playing in this downturn, with the number of homes for sale at record lows. Given supply …
Although rent growth has been resilient, as the Swedish economy enters recession and employment contracts, we think the recent slowdown in Stockholm office occupier demand will persist. And with new office supply set to reach record highs in the next few …
We think that the tailwinds supporting the rebound in the euro against the US dollar have largely run their course, and still forecast the EUR/USD rate to return to parity as advanced economies fall into recessions later this year. Even after falling …
The manufacturing PMIs for April suggest that industrial activity softened in most EMs last month and that external demand generally remained weak. The one crumb of comfort is that price pressures eased further last month. The aggregate Emerging Market …
4th May 2023
In theory, there is plenty of scope for those countries set to age most rapidly over the coming few decades to cushion the impact on their workforces via migration and a rise in both female and older participation rates. However, in many cases, this will …
We forecast small further falls in the yields of long-dated US Treasuries and euro-zone sovereign bonds between now and the end of next year, as disinflation picks up steam and central banks turn more dovish. Investors largely shrugged off this week’s …
Today’s 25bp decision was in line with market expectations and the views of most forecasters polled by Reuters – though we had been in the minority forecasting 50bp. The move marks a slowing in the pace of policy tightening and suggests at face value that …
While food CPI inflation remains very high in all major advanced economies – and especially so in Europe – we expect it to fall sharply in the coming year. Energy and labour costs have been key in keeping consumer food inflation so high, but these props …
The underperformance of the US stock market seen last year has generally paused so far in 2023, as returns have been propped up by mega-cap “growth” stocks. That may continue over the rest of the year, especially if advanced economies enter recessions. …
The idea of a new BRICS currency to settle trade or hold in reserves instead of the dollar has been doing the rounds recently. This could be modelled on the IMF’s Special Drawing Rights. But getting India on board with China would be difficult. And if the …
The key message from the latest China PMIs is that whilst China’s economy is likely to grow strongly this quarter, momentum is fading. This will be one factor weighing on commodity prices in the near term. China’s Caixin manufacturing PMI fell from 50.0 …
The Norges Bank raised its policy rate by 25bp today, to 3.25%, but unlike the Fed we think the tightening cycle in Norway has further to run. That said, we think that inflation will fall more quickly than the central bank anticipates next year, allowing …
