Our new forecasts for metro employment growth have prompted limited change in the rankings for total jobs over the next three years. But, there are two shifts, both owing much to recent and likely further cuts in the tech sector. First, we think 2023 …
3rd March 2023
Although recent economic data have surprised to the upside, we still think that economic growth in the US will falter later this year. In our view, indicators of the equity risk premium in the US point to some complacency regarding the economic outlook, …
With much of the global economy holding up surprisingly well and inflation not coming down as quickly as expected, investors are weighing up the risk that policy rates remain elevated for much longer than previously thought. This Update discusses what …
The current economic downturn will mean that short-to-medium term property performance is under-par. But over a longer horizon, we expect real estate returns to reassert their traditional position somewhere between bonds and equities. Last year was an …
2nd March 2023
The account of the ECB’s last meeting is consistent with our view that the ECB will raise its deposit rate to 3.0% a fortnight today and continue hiking beyond that. In light of the data released since the last meeting, there are growing upside risks to …
As political risks appear to be largely discounted by investors, we expect the Colombian peso to outperform other major EM currencies over the next couple of years. Although the Colombian peso is broadly unchanged against the greenback so far this year, …
Pakistan’s central bank (SBP) raised its policy rate by 300bps (to 20.0%) today, and signalled monetary policy would remain tight as policymakers look to secure a loan deal with the IMF and tackle multi-decade high inflation. We expect a further 200bps …
Although the fall in house prices slowed significantly in February, we are not convinced that Australia’s housing market is out of the woods yet. Even so, there are growing indications that dwellings investment will take less of a hit than we had …
The Israeli shekel has been amongst the worst performing currencies over the past month amid a rise in risk premia in Israel. We think it may remain under pressure against the US dollar over the coming months; but we doubt it will keep underperforming its …
1st March 2023
The manufacturing PMIs for February remained very weak in most EMs, but they did at least provide signs that industry across much of the emerging world has fared better so far this year than it did in late 2022. Meanwhile, there were encouraging signs …
The broad-based improvement in the output components of February’s manufacturing PMIs suggests that the worst of the global industrial downturn is already in the rear-view mirror. That said, it is too early to call a durable turnaround in industrial …
The February PMI data out of China suggest economic growth is rebounding rapidly. While growth should moderate over the second half of year, it still points to higher metals and crude oil demand. Overall, the PMI surveys suggest that the risks to China’s …
Household spending in Saudi Arabia appeared to soften in the final months of 2022, but surveys suggest that consumers are optimistic about the outlook. The backdrop of loose fiscal policy, an improved labour market and falling inflation means that …
In our view, the Chairman of the SNB has over-stated the role of the exchange rate in explaining why inflation has remained so comparatively low in Switzerland in the past two years. However, policymakers’ focus on the currency will encourage them to …
Hopes that Nigeria’s elections would usher in a markedly more business-friendly administration were dashed after the ruling party’s Bola Tinubu was declared president-elect. Economic policy under a Tinubu administration is likely to shift only marginally …
Hungary’s central bank (MNB) reiterated the message that it’s unlikely to cut its base rate anytime soon, when it left that rate on hold again today (at 13.00%). That said, the MNB offered some signs that it may be close to phasing out its market …
28th February 2023
One development that would help to ease wage pressures would be an increase in the labour supply; there is still a significant group of countries where the pandemic is having lingering effects. The good news is that the size of the workforce is now …
The dramatic rise in borrowing costs in Brazil in the past few years appears to be causing debt problems at a growing number of companies. So far at least, there is little evidence of widespread stress and the banking sector looks well placed to deal with …
Pandemic savings won’t rescue the economy The value of savings that households built up during the pandemic has been wiped out by inflation. Rising interest rates, together with a desire to rebuild the spending power of their savings, suggest that …
A widening in profit margins could mean that inflation is slower to fall back to the Bank of England’s 2.0% target than we expect. That would cause the Bank to raise interest rates even further than we currently anticipate and/or keep them higher for …
Energy Performance Certificates (EPCs) are the main benchmark for environmental standards in UK housing. There is evidence that they are improving efficiency in new-builds and new regulations will enforce change on rental properties, but this progress …
27th February 2023
The effects of tighter monetary policy are clear in the money and credit data. Households and firms have continued to lock their money up in longer-term deposits which are less likely to be spent, and lending growth has slowed very sharply. This paints …
House prices bounced back in February, led by Sydney. While leading indicators point to an improvement in housing market activity, the RBA’s determination to raise interest rates further means that affordability will remain extraordinarily stretched. …
24th February 2023
We think the recent outperformance of the US “big-tech” “super-sector” could continue, but not because of the “bargain hunting” that we think has caused it to occur despite higher real Treasury yields . The rise of more than 30bp in the 10-year TIPS yield …
23rd February 2023
Last week’s European Court of Justice (ECJ) opinion on Poland’s Swiss franc mortgage dispute dealt yet another blow to Poland’s banking sector and will expose those banks with large FX loan portfolios. The sector as a whole looks strong, but many banks …
Falls in exports from Korea and Taiwan have weighed on corporate earnings in these economies, but even if that continues for a while we think their equities will hold up fairly well. Evidence has grown recently of a divergence between the health of the …
Higher interest rates have begun to reduce the size of mortgage that buyers take out. As two-thirds of buyers rely on a mortgage, that will decrease most buyers’ budgets and put further downward pressure on house prices. The average mortgage rate on …
The Bank of Korea today left interest rates unchanged (3.5%), but appeared to leave open the door to further hikes later in the year. However, with the economy struggling badly and inflationary pressures set to ease further over the coming months, we …
We don’t think that the election in Nigeria on Saturday will lead to a sudden improvement in crude oil production. The oil industry’s challenges in the country are too deep-seated. But the long-awaited Petroleum Industry Bill, passed in 2021, could at …
22nd February 2023
Figures released today highlight the dreadful demographic outlook facing Korea, with the population (excluding migrants) falling for a third year in a row. Poor demographics are the key reason why we expect trend growth in Korea to continue slowing over …
In today’s budget speech, South Africa’s finance minister tried (largely successfully) to pull off the difficult task of sticking to fiscal prudence while partly relieving the struggling state-owned electricity company, Eskom, of its debt burden. But with …
There is mounting evidence that households’ pandemic savings will no longer be able to support real spending. That implies from now on, real consumer spending will have to evolve in line with real incomes. The conventional wisdom is that households and …
While it is in America’s strategic interests to build stronger economic ties with allies to counter China’s growth, its protectionist tendencies could undermine those goals and blunt the effectiveness of its interventionist foreign policy. Our work on …
The sharp fall in European electricity prices sets the stage for a recovery in metals output across the region. As power prices are still historically high and unlikely to fall that much further, however, the potential for a full and rapid recovery is …
With Hong Kong’s economy on the mend, the budget unveiled today curtailed some of last year’s emergency spending. But it still signals a supportive fiscal stance, particularly in areas hardest hit by COVID. Together with the reopening of Hong Kong’s …
Even though the Reserve Bank of New Zealand slowed the pace of tightening at today’s meeting, it still signalled a peak in the overnight cash rate of 5.50% by the middle of this year. Our more pessimistic forecasts for economic activity and wage growth …
The higher bond yields that would follow abandonment of Yield Curve Control would make it more difficult to stabilise Japan’s public finances. But the long maturity of government debt means that the government’s interest rate bill would only creep up …
The euro-zone’s Composite PMI was much stronger than expected in February, but it excludes the construction sector where prospects are weaker. Tighter financial conditions and softer demand in the region as a whole, together with the removal of generous …
21st February 2023
The flash PMIs for February provided more evidence that advanced economies have remained more resilient than expected so far this year. Both the manufacturing and services sectors contributed to this strength, with improved sentiment and easing supply …
Swedish house prices have fallen 18% from their peak and could drop by a further 5% or so from here. This should not cause significant financial stability problems but will be a major drag on economic activity and is a key reason why we expect Sweden to …
Russia’s budget deficit has widened sharply in recent months and is likely to remain under pressure amid lower oil prices and rising military spending. The government is unlikely to experience severe fiscal strains this year, but the public finances are …
Nigeria’s presidential election this weekend could be one of several EM elections this year (including Turkey and Argentina) that see opposition victories and a turn away from unorthodox policymaking. The experience from elsewhere in the emerging world is …
Being ranked by the Sunday Times as the top UK economic forecaster for 2022 is a great accolade and has generated a lot of interest in what we expect to happen next. Our forecasts for 2023 imply a tougher year than the consensus, with higher inflation …
20th February 2023
The Bank of Israel (BoI) hiked interest rates by another 50bp, to 4.25%, today and while it continued to point to signs of slower growth, it sounded more concerned about the strength of inflation than it did at its last meeting. It now looks likely that …
The minutes of the Riksbank’s latest policy meeting show that the previously dovish Executive Board members have become less so, and that the new members are on the hawkish side. That reinforces our view that the Bank will raise rates by 50bp in April …
EM investment surged far above pre-pandemic levels last year, but there was a clear divergence across countries and we think investment growth will slow in 2023. One worrying development is that investment has continued to lag behind in countries where it …
Bank deposits held by Chinese households have soared over the past year. But that mostly reflects a shift out of riskier assets rather than a surge in savings. In fact, our calculations show that household wealth declined in 2022 for the first time in at …
Rent inflation is set to approach 10% as the surge in net migration coupled with lower home completions has pushed rental vacancy rates to record low. But that rise will be overwhelmed by the slowdown in new dwellings purchases, underlining that the …
We expect MSCI’s Brazil Index to drop over the next couple of quarters in local-currency (LC) terms, before it begins to recover towards the end of this year. Since end-October, equities in Brazil have generally underperformed equities in other major …
17th February 2023
There are growing signs that stretched affordability is weighing on homeownership, particularly for the under 35s. We expect this to persist in the coming quarters. But there is a large pool of young adults waiting to purchase their first home once …
