Italy’s right-wing coalition, which looks set to win the upcoming general election, will probably run slightly looser fiscal policy than Draghi’s government, but clashes with the EU similar to those in 2011 and 2018 are unlikely. Instead, delays on …
15th September 2022
The recent decline in oil prices has weighed on some equity market indices and come alongside a decline in US inflation compensation, but we don’t think those moves will unwind much even if, as we expect, oil recovers a bit. Oil prices have now fallen …
Shifts in China’s approach in debt talks with Zambia and planned changes to the Common Framework, such as establishing firm timelines, will go some way to smoothing the debt restructuring process for affected EMs. For now, though, there are reasons to …
14th September 2022
Fiscal support to protect households and businesses from sky-high energy prices generally amounts to around 2-3% of GDP across Central and Eastern Europe (CEE). This will cushion, rather than fully offset, the hit to real economic activity from the …
India is facing renewed concerns about energy supply, fuelled by low inventories of coal. With the economy very reliant on coal for electricity generation, persistent shortages would almost certainly weigh on the economy while also stoking price pressure. …
13th September 2022
The public sector has been responsible for almost 90% of the rise in total employment since the pandemic and now accounts for the largest sustained share of employment since the early 1990s. The latest data show signs that this is being reversed, but …
One year into Hakainde Hichilema’s presidency, Zambia has taken key steps on the path out of a sovereign default, including securing an IMF deal this month. But with debt restructuring talks yet to conclude in earnest, the road to debt sustainability …
We think the yen will strengthen against the US dollar over the next few years, as the headwinds that have driven the currency to multi-decade lows begin to unwind. The yen has fallen nearly 20% against the greenback this year, the most of any of the …
European policymakers have been discussing how to tackle skyrocketing energy prices in the region to ease the financial pain for households and firms this winter. In this Update , we answer five key questions about Europe’s plans to deal with surging …
12th September 2022
Reports that the ECB will soon start debating QT add to the risks facing euro-zone government bond markets. While the Bank could still expand its holdings of peripheral sovereign debt through the PEPP, QT would raise the bar even further for it to …
In this Update, we analyse the impact of surging energy prices in Europe and show that the Central and Eastern European (CEE) economies are the most vulnerable. The share of household disposable income spent on energy could double to more than 10% and a …
Notwithstanding the big policy announcements in the UK this week, we still think that the pound and the UK stock market will struggle over the rest of this year, but expect 10-year Gilts to rally. We set out what we think the “Energy Price Guarantee” …
9th September 2022
Europe’s scramble to replace Russian oil has left the price of Brent crude trading at a substantial premium to WTI for most of this year. But we expect this premium to narrow in 2023-24 as low US stocks and high US exports boost the WTI crude price and …
The rapidly worsening economic backdrop has put the brakes on Germany’s prime retail recovery. After showing strength in the second half of last year, take-up has now slowed in most of the main markets and prime rents are falling in some. Looking ahead, …
Despite the rise in volatility lately, compensation for risk across several major asset classes still seems quite low relative to history. That means, in our view, that if volatility were to remain high, it could spark further selloffs across asset …
The ECB is almost certain to follow today’s 75bp rate hike with further aggressive increases in the coming months. We doubt that even a recession would cause the Bank to halt rate hikes. Against that backdrop, and with uncertainty about policymakers’ …
8th September 2022
PM Liz Truss’ fiscal package will limit the size of the forthcoming recession, but that may force the Bank of England to raise rates further to get inflation back to target in the medium term. As a result, it increases the likelihood that mortgage rates …
Recent surveys suggest that our forecast that 50% of office employees will go into work every day is too high. But it also looks like the vast majority of those working from home will only do so part time. That complicates the outlook for office demand. …
We think the S&P Global composite PMI’s prediction of an imminent plunge in GDP will prove well wide of the mark, with the latest hard data pointing to growth of 3% annualised in the third quarter. At the same time, however, the ISM activity surveys are …
We think a combination of domestic and external factors will push up risk premia in Brazil over the rest of this year. This informs our forecasts that the real will weaken and the country’s bonds will sell off. Brazil’s financial markets appear to have …
It seems that the size and structure of the Prime Minister’s policy to freeze utility prices is broadly as expected and will reduce inflation and limit the size of the recession. But it will come at the cost of higher interest rates and higher government …
We don’t think Europe will be forced to widely ration natural gas this winter because the sky-high price should attract sufficient LNG from abroad to replace reduced imports from Russia, whilst also weighing on demand. However, we do see a few risk …
Commodity import volumes generally held up well in August, with the exception of crude oil imports. As long as China continues with pandemic-related lockdowns, oil demand is likely to remain weak. China’s export growth came off the boil in August, falling …
7th September 2022
The Monetary Policy Report released by Chile’s central bank today, following on from its larger-than-expected 100bp rate increase to 10.75% yesterday, suggests that its tightening cycle is drawing to a close. But with inflationary pressures still acute …
The Bank of Canada remains concerned about the risk of high inflation expectations becoming entrenched but, with the economy now slowing sharply and inflation set to ease by more than the Bank expected, we still see scope for it to follow the 75bp hike …
The National Bank of Poland (NBP) slowed down the pace of its tightening cycle again today with a 25bp rate hike to 6.75%. There was no new guidance in the communications in terms of the central bank’s next move, but with policymakers seemingly more …
Emerging markets will account for more than half of global GDP within the next decade. Headlining this, India is on course to become the world’s third largest economy by 2030. And EMs with rapid population growth, healthy manufacturing sectors or those …
6th September 2022
Concerns over Egypt’s external position have grown due to the country’s wide current account deficit, rising short-term external debt and declining FX reserves. While some of the risks are mitigated by low rollover risks associated with Gulf deposits at …
If the new Truss government implements a freeze on domestic gas and electricity prices then inflation may peak at around 11% in October this year, rather than 14.5% in January next year as we currently forecast. The economy is still likely to enter …
While euro-zone prime industrial rents surprised on the upside in Q2, investor sentiment also turned more rapidly than we expected. Tight supply will support rents this year, even as economic activity worsens. However, the unsupportive interest rate …
The Bank of Japan’s assets are falling for the first time since it embraced large-scale easing a decade ago, as banks are repaying emergency funds they borrowed during the pandemic. However, this is not holding back an acceleration in credit to …
The RBA lifted rates by 50bp today and dropped some hints that further tightening will be less aggressive . Even so, we still expect the Bank to hike rates more aggressively over coming months than most expect, which will weigh heavily on activity and …
We continue to expect euro-zone “peripheral” spreads to rise over the remainder of the year, owing to a combination of deteriorating appetite for risk, higher policy rates, and ambiguity about the ECB’s willingness to support the peripheral bond market. …
5th September 2022
Gazprom’s decision to shut Nord Stream 1 indefinitely has added to the risks facing Germany’s economy, but the size of the economic damage is still highly uncertain. And the €65bn fiscal package announced by the government will soften the blow to …
While US and euro-zone 10-year government bond yields have surged over recent weeks, we think this sell-off has mostly run its course – we expect these yields to end this year a bit below their current levels. The yields of 10-year government bonds in the …
2nd September 2022
The new Prime Minster should acknowledge the size of the economic crisis, announce measures to shelter households and businesses from it, leave the Bank of England’s mandate largely unchanged, create a more constructive relationship with the EU and …
The fall in the EM manufacturing PMI to a three-month low last month was driven by China’s recovery stalling and weakness in export-oriented manufacturing EMs in parts of Asia and Eastern Europe. The one crumb of comfort is that price pressures have eased …
1st September 2022
The fall in the global manufacturing PMI in August implies that global industrial activity is contracting, and the further decline in the new orders and export orders sub-components suggests that things will only get worse. The good news is that weak …
The jump in multifamily housing starts in the first half of 2022 implies a surge in completions over the next couple of years to a multi-decade high. But while rental demand is now moderating, the continued lack of homes for sale means we doubt it will …
We expect the looming recession in the euro-zone to cause the region’s unemployment rate to rise to 7.5% by the middle of next year. But this would still be historically low and is unlikely to be sufficient to offset the upward pressure on wages …
Today’s announcement of a deal between the IMF and Sri Lanka brings some long overdue good news and provides a potential route out of the crisis. But the economy is not out of the woods yet. The money may not actually be dispersed for many months, and …
The outlook for industrial demand in Poland has improved dramatically because of the pandemic and the rapid growth of ecommerce. This is set to keep prime industrial rental growth in Warsaw higher than we had previously expected, especially in the near …
Despite their precipitous fall against the dollar this year and last, we think the euro, sterling, and most other European currencies will weaken further over the next twelve month as the economic slowdown and the terms of trade shock that is hitting the …
31st August 2022
Recession risks rising even as GDP rebounds Our composite tracking models suggest that the chances of a recession within the next year have risen markedly. That said, the immediate risks still appear to be low, with the boost to real incomes from the …
A revived Iran nuclear deal would quickly bring an additional 1mn bpd of crude oil production online, which would directly weigh on global oil prices. But the bigger impact would be to make it less likely that supply cuts from OPEC+ would be used to …
The Republican party is on track to regain control of at least the House in the upcoming midterms, though the recent narrowing in the polls means that is no longer the slam dunk it once appeared. There is a small but growing chance that Democrats retain …
30th August 2022
Japan is facing its largest terms of trade shock since the second oil crisis in the early-1980s. While we don’t expect Japan to follow other advanced economies into recession, we’re slashing our 2023 GDP growth forecast from 2.6% to a below-consensus …
While attention has understandably focused on Fed Chair Jerome Powell’s Jackson Hole speech made last Friday, there were also important interventions over the weekend by ECB policymakers. These suggest that the risks to our above-consensus forecasts for …
29th August 2022
While EM real effective exchange rates have held up better than their nominal exchange rates against the dollar since 2021, we think there are some economies where appreciations look stretched, and nominal exchange rates may need to adjust further. …
26th August 2022
