The decision by Ghana’s government to turn to the IMF will help to restore some calm among investors over the country’s poor public finances. But a very large fiscal squeeze is needed to restore debt sustainability and recent protests highlight the …
6th July 2022
Surging global commodity prices have hit Central and Eastern European economies like a tsunami in recent months, causing a severe terms of trade shock and current account deficits to blow out. These deficits are likely to widen to 7% of GDP in Hungary and …
The sharp slowdown in money growth is set to continue as the Fed’s monetary tightening ramps up, but the resilience of bank lending suggests the impact on the economy will be limited. (See Chart 1.) The Fed’s asset holdings fell by only $22bn in June, …
Bank Negara Malaysia (BNM) today raised its main policy rate by 25bps to 2.25% and reiterated that further tightening would be gradual. With the economy on the mend but inflation still low, we are sticking with our view that the policy rate will be raised …
It seems most likely that Italy will be able to put its public debt ratio on a gradual downward trajectory, even as interest rates rise, by running primary budget surpluses. But if 10-year government bond yields rise above 5% and stay there, the necessary …
5th July 2022
Having defied gravity in 2021, this year is shaping up to be much tougher for Chile’s economy and we think that the economy will contract in both Q3 and Q4. Despite the weakening growth outlook, high inflation and a worryingly large current account …
Even though workers are accepting cuts in their real pay, nominal wage growth is still above “acceptable” rates for central banks in DMs of 3% to 4%. This underlines why interest rates need to head into restrictive territory to weaken economic activity …
The RBA sounded a little more cautious about the outlook for the economy when it hiked rates by 50bp today, but we suspect that further upside surprises to inflation will encourage it to eventually lift the cash rate to around 3.5%. However, we expect the …
The Bank of Israel (BoI) stepped up the pace of tightening today with a 50bp interest rate hike, to 1.25%, as it dropped its commitment to “gradual” interest rate hikes. This suggests that similar moves may be in the pipeline and supports our hawkish view …
4th July 2022
If Russia decided to end all exports of natural gas to Japan, we suspect that Japan’s GDP would fall by around 0.5%. However, the hit could be larger as there is now less scope to reduce energy usage than after the Great East Japan Earthquake and a bigger …
The news that Argentine economy minister, Martín Guzmán, resigned over the weekend points to growing influence of the Kirchner faction of the government. From an economic perspective, this is likely to lead to a looser fiscal stance that is accompanied by …
Policymakers will have breathed a small sigh of relief at the latest manufacturing PMI surveys because they contained lots of signals that global goods price inflation will ease later this year. Demand softened, backlogs cleared, delivery times improved, …
1st July 2022
The S&P Global EM manufacturing PMI hit its highest level in over a year last month, but that was almost entirely driven by a recovery in China. The surveys softened across most of the rest of the emerging world, with external demand a key area of …
We think that the recovery in China’s PMIs in June was driven by the lifting of virus-related restrictions rather than an improvement in underlying economic conditions. Accordingly, we think that softer growth in China’s activity will continue to weigh on …
After a solid start to the year, investment activity showed signs of cooling during the second quarter. We think that stretched valuations, an increasingly negative financing gap and economic uncertainty are set to weigh on investment activity over the …
30th June 2022
If past experience is anything to go by, deepening electricity supply cuts in South Africa are likely to deal a heavy blow to activity in energy-intensive sectors such as mining and manufacturing. Even if loadshedding is scaled back in the coming weeks, …
We expect that the prices of agricultural commodities will fall back gradually over this year and next, but remain historically high. However, the volatility of prices in recent months and the uncertainty of the current environment mean there are major …
The consumer recovery in advanced economies has been characterised by particularly strong spending on goods and a weaker pick-up in services demand. There are signs that goods spending is now flattening off as households are able to buy more services. But …
Ukrainian refugees have boosted labour forces and consumer spending across Central and Eastern Europe (CEE) since the outbreak of the war, but this could prove short-lived if the conflict remains concentrated in Eastern Ukraine and more refugees return …
Reports that the Saudi Central Bank (SAMA) has injected liquidity into the banking sector appears to be a consequence of a lack of FX intervention (despite high oil prices), tight fiscal policy and strong credit growth. SAMA appears keen to sustain robust …
As expected, this morning’s 50bp interest rate hike by the Riksbank, to +0.75% saw it join the ranks of the “50bp club”. But while policymakers resisted the urge to join “Club Fed” with a 75bp hike today, they indicated that they will front-load the pace …
While the current rise in inflation to near double-digit rates is clearly undesirable, it begs the question of at what point the costs of sustained higher inflation outweigh the benefits. We think that the tipping point is around 5%. This suggests that it …
There has been little sign that price pressures have eased yet, but the survey evidence suggests that supply shortages continue to improve. That reinforces our view that core goods inflation will fall over the second half of the year. The recent weakness …
29th June 2022
Clear signs of a slowdown, but no recession While our models suggest that recession risks are still low, the Fed’s rapid policy tightening will trigger a marked slowdown in economic growth, which means that the risks are likely to build over the coming …
Wage growth is a possible source of the “more persistent inflationary pressures” that the Bank of England has said would prompt it to act “forcefully” when raising interest rates. This Update highlights where to look for the early signs of either a …
Economic growth in Vietnam accelerated in the second quarter of the year, thanks mainly to a reopening boost and continued strong export demand. We expect the recovery to continue over the coming months, but with inflationary pressures relatively low, we …
High inflation in the euro-zone isn’t all down to energy prices and global demand-supply imbalances. Domestic price pressures are also very strong, bolstering the case for tighter monetary policy. Amid the external shocks hitting the euro-zone, the …
28th June 2022
The G7 proposal to impose a cap on the price of Russian oil and gas would introduce new supply-side risks by potentially disrupting Russian energy supplies. This could push global energy prices up further, but for now we still see Brent crude prices …
Aggregate EM food inflation has risen to its highest rate since 2008 and, while it should fall back in 2023, it’s likely to stay extremely high for at least the next four-to-six months. That will keep consumer spending under pressure and provide another …
Hungary’s central bank (MNB) stepped up the pace of tightening today with a much larger-than-expected 185bp increase in its base rate, to 7.75%, and the hawkish communications underline the view that further large rate hikes are likely to be delivered …
We think that rising oil production and high global energy prices will result in rapid GDP growth this year and next across the Gulf economies. Growth is likely to be well above consensus expectations . It goes without saying that hydrocarbon sectors are …
After reaching a record-high in June, we think that inflation in builders’ costs will soon start to ease. But even as cost pressures subside, construction volumes will slump as the housing market slows. Construction volumes strengthened in the first half …
Recent developments have further increased the chance that there is a complete end to Russian exports of gas to Germany. If this occurred, it would lead to a substantial fall in manufacturing output and make a recession – which we already think is likely …
We doubt that aggressive policy tightening by developed market (DM) central banks will be followed by a series of financial crises in major emerging market (EM) economies in the way that it has at times in the past. Even so, we still suspect that global …
27th June 2022
Russia’s government has now reportedly defaulted on its foreign-currency denominated debt for the first time since 1918, but this is a largely symbolic event that is unlikely to have an additional macroeconomic impact. Sanctions have already done the …
We think the prices of agricultural commodities will fall back in the coming months, but most will remain historically high owing to tight supply, concerns about future supply and high energy prices. Consumer food price inflation has been soaring in …
24th June 2022
Indicators that include a recently released investor sentiment survey and a sharp fall in REIT prices since the start of the year support our updated view that capital values will go into reverse in H2. In total, our latest forecasts call for a 6%-8% …
Measures of housing market activity and prices tend to follow a predictable sequence in downturns. In this Update we highlight the key US and UK variables that clients should follow to track the housing downturn and identify turning points. With most …
We held a Drop-In on Wednesday to discuss what the evolving outlook for monetary policy and global growth means for our markets forecasts. This Update recaps the key questions we addressed in the Drop-In and answers several of the questions that we …
With the outlook for the global economy worsening further and the Fed still on the war path, we have revised down our forecasts for many G10 “high-beta” currencies and several EM currencies . The US dollar has appreciated almost across the board this …
It is still too early to assess the lasting impact of the pandemic on productivity in developed economies. But we remain optimistic that the legacy could be a positive one. Productivity growth, in terms of output per worker, has swung about over the past …
Student enrolment remained robust during the last couple of years and is likely to continue growing strongly over the next decade. But supply of purpose-built beds has grown less rapidly and the pipeline points to a continued lag against demand. This …
A handful of EM central banks have ramped up FX sales to provide support to weakening currencies over the past couple of months. And with inflation high and the US dollar likely to strengthen further, others could follow suit. FX intervention is unlikely …
The Mexican central bank’s shift to a 75bp interest rate hike yesterday (to 7.75%) and the hawkish language in the accompanying statement make another 75bp move at the next meeting in August a done deal. And the risks to our end-2022 interest rate …
The latest Brazilian central bank communications give a strong signal that, when Copom stops hiking interest rates, it will act in a similar way to the end of the last tightening cycle in 2015. The lesson from that period is that rates will be kept high …
23rd June 2022
Having held up better than much of the data in recent months, the S&P Global PMIs have finally taken a considerable leg-down in the US and euro-zone. While the PMIs are still consistent with economic expansion rather than recession in Q2, they nonetheless …
Whilst OPEC+ has been failing to meet its production quotas in recent months, it will technically finish unwinding its pandemic-related supply cuts come September. We think OPEC+ will then move to a more liberal approach and allow the few members with …
The prospect of weaker economic growth has reduced the appeal of US banks’ equities, even though they may yet benefit from a renewed rise in long-dated Treasury yields and still appear relatively undervalued. In a Focus published last November, we argued …
High inflation, falls in the lira and aggressive monetary tightening elsewhere are clearly not enough to persuade Turkey’s central bank to lift interest rates, as it left its policy rate at 14.00% today. Disorderly falls in the lira are a major risk, …
Although it has fallen back a little recently, we continue to think the greenback will appreciate further against most currencies as global economic growth disappoints. In our view, “safe-haven” demand has been a key driver of the latest strength in the …
