The recent surge in oil prices means that Colombia’s twin current account and budget deficits are unlikely to be a major concern over the next couple of quarters. However, it will still require a sustained fiscal squeeze to prevent the public debt-to-GDP …
3rd March 2022
The rise in commodity prices caused by the war in Ukraine will push up EM inflation and there are further upside risks from weakening currencies and potential supply chain disruptions. In terms of the policy response, central banks that are focused on …
While supply-chain links between the EU and Russia and Ukraine are small, shortages of seemingly obscure inputs can cause significant disruption, and add to price pressures, if alternatives cannot be sourced quickly. Aside from the most energy-intensive …
The sharp downturn in consumer confidence in February showed that the cost of living crisis was starting to bite even before the war in Ukraine began. But despite the worrying correlation between house prices and sentiment, our base case remains that …
Bank Negara Malaysia (BNM) today left its main policy rate on hold and the dovish tone of its statement supports our non-consensus view that rates will remain on hold throughout 2022. We think the market and consensus are wrong to expect hikes this year. …
While the war in Ukraine may well push down the yields of long-dated developed market (DM) government bonds further in the near term, we think that a sustained rally in bonds is unlikely unless the war causes a sharp fall in output in major DMs, which, …
2nd March 2022
While gilt yields could drop further if the war in Ukraine escalates much further and/or it becomes clear that it is significantly reducing economic activity in the UK, at the moment we think gilt yields are more likely to rise over the next two years. …
Higher commodity prices and stronger immigration from Ukraine are potential benefits for Canada’s economy from the war in Ukraine, but there is a risk that near-term real GDP growth disappoints due to higher inflation. Canada’s trade links with Russia and …
Chair (pro tempore) Jerome Powell indicated in his congressional testimony today that, with Russia's attacks on Ukraine roiling markets and creating additional uncertainty, he was inclined to support a 25bp hike later this month and that the Fed should …
The Bank of Canada’s decision to raise interest rates by 25bp today was widely expected and the statement supports our view that it will follow up with another hike next month, but there was little indication that the Bank intends to start quantitative …
As Russia becomes increasingly isolated, it will lean more heavily on China as a trading partner. That will present some opportunities for Chinese firms to take market-share from western suppliers and to purchase energy at a discount. But any such gains …
The financial sanctions that have been imposed on Russia by the West put significant practical constraints on China’s dealings with Russia even where they don’t restrict them directly. There is little that China could do, if it wanted to, to soften their …
One immediate effect of the war in Ukraine will be to push Russia several places down the league table of the world’s largest economies. However, the impact on the global economy over the long run will depend to a large extent on its political and …
As fears over Russian oil supply mount, negotiations between Iran and world powers on reviving the Iran nuclear deal have been advancing in Vienna. If the nuclear deal is revived, we think there will be an immediate increase in Iranian supply, but fears …
Russia has already suspended the transfer of coupon payments on local-law sovereign debt to foreign investors, and the likelihood that the government and companies are unable or unwilling to make external debt repayments (besides those already affected) …
The spread of Russian interbank interest rates over the central bank’s policy rate – which was hiked aggressively on Monday – has widened pointing to some stress in the banking sector. But for now it is far from the levels recorded during 2008/09 and …
The EU would have a number of options to help compensate if Russian gas supplies were to be turned off, but in practice we suspect that some degree of power rationing would be needed. Past episodes of energy rationing were not as damaging as one might …
1st March 2022
February's manufacturing PMIs point to decent industrial growth last month and support our view that the impact from Omicron waves on EM industry will be limited. However, the surveys suggest that supply chains remain stretched. And looking ahead, the war …
The ratcheting up of Western sanctions, alongside a tightening of financial conditions and the prospect of a banking crisis, mean that Russia’s economy is likely to experience a sharp contraction this year. The outlook of course remains incredibly …
The latest manufacturing PMIs add further evidence that the hit to industrial activity from Omicron was limited and should be short-lived. Although supply chain issues and price pressures no longer appear to be getting worse, they will remain a constraint …
The impact of the war in Ukraine on energy prices will have a bigger effect on inflation in Italy and Spain this year than in Germany and France. Since the beginning of 2021, energy inflation has surged across the euro-zone, and the latest legs up in oil …
The war in Ukraine will prevent US inflation from falling as much as it otherwise would have in the coming months, but it will have little impact on the real economy, so we doubt it will stop the Fed. Even after the recent escalation of Western sanctions, …
House price-to-earnings ratios are approaching the peak hit just before the global financial crisis, and another year of strong house price growth would send them above that level. But while mortgage payments as a share of income are set to reach 15-year …
We expect that the rise in the gold price so far this year will continue in the near term as safe-haven demand builds. That said, we expect that the price will fall when/if tensions cool. But the extent to which the Central Bank of Russia (CBR) might …
Goods supply shortages are now easing. Like the recent stabilisation in labour market slack, that improvement has, at least partly, been driven by a slowdown in demand, so it isn’t a sign that economic growth is about to accelerate. But it does support …
China’s PMIs ticked up a little in February, but the big picture is that economic growth remains lacklustre in part owing to measures to contain COVID-19. The subdued demand picture confirms that the ongoing strength in commodity prices is all about …
The war in Ukraine and the ratcheting up of sanctions on Russia will have knock-on effects on the rest of the emerging world mainly through its impact on supply chains and commodity prices. Some EMs (e.g. Gulf oil producers) stand to benefit from higher …
The RBA still sounded dovish when it kept interest rates unchanged today. However, we suspect that another upside surprise in Q1 inflation will convince the Bank that tighter policy is needed even if wage growth remains modest and have pencilled in the …
New sanctions on Russia have led to a sharp plunge in the ruble, and an effective freeze of most of the country’s financial markets. We think that the outlook now depends mainly on the extent to which this marks the start of an enduring break in Russia’s …
28th February 2022
In this Update , we answer the key questions about what the exclusion of Russian banks for SWIFT means for Russia and the rest of the world. What is SWIFT? SWIFT (“The Society for Worldwide Interbank Financial Telecommunication”) provides payments …
The Ukraine crisis will be a drag on the euro-zone economy due to its effect on trade with Russia and the impact of higher energy prices on household consumption. However, this will be cushioned by looser fiscal policy and the region’s high excess …
The sanctions imposed on Russia’s central bank freeze a significant portion of its foreign currency assets, rendering at least half largely unusable. The sharp tightening of capital controls today will remain the order of the day for some time, but …
The escalation of the conflict in Ukraine has increased the risks posed to the global economy, but we still expect the broader effects to be relatively contained given limited trade and financial exposures to Russia. If more severe adverse consequences …
Restrictions on Russian trade will probably lead to lower nickel supply and keep prices elevated. As a result, we have raised our nickel price forecast, despite a relatively subdued outlook for demand . The price of nickel has rallied by 30% since …
The Russian invasion of Ukraine has added significant new uncertainty for investors. We expect Moscow property will take a substantial hit, but the impact on the wider European property market will be limited. We have outlined our initial thoughts about …
As it stands at the moment, we still think that the Russian/Ukraine conflict is more likely to boost inflation in the UK by more than it reduces GDP growth and that the Bank of England will continue to raise interest rates at the next few policy meetings. …
The ratcheting up of Western sanctions over the weekend has left Russian banks on the edge of crisis. They face both large deposit withdrawals and the prospect of a rise in non-performing loans, which are likely to cause credit conditions to tighten and …
This briefing note is intended to bring clients up to speed with developments over the weekend in the conflict in Ukraine. On the military front, while events remain in flux, the Russian advance has proceeded more slowly than had been anticipated . Kyiv, …
Amid all the volatility in global markets during the Russia-Ukraine conflict so far, we think there are several key lessons we can draw from the relative performance of bonds, equities and currencies that will help to inform how they might evolve from …
25th February 2022
Our estimates suggest that risk premiums are currently adding around 40% to commodity prices. This suggests that commodity prices could fall a long way whenever concerns over the Russia-Ukraine conflict begin to ease, though clearly this is unlikely to …
Much has been made of UK property’s openness to Russian money following the invasion of Ukraine. But since the depreciation of the Russian ruble in 2014, Russians have become far less important to demand. As a result, we think the effects on UK property …
The latest Western sanctions on Russia will hit its economy hard through tighter financial conditions and reduced trade, and might plausibly hit GDP by 1-2%-pts. But sanctions stopped short of the more damaging scenario – both for Russia and Europe – in …
Today’s grave escalation of the Russia/Ukraine conflict threatens to keep CPI inflation in the UK even further above the 2% target this year and reduce households’ real incomes by even more. The conflict probably won’t prevent the Bank of England raising …
24th February 2022
China’s leadership is trying to straddle a geopolitical divide. Russia is an ally, but being seen to take its side would hasten China’s decoupling from the West. Most likely, China will support Russia financially and through trade as much as any Western …
The escalation of the Russia-Ukraine conflict has increased uncertainty about the economic outlook for the euro-zone. While things are changing rapidly, at this stage we think the main effects will be to push up inflation but to cause the ECB to tread …
The latest twist in the Russia-Ukraine crisis is likely to keep commodity prices elevated over the coming weeks and months. And if the situation spirals into a more serious and wide-ranging conflict between Russia and the West, commodity prices could rise …
This Update answers eight key questions for economies and markets in light of the escalation in the Ukraine conflict overnight. All clients are invited to a Drop-In at 14.00 GMT/09.00 EST when our panel of senior economists will discuss these issues and …
A large upwards revision to the Bank of Korea’s (BoK) inflation forecast as it left rates on hold today signals that more tightening is just around the corner. We still expect three more 25bp hikes in 2022, taking the policy rate to 2.00%. Today’s …
Worries about India’s public debt trajectory have been growing since the Finance Ministry announced an accommodative Budget for FY22/23. But under reasonable assumptions for nominal GDP and interest rates, the Finance Ministry would not need to keep …
Egypt’s government looks set to continue its commitment to tight fiscal policy and bringing down the public debt ratio. However, we hold concerns over the increasing levels of foreign currency debt that will be vulnerable if, as we expect, the pound …
23rd February 2022
