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This publication has been updated with additional analysis. Headline inflation steady and to remain around current level for the rest of the year. Switzerland’s inflation rate was unchanged in July at 1.3%, keeping it below the SNB’s Q3 forecast of 1.5%. …
2nd August 2024
Bond yields have fallen in the US and the UK after the Fed signalled an imminent rate cut and the Bank of England delivered one. But only in the UK do we see more room down for yields. US Treasury yields have fallen further following the Fed meeting …
1st August 2024
This is a revamped version of our quarterly Financial Risk Monitor to include commentary and analysis of our latest EM risk indicators. Currency risks continue to ease, fiscal risks remain moderate Financial vulnerabilities have continued to ease across …
The Bank of England kick-started a loosening cycle today by cutting interest rates from 5.25% to 5.00%, but the accompanying guidance and forecasts suggest it will proceed cautiously. Accordingly, we suspect the Bank will keep rates on hold in September …
CNB slows easing cycle, but rates will still fall further than many expect Czech National Bank (CNB) Governor Michl sounded fairly cautious in his guidance about the future course of the easing cycle in the post-meeting press conference. But the …
Rates cut to 5.00%, but BoE in no rush to cut again The Bank of England kick-started a loosening cycle today, cutting interest rates from 5.25% to 5.00%, but the accompanying guidance and forecasts suggest it will proceed cautiously. Accordingly, we now …
We have been sceptical of the viability of conversion of excess office space into residential units. But the latest figures indicate that, despite marginal financials, there may have been more activity than expected since the pandemic. And with office …
PMIs point to softer demand in Russia and Turkey The manufacturing PMIs for July suggest that industrial sectors lost a bit of momentum in Turkey and Russia at the start of Q3, although demand conditions still appear very strong in Russia. In both …
Mortgage rate reductions could help prices gain more momentum The third consecutive small monthly rise in house prices in July was a bit stronger than we had anticipated and suggests house prices are shrugging off the slight rise in mortgage rates in the …
Activity softens a touch at the end of Q2 Russia’s economy lost a bit of steam in June, but it still looks like GDP growth over Q2 as a whole was very strong, with growth tracking at 4.5-5.0% y/y. Industrial production growth slowed from 5.3% y/y in May …
31st July 2024
Labour puts wind in the sails of renewable rollout The new UK Labour government took swift action on climate policy this month on two fronts . First, the additional planning restrictions that applied to onshore wind projects in England have now been …
We have revised down our forecasts for government bond spreads in Spain and Portugal, but we continue to think that those in France, as well as in Italy and Belgium, are more likely to rise than fall. The dust has now settled in bond markets after the …
At the end of the pandemic, there was a view that remote working would drive a wedge between CBD and other submarket rents. The evidence of this remains uneven. But in some cities, notably Paris and London, a shift to central locations may have helped …
Our view on emerging market local-currency government bonds is broadly upbeat for the next year or so. We think returns will be largest, in common-currency terms, in Emerging Asia. It’s been a mixed year so far for local-currency sovereign bonds in …
This page has been updated with additional analysis since first publication. Services inflation easing, but still too high for comfort The small fall in services inflation in July is probably just enough for a September rate cut to remain the base case. …
We still think that a fading in services inflation and below-target CPI inflation will prompt the Bank of England to cut interest rates from 5.25% now to 3.00% by the end of 2025, rather than to 4.00% as investors anticipate. That explains why we think …
Today’s release of inflation and activity data for the euro-zone has in our view slightly reduced the chances of a cut from the ECB at its next meeting. However, the bigger picture is that the data released over the past month still suggest to us that a …
30th July 2024
In detailed analysis last year, we concluded that equilibrium nominal interest rates would settle at between 3% and 4% in advanced economies in the next ten years. We maintain that opinion and in fact some of the forces boosting equilibrium rates seem to …
This page has been updated with additional analysis since first publication. Services inflation still sticky The increase in German HICP inflation from 2.5% in June to 2.6% in July left it a little higher than expected and means that the aggregate …
Further signs of recovery losing momentum The European Commission's Economic Sentiment Indicators for Central and Eastern Europe (CEE) generally fell in July, and our regional-weighted measure hit a five-month low, providing additional evidence that the …
This page has been updated with additional analysis since first publication. Recovery continued in Q2 but surveys weakening at start of Q3 The euro-zone’s recovery continued at a moderate pace in Q2 and it should get a small boost from the Paris Olympics …
Recovery slowing National-level data released so far suggests that euro-zone GDP growth slowed to 0.2% q/q in Q2 and the weakening of the surveys in July suggests GDP growth may have eased further this quarter. GDP figures for the euro-zone’s largest …
Recoveries stutter in Q2 The weaker-than-expected Q2 GDP data out of Czechia and Hungary show that weak external demand is still acting as a constraint on the speed of recoveries in Central Europe. While we expect growth to strengthen over the second half …
The lack of much reaction on net in markets to today’s statement by the UK’s new Chancellor suggests to us that investors remain confident in the Labour Party’s commitment to fiscal discipline. But the disputed ‘revelation’ that the country’s public …
29th July 2024
Our best judgement is that in order to fund the increase in spending of £22bn outlined by the Chancellor today, Reeves will raise an additional £10bn a year (0.3% of GDP) via higher taxes and increase borrowing by about £7bn a year (0.3% of GDP). The …
Tight monetary policy and low consumer confidence have pushed the euro-zone’s household saving rate up to unusually high levels. While interest rates are set to keep falling and confidence might improve, we think that a big decline in the saving rate is …
Italy has become quicker at spending NextGenerationEU (NGEU) funds over the past year but it is still likely to spend only around two-thirds of the total funds allocated to it unless the programme is extended. Italy is set to receive €194bn (around 10% of …
The rocket strike on the Israeli-occupied Golan Heights over the weekend has heightened fears of a full-blown conflict between Israel and Hezbollah in Lebanon. For Israel, this risks adding to pressure on its already strained public finances, and would …
Net lending to property picks up as outlook stabilises Net lending to property increased for the third month in a row in June, and the rise of £1.31bn was the largest since the end of 2021. In line with last month the gain was entirely due to a rise in …
This page has been updated with additional analysis since first publication. More evidence the drag on activity from higher interest rates is starting to fade June’s money and lending data provided a bit more evidence that the drag from higher activity is …
Economy contracted sharply in Q2, but will return to growth over coming quarters Preliminary data released this morning show that the Swedish economy contracted by 0.8% q/q in Q2, more than offsetting the 0.7% increase in Q1. The data were significantly …
Ukraine reaches a deal Ukraine’s government agreed a preliminary deal on Monday with a group of private creditors to restructure $20bn of its external debt. As part of the deal, Ukraine will receive a 37% haircut on its bonds, and the average maturity …
26th July 2024
This week’s news that higher shipping costs pushed up the manufacturing input prices balance of the PMI survey to an 18-month high in July (see here ) has reignited concerns that shipping costs will drive a rebound in core goods CPI inflation. (See Chart …
Surveys suggest recovery is petering out Data released this week suggest that the euro-zone recovery is fizzling out and leave us comfortable with our below consensus forecasts. Data released on Wednesday showed that the Composite PMI fell in July for the …
CBR delivers bumper hike, leaves door open for further tightening Russia’s central bank (CBR) stepped up to the plate with a 200bp hike to its key policy rate today, to 18.00%, in response to the overheating economy and a renewed surge in inflation. While …
Almost ready to cut But economic resilience and sticky inflation will probably mean MPC waits until September We think rates will be cut to 3.00% next year, below current market pricing of 4.00% While it will be a very close call, the economy’s recent …
25th July 2024
Our team have recorded a special podcast episode all about the big themes in commercial real estate. The 12-minute episode showcases our enhanced coverage which provides a more global, comparative view of how the key markets we forecast are performing, …
The Q2 RICS commercial survey added to the growing body of evidence that capital values at the all-property level have now bottomed out. But, in line with our forecasts, it also implied that the recovery will be modest by past standards with values only …
Net immigration to euro-zone countries will probably be higher than the UN assumes in its latest population forecasts. But we still think the working age population will decline over the coming decade and that is a key reason to expect GDP growth to be …
This page has been updated with additional analysis since first publication. German recovery petering out The large fall in the German Ifo BCI in July, which follows a similar drop in the Composite PMI published yesterday, adds to the impression that the …
While the pound has outperformed all major G10 currencies so far this year, we still expect it to depreciate against the greenback later in the year as the Bank of England (BoE) eases monetary policy more than money markets currently discount. While it …
24th July 2024
Business surveys released this morning add to evidence that the Olympics will lift activity in France slightly in Q3. However, activity is likely to drop back again in Q4 and we still think annual GDP growth will only be around 1%. Meanwhile, we don’t …
Supermarkets struggled in 2023, as falling food sales volumes hit profits and rental growth. But the future looks brighter. As food price inflation has fallen supermarket profits have recovered and the past surge in food sales values points to stronger …
GDP growth appears to be slowing at the start of Q3 July’s composite PMI suggests some of the recent rebound in activity this year may have been due to catch-up growth following the weakness of activity last year and GDP growth is easing towards a more …
This page has been updated with additional analysis since first publication. Recovery stalling The flash PMIs for July suggest that the euro-zone’s recovery may be fizzling out at the start of Q3, while output price pressures eased but remained high in …
Donald Trump has said that he could quickly end the war in Ukraine if he is re-elected as US President. This Focus answers key questions on what the shape of any agreement might look like, what might happen to sanctions on Russia, and the possible …
23rd July 2024
Which commercial real estate markets are set to recover first, and where will recovery be strongest? The Capital Economics real estate team has been looking closely at the comparative performance of the US, European and UK markets to advise clients on …
Recent surveys of real estate lenders paint a picture of a European lending market that is still seized up, as loan terms tightened and credit demand fell in H1. Lenders are optimistic that demand for credit and origination will both pick up over the …
Easing cycle continues The Hungarian central bank (MNB) cut interest rates by 25bp again today, to 6.75%, and the post-meeting press conference suggests that, while there are some MPC members who want to pause the easing cycle, the balance is a bit more …
Without wishing to downplay the ugly fiscal picture, we think the new government is overplaying the gloom. We suspect more optimistic economic forecasts and various tweaks to the fiscal rules will save the new Chancellor from hitting the electorate with …
