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European property valuations continued to improve in Q1 on the back of further increases in property yields as well as falls in government bond yields. Nonetheless, all office and industrial markets aside from Istanbul remained overvalued. Indeed, we …
31st May 2023
We think that the slump in demand for mortgages will more than offset the support from the high backlog of work and result in a sizeable contraction in euro-zone construction output in the coming quarters. Euro-zone construction output – which accounts …
30th May 2023
High net immigration helps explain why rental growth accelerated to its fastest pace on record last year. Immigration won’t be as high this year, adding to the reasons to think that rental growth has peaked. But strong pay growth, high mortgage rates and …
“Official” China PMIs may show a further slowdown in the reopening rebound (02.30 BST) We expect Thailand’s central bank to hike by 25bp, to 2.00% (08.00 BST) Canada’s rate of growth probably picked up in Q1 (13.30 BST) Key Market Themes A sense that …
The upward revision to our Bank Rate forecast suggests that mortgage rates will return to a similar peak as last autumn by the end of the year. That would undermine the recent pick-up in mortgage approvals and lead to renewed falls in house prices. Higher …
Overview – Higher-than-expected core inflation means interest rates are now set to be higher for longer and we still think the economy will enter a mild recession later this year. That’s not a great backdrop for commercial property and yields will need …
Economy stagnating, price pressures still high The larger-than-expected fall in the EC Economic Sentiment Indicator in May is consistent with our view that the euro-zone will continue to stagnate in the second quarter. Meanwhile, firms’ selling price …
Economic rebound likely to be short-lived The rebound in the Swiss economy in Q1 was due to robust domestic private sector demand, which more than offset a weakening in net trade. However, we expect the economy to slow over the remainder of the year as …
The labour markets in Norway and Sweden remain very tight, in line with conditions in the euro-zone. This is likely to keep services inflation high over the coming months and encourage the Norges Bank and Riksbank to raise rates further. The labour market …
26th May 2023
The big news this week was the downward revision to Germany’s estimate of Q1 GDP, which is now thought to have contracted by 0.3% q/q rather than stagnating. That pushed the economy into a technical recession as it had contracted by 0.5% in Q4 last year, …
Attention focusing on financial stability in Turkey With the second round vote of Turkey’s presidential election taking centre stage on Sunday, the day of reckoning for Turkey’s economy and financial markets may now just be around the corner. The …
The title of the UK Economic Outlook we published in March was “Recession needed to solve the inflation problem”. (See here .) The argument was that the drags from high inflation and a rise in interest rates to 4.50% would weaken activity and domestic …
Chief Europe Economist Andrew Kenningham and colleagues from the Europe team were online shortly after the May HICP release to talk through the latest inflation numbers and their implications for policy. During this 20-minute online session, Andrew and …
Improved outlook for retailers, but higher interest rates to restrain spending The 0.5% m/m rise in retail sales volumes in April suggests that higher interest rates are not yet taking a toll on spending. While the worst of the declines in retail sales …
Improving outlook for retailers, but higher interest rates to weigh on spending before long The 0.5% m/m rise in retail sales volumes in April was better than we expected (consensus +0.2%, CE -0.5%) and reversed some of the 1.2% m/m fall in March (revised …
We think UK retail sales contracted again last month (07.00 BST) US real consumption and durable goods orders probably picked up in April (13.30 BST) Meanwhile, we think US core PCE inflation rose by another 0.3% m/m (13.30 BST) Key Market Themes Higher …
25th May 2023
President Erdogan looks set to secure victory in the second round of Turkey’s presidential election on 28 th May. This Update sets out how we think this would play out in Turkey’s financial markets this year: in short, we think that measures of Turkey’s …
While it is a hot political potato, well targeted migration could be one part of the solution to the UK’s labour shortages problem. That could help inflation and interest rates be lower than otherwise. Net migration of 606,000 in the year to December 2022 …
The increase in mortgage rates has been the main determinant of the size of house price falls in developed market economies. Very tight supply in the US, and to a lesser extent the UK, has also supported prices in those markets. Employment, incomes, …
Hopes for CBRT rate hikes are evaporating Turkey’s central bank (CBRT) left its key policy rate on hold at 8.50% again today and, with Recep Tayyip Erdoğan in pole position to be re-elected as Turkey’s President this Sunday, the probability of much-needed …
Germany in recession and outlook poor The downward revision to Germany’s Q1 GDP means that the country has fallen into a technical recession and that euro-zone GDP probably stagnated in Q1 rather than expanding by 0.1% q/q. We expect further economic …
History suggests that in the absence of a major financial shock, central banks usually leave interest rates at their peak for a year or more. That’s consistent with our view that the ECB is unlikely to start cutting interest rates until around the middle …
24th May 2023
We think Turkey’s central bank will keep its policy rate at 8.5%... (12.00 BST) … while policymakers in South Africa will deliver a 50bp rate hike, to 8.25% (14.00 BST) Clients can sign up here for tomorrow’s Drop-In on China’s economic outlook Key …
The most troubling aspect of April’s inflation data, released earlier today, was evidence that price pressures are becoming increasingly domestically generated. Accordingly, we now expect the Bank of England to raise interest rates further than we …
Opposing messages from Ifo and PMIs Contradictory messages from the Ifo – which was very weak in May – and the Composite PMI mean the performance of the German economy in Q2 is uncertain. But regardless of how well the economy held up this quarter, we …
In contrast to the rest of Europe, CEE yields not only rose, but increased more sharply in Q1 than the previous quarter. (See Chart 1.) Strong rental growth cushioned the blow to all-property capital values, but that did not prevent a partial reversal …
Opposing messages from Ifo and PMIs Contradictory messages from the Ifo – which was very weak in May – and the Composite PMI mean the performance of the German economy in Q2 is very uncertain . But regardless of how well the economy held up this quarter, …
BoE will need to work harder to conquer inflation Note: We’ll be discussing the UK April CPI report in a briefing at 10:00 BST/17:00 SGT on 24 th May. Register here. The Bank of England won’t be able to ignore the smaller-than-expected fall in CPI …
Resurgence in core inflation means BoE to keep its foot on the interest rate brake Note: We’ll be discussing the UK April CPI report in a briefing at 10:00 BST/17:00 SGT on 24 th May. Register here. The smaller-than-expected fall in CPI inflation from …
We expect the RBNZ to hike interest rates by 25bp, to 5.50% (03.00 BST) We think UK inflation fell from 10.1% in March to 8.0% in April… (07.00 BST) …and clients can sign up here for tomorrow’s Drop-In on UK inflation (10.00 BST) The “higher for longer” …
23rd May 2023
MNB inching closer to an easing cycle Hungary’s central bank (MNB) left its base rate on hold at 13% as expected today and the post-meeting communications are likely to provide guidance on when the overnight daily deposit rate of 18% will be cut, which …
Note: We’ll be discussing the UK April CPI report in a briefing at 10:00 BST/17:00 SGT on 24 th May. Register here. Stronger activity supporting domestic price pressures May’s PMIs suggest that economic growth is being supported by the services sector …
Stronger activity supporting price pressures May’s PMIs suggest that the economy is being supported by the services sector while manufacturing activity continues to struggle. The strength in services activity may be feeding into more persistent domestic …
The euro-zone Composite PMI fell slightly in May but is still consistent at face value with the economy expanding at a rapid pace in Q2. The survey also suggests that price pressures and the labour market both remain very strong, supporting the case for …
Resilient services sector keeping growth and price pressures strong The fall in the euro-zone flash Composite PMI from 54.1 in April to 53.3 in May left it close to the consensus and our own forecast (both 53.5) and suggests at face value that the economy …
UK Drop-In (24th May): Join our UK team for a 20-minute online briefing on the implications of April’s CPI inflation release at 10:00 BST on Wednesday, 24th May. Register Now . Shaky start to the new fiscal year won’t prevent pre-election splurge April’s …
Shaky start to the new fiscal year April’s public finances figures got the new fiscal year off to a shaky start. But we doubt this will prevent the Chancellor from embarking on a fiscal splurge ahead of the next election, due to take place before January …
National GDP data released so far suggest that euro-zone exports rose in Q1. However we suspect they will be more subdued in the coming quarters as a result of weak global growth. We have recently investigated the reasons behind the strength of euro-zone …
22nd May 2023
More convincing evidence of a loosening in the labour market and an easing in labour costs growth has started to emerge. It may not prevent the Bank of England from raising interest rate above 4.50%. But it does tentatively support our view that the peak …
Erdogan in pole position for the presidency Sunday’s presidential election result in Turkey was all about Erdogan. He gained more than 49% of the vote share after some of the more reliable polls last week had opposition candidate Kemel Kilicdaroglu at …
19th May 2023
The UK economy’s underperformance and higher and longer lasting inflation problem has earned it the unenviable title of “stagflation nation”. (See here and our podcast : “What’s wrong with the UK economy and what will it take to fix it”?) And speculation …
The larger than anticipated rebound in mortgage approvals in March and a slowdown (or even partial reversal) of house price falls suggested that the housing market downturn may have ended much earlier than we anticipated. The unwinding of some of the …
Capital value falls slowed in Q1 as the surge in euro-zone all-property yields cooled. But, with rent growth decelerating across all sectors, the increase in yields was still enough to drive another 4% q/q fall in capital values. (See Chart 1.) Although …
Sweden inflation surprise As of this week, coverage of Switzerland and the Nordic economies will be incorporated, along with the euro-zone, in our expanded Europe Economics service. We will continue to analyse the economic data from the Nordics and …
Our best guess is that the impact of monetary policy tightening on euro-zone economic activity will be less than five percent of GDP, which is the lower end of a range estimated in an ECB Economic Bulletin paper this week. However, even that could be …
18th May 2023
Economies across Central and Eastern Europe (CEE) have significantly underperformed the euro-zone and the rest of the world in recent quarters, which has its roots in the scale of the inflation shock that the region suffered and the impact on domestic …
The aggregate supply of labour in the euro-zone has recovered comparatively well from the pandemic, albeit with big differences between the major economies. But despite this, the labour market is very tight throughout the region and wage growth looks set …
Q1 acceleration, on track for full-year growth The smaller-than-expected 1.9% y/y contraction in Russian GDP in Q1 suggests that the economy has turned a corner and that growth accelerated in q/q terms at the start of this year. Industry and retail sales …
17th May 2023
After stalling at the end of last year export growth seems to have provided a boost to the euro-zone economy in the first quarter of 2023. However, we doubt that exports will be a major source of growth over the rest of the year given our downbeat …
