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Shallower contraction in GDP as sanctions hit fades The 2.1% contraction in Russian GDP in 2022 was smaller than expected and is consistent with an expansion in Q4, providing further evidence to suggest that the economy stabilised after the initial hit …
20th February 2023
Being ranked by the Sunday Times as the top UK economic forecaster for 2022 is a great accolade and has generated a lot of interest in what we expect to happen next. Our forecasts for 2023 imply a tougher year than the consensus, with higher inflation …
The Bank of Israel (BoI) hiked interest rates by another 50bp, to 4.25%, today and while it continued to point to signs of slower growth, it sounded more concerned about the strength of inflation than it did at its last meeting. It now looks likely that …
Q uantitative tightening and the repayment of TLTROs mean that the ECB’s assets are likely to decline by around one quarter by the end of 2024. We expect the repayment of TLTROs to have a negligible macroeconomic impact. QT should also proceed smoothly, …
Yet another increase in core inflation The fall in the Riksbank’s target measure of inflation was largely due to a huge one-off drop in electricity prices but policymakers will focus more on the big increase in core inflation. This vindicates their recent …
In a previous edition of the UK Economics Weekly we said that the CPI core services inflation and private sector pay figures released this week would prove pivotal in determining whether the Bank of England raises interest rates further or calls time on …
17th February 2023
Capital value falls accelerated in Q4 as euro-zone all-property yields surged higher. And although rents increased in both offices and industrial, the outsized jump in yields meant euro-zone all-property capital values fell by about 8% q/q – the …
Tough times ahead for CEE, after Q4 contraction … Q4 GDP data released across Central and Eastern Europe (CEE) this week were a mixed bag, but show that the regional slowdown at the end of 2022 was (broadly) as we had anticipated. We now know that the …
The ECB’s doves have been pretty quiet for the past few months, but Fabio Panetta – who is probably the most influential one these days – gave a moderately dovish speech this week. Among other things, he suggested that inflation may already have peaked. …
This week’s data contained encouraging signs that inflationary pressures are fading, and the risks to our view that Bank Rate will rise to 4.5% this year now lie to the downside. The January MSCI data also included good news for investors, with …
Too soon to conclude that retail is coming out of its funk The rebound in retail sales in January was better than expected, had echoes of the leap in US retail sales and suggests that the festive/new year period wasn’t a complete write-off. But while …
2023 may be better than 2022 for retailers, but it will still be a struggle The 0.5% m/m rise in retail sales volumes in January was better than the consensus forecast of a 0.3% m/m decline (CE +0.5% m/m), echoes the leap in US retail sales earlier this …
The UK avoided a recession last year partly because of more spending by households on restaurants and trains and partly because of more investment by businesses in aircraft, cars and cruise ships. This suggests the recovery from the pandemic cushioned …
16th February 2023
We think French wage inflation will remain much stronger than in the pre-pandemic period this year. This is not least because of the automatic adjustments to inflation of the minimum wage and negotiated wages engrained in the French system. Charts 1 …
The survey data suggest that the modest decline in mortgage rates since October falls a long way short of what would be required for house prices to bottom out. The fall in market interest rates since the “mini” budget has allowed the average quoted …
Signs of softening labour markets across Central and Eastern Europe (CEE) support our view that intense wage pressures in the region will ease in the coming months. Even so, we still think that wage growth will generally remain above levels consistent …
15th February 2023
Economy struggling at the end of last year The fall in euro-zone industrial production and imports in December further highlights the weakening in the economy at the end of last year. We expect the economy to enter a recession this year as the squeeze on …
Moderating services inflation makes Bank of England’s life easier The fall in CPI inflation from 10.5% in December to 10.1% in January (consensus and CE forecast: 10.2%, BoE forecast: 10.1%), the drop in the core rate from 6.3% to 5.8% and the easing in …
Moderating services inflation makes Bank of England’s life easier The sharp fall in CPI inflation from 10.5% in December to 10.1% in January (consensus and CE forecast: 10.2%) was the most eye-catching part of today’s CPI release. But it is the easing in …
Recession looming Confirmation that euro-zone GDP growth slowed to a crawl in Q4 does not alter our view that the region is now falling into recession. That said, we think the labour market will continue to hold up well. The second estimate of Q4 GDP …
14th February 2023
Wage growth continues to accelerate despite cooling labour demand December’s labour market data showed that, despite an easing in labour demand, labour market conditions stayed tight and the market continued to support strong wage growth. The Bank of …
Wage growth continues to accelerate despite cooling labour demand December’s labour market data showed that, despite an easing in labour demand, labour market conditions stayed tight and the market continues to support strong wage growth. The Bank of …
Prague retail saw an unexpected rental uplift at the end of 2022, ending three years of decline. But we think that will be a false dawn and expect that a subdued consumer outlook will combine with existing structural weaknesses to push rents down again …
13th February 2023
It doesn’t really matter if the economy was in recession last year or not (although according to the technical definition it was not). (See here .) Two other factors are more important. First, recession or no recession, the economy is weak. Real GDP …
10th February 2023
Hawks singing the same tune At February’s ECB meeting, policymakers were unwilling to commit to raising interest rates further beyond the promised 50bp hike in March. But their comments this week show a clear intention to do so. Table 1 summarises some …
Recession may come this year as resilience recedes The economy escaped a recession in 2022 by the skin of its teeth (£77m to be precise). But with the full drags from high inflation and high interest rates yet to be felt, we think there will be a …
Avoiding a recession in 2023 will prove harder The 0.5% m/m fall in real GDP in December was worse than expected (consensus -0.3%), but the 0.0% change in Q4 (consensus 0.0%, BoE +0.1%) meant that the economy avoided a recession last year by the skin of …
We anticipate interest rate hikes in Mexico and Peru… (Thu.) … but think Russia’s central bank will leave rates on hold (Fri.) UK GDP data likely to show that the economy avoided a recession in 2022 (Fri.) Key Market Themes Shrinking central bank …
9th February 2023
We expect “high-beta” developed market (DM) currencies to weaken against the dollar over the coming months as risk sentiment worsens and, in some cases, yield gaps move against them. But we anticipate a rebound in appetite for risk later this year and …
Slowing jobs growth, a tech-driven slump in net absorption and a strong supply pipeline underline our view that Dublin prime office rents will fall slightly this year. This would mark a sharp correction from the bumper rent growth in 2022 and is more …
We think business insolvencies may rise to a record high of around 8,400 per quarter by Q2 2024 and take until at least early 2025 to return to a more “normal” level of just over 4,000 per quarter. The total rise in insolvencies above this normal level is …
German inflation statistics debacle continues The main takeaway from German flash inflation figures for January, which were finally released today after a week of delay, is that headline inflation in both Germany and the euro-zone fell further in January, …
Q4 stronger than expected The latest industrial production and retail sales data for Russia for December were relatively weak, but Q4 was a bit stronger than we had expected and the economy is likely to have expanded slightly in the final quarter. Over …
8th February 2023
A surge in property yields helped commercial property valuations improve for the first time in two years in the final quarter of 2022. Jumps in alternative asset yields late last year following the ‘mini-Budget’ meant the shift was modest, but those …
Since the full effects of the previous surge in energy prices and the hike in interest rates have yet to be felt, we still think the economy will succumb to a recession this year. Admittedly, pandemic savings and the government’s handouts appear to have …
A stronger than expected end to last year only postpones the euro-zone recession in our view. That will weigh slightly more heavily on property performance this year, as all-property rents may now fall slightly. But with yields rising faster than expected …
7th February 2023
The latest business surveys suggest that the euro-zone will stagnate or suffer only a mild recession, but the money and credit data paint a much gloomier picture. Net lending was negative in December and lower than in any month since 2014, when the …
Slump in industrial production points to recession After proving resilient for most of 2022, German industrial production slumped in December, adding to the reasons to expect the economy to fall into recession. December’s 3.1% m/m fall in industrial …
House price falls pause (for now) We suspect that the pause in house price falls in January reported by Halifax will prove temporary. Despite the slight decline in mortgage rates, affordability still looks far too stretched for house prices to have …
The energy crisis in Central and Eastern Europe (CEE) has lost some of its bite as natural gas prices have slumped and countries have made good progress in replacing Russian energy supplies. This has brightened the near-term outlook and reduced the risk …
6th February 2023
Most, but not all measures of house prices show that they are falling. That has led some to contend that cash buyers may be supporting prices. But we think it is just a matter of time before the ONS House Price Index (HPI) catches up with the Nationwide …
Commercial and housing activity falls further, but expectations brighten The headline CIPS construction index showed a contraction in activity in January, with the housing index seeing a substantial decline. But the forward-looking indicators improved, …
Consumer spending weakened at the end of last year December’s retail sales data show that the sector ended 2022 on a weak note. We think total household consumption will fall in the first half of this year, pulling the economy into recession. The chunky …
With the dust now settled after yesterday’s ECB meeting, it is clear investors have stuck with their dovish interpretation of the decision. They now expect the deposit rate to peak at around 3.4%, rather than 3.6%. (See Chart 1.) Meanwhile, 10-year …
3rd February 2023
The rise in yields in the final quarter of last year was larger than that seen at the start of the GFC. While the magnitude of the rise can be explained by the jump in risk-free interest rates, the speed of the repricing has been a surprise. The surge in …
Price pressures intense in the services sector Today’s final PMIs confirmed that economic activity in the euro-zone as a whole continued to roughly stagnate in January but picked up in Italy and Spain. They also show that inflationary pressures remain …
We expect growth in US payrolls in January continued to slow (13.30 GMT) ISM Services Index likely to be consistent with mild US recession (15.00 GMT) We held a Drop-In on the Fed, ECB & BoE today – clients can catch up here Key Market Themes Despite …
2nd February 2023
Whereas the Bank of England and (arguably) the Fed delivered dovish surprises over the past twenty four hours, we think the ECB decision did not amount to a clear change of policy stance. The ECB is still likely to raise its deposit rate from 2.5% today …
The reversal of China’s zero-COVID policy means Chinese tourists could return to European high streets sooner than expected. While this should help support occupier demand, it seems unlikely it will be sufficient to offset weakness in domestic spending. …
