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What do recent data signal about recession risk in the euro-zone? How high will the ECB take the policy rate to rein in inflation pressure? Has March’s bank turmoil had any residual impact on the European banking system? Economists from our Europe and …
25th April 2023
More wiggle room for the Chancellor The news that total borrowing in 2022/23 was £13.2bn lower than the Office for Budget Responsibility (OBR) predicted only a month ago provides the Chancellor with more wiggle room to cut taxes and/or raise spending …
More wiggle room for the Chancellor The news that total borrowing in 2022/23 was £13.2bn lower than the Office for Budget Responsibility predicted only a month ago provides the Chancellor with more wiggle room to cut taxes/raise spending ahead of the next …
EM central banks have, in general, remained in hawkish mood over recent weeks. Tightening cycles have continued in Mexico, Colombia and South Africa in response to high inflation, while policymakers in Egypt and Pakistan among others have raised …
24th April 2023
A fall in consumption this year will weigh on the retail sector, but an earlier correction in yields and rents mean it is less vulnerable to the recession. Indeed, it was the only sector to see a fall in yields in Q1. While some further rise in yields …
A note of caution from the Ifo The Ifo Business Climate Index rose again in April but remained in contractionary territory. This is contrast to the PMIs which point to much stronger economic performance at the start of Q2. The small rise in the Ifo …
Weak first quarter, economy to flatline March’s activity data out of Poland were weaker than expected and suggest the economy may now be in a technical recession. Activity may start to bottom out soon, but we don’t think the economy is set for a marked …
A note of caution from the Ifo The small increase in the Ifo Business Climate Index in April confirms that the German economy remained resilient in the face of higher interest rates at the start of Q2. But the survey was much more downbeat than the PMIs, …
The physical risks facing commercial property are substantial with extreme weather events like floods and wildfires set to increase in both the US and Europe over the coming decades. Property markets have yet to fully price these in, especially in areas …
21st April 2023
The Norwegian krone has been the worst G10 performer against the US dollar by some way in recent months. Though lower energy prices and weakening risk sentiment have likely played a role, we suspect foreign exchange transactions by Norges Bank are also …
MNB takes its first steps towards interest rate cuts The deputy governor of the Hungarian central bank (MNB) made a splash this week by signalling that policymakers may cut the upper end of the bank’s interest rate corridor at their meeting next Tuesday. …
The stubbornness of CPI inflation in March, which seems more marked than elsewhere (see here ), has left us more comfortable than we were at the start of this week with our view that the Bank of England will raise interest rates by 25 basis points (bps) …
More signs of economic resilience… GDP data due next week are likely to confirm that, after stagnating in Q4, the euro-zone economy returned to growth in Q1. We have pencilled in a 0.2% q/q expansion in the region as a whole, with positive outturns in …
Resilience in economic activity continues into Q2 April’s flash PMIs suggest the economy is still proving resilient to the dual drags of high inflation and high interest rates going into Q2. That, alongside evidence suggesting that domestic inflationary …
Resilience in economic activity continues into Q2 April’s flash PMIs suggest the economy is still proving resilient to the dual drags of high inflation and high interest rates going into Q2. That, and the uptick in the services output prices balance, …
Strong start to Q2 points to 50bp May hike The further rise in the Composite PMI in April suggests that the euro-zone economy continued to expand at the start of Q2. With price pressures and employment intentions also strong, that adds to the reasons for …
Not as bad as it looks, but higher interest rates to restrain spending The 0.9% m/m fall in retail sales volumes in March (consensus -0.5%, CE -1.0%) probably isn’t as bad as it looks as it was partly due to the unusually wet weather. The further rise in …
Listed markets in Europe have been surprisingly downbeat about prospects for real estate relative to other regions. While we think that largely reflects mis-pricing in equity markets, it provides a reminder of the potential downsides as long as the …
20th April 2023
ECB account consistent with further rate hikes The account of the ECB’s last policy meeting, which took place just days after the collapse of Credit Suisse, confirms that it was only the banking sector turbulence that deterred policymakers from …
As mortgage lenders’ net interest margins are already very narrow, the increase in market interest rates over the past fortnight means that the decline in mortgage rates from their spike after the “mini” budget is now over. It was unusual for swap rates …
We think price pressures remained elevated in New Zealand in Q1 (22.45 BST) Sign-up here for tomorrow’s Drop-in on our revamped financial condition indices… …and here to catch up on yesterday’s Drop-In on China’s post-lockdown recovery Key Market …
19th April 2023
We think euro-zone equities will struggle as the region’s economy weakens more than investors expect. Euro-zone equities have continued their strong year-to-date gains this month, with the short-lived dip on the back of the banking turmoil now fully …
This Update was originally published on 19 th April. We have updated the data, charts and text to reflect the growing divergence between inflation in the UK and elsewhere evident after today’s release of the UK inflation figures for May. Clients can read …
Romania's economy has outperformed its peers in Central and Eastern Europe (CEE) over the past year, but domestic demand looks unsustainably strong and a period of weaker growth will be needed to reduce the large current account deficit. We forecast the …
The Riksbank will raise its key policy rate by another 50bp next week, bringing it to 3.5%, and we think a final 50bp increase is most likely in June. Policymakers sounded pretty hawkish at the February meeting and incoming data since then have …
Core inflation remains high Final inflation data confirmed that the drop in headline inflation in March was entirely due lower energy inflation. With the core rate not yet passed its peak, we think the ECB will raise rates to a peak of 4%. Data published …
Fight against inflation is lasting longer than expected Plunging energy price inflation will soon drag down CPI inflation more significantly, but the stubbornness of core inflation suggests that the fight against inflation is lasting longer than the Bank …
Stubborn core inflation points to one more rate hike…at least The smaller-than-expected fall in CPI inflation in March, from 10.4% in February to 10.1% (consensus/CE 9.8%, BoE Feb MPR 9.2%) and the stubbornness of core inflation, which stayed at 6.2% …
Wage growth eases further, but slowly The labour market became a bit less tight in February and wage growth continued to ease, albeit slowly. That leaves the Bank of England with a tough call on whether to raise interest rates further. Tomorrow’s release …
18th April 2023
Wage growth easing albeit slowly The labour market became a bit less tight in February and wage growth continued to ease, albeit slowly. That leaves the Bank of England with a tough call on whether to raise interest rates further. Tomorrow’s release of …
While US equity REITs are a long way from discounting the “best of times” for US commercial real estate (CRE) over the coming quarters, listed real estate stocks in Europe appear braced for something not far off the “worst of times”. That is a difference …
17th April 2023
Recent events have highlighted that meeting regulatory capital and liquidity requirements does not guarantee that banks will be financially stable. The forthcoming EU bank stress test results should give a better idea of the banks’ health, but those tests …
Shift towards cheaper homes challenges statisticians The divergence between the Nationwide and Halifax House Price Indices (HPIs) of late has cast some doubt on the direction of house prices. A struggle to adjust the statistics for a shift towards cheaper …
Surge in household incomes unlikely to be sustained The UK economy has continued to be more resilient to the twin drags of higher inflation and higher interest rates than we thought. Real GDP was flat in February despite an extra drag from the strikes. …
14th April 2023
Headline inflation falling, but little else to cheer for The raft of March inflation data released across Emerging Europe this week showed that the regional disinflation process is now well underway, but that core price pressures remain incredibly strong. …
Data point to positive growth in Q1 The latest official activity data suggest that the euro-zone economy posted a small expansion in Q1. Admittedly, retail sales fell in February, continuing the downward trend they have been on for over a year. But lower …
After a strong 2022, we expect Warsaw offices to face a more difficult time ahead. Falling employment and hybrid working practices will limit any revival in demand after 2023 and leave rents underperforming both the CEE and wider European averages. The …
Core inflation dips below 9% The fall in Sweden’s measure of core inflation to 8.9% in March suggests that it may now be passed its peak. But it is still much higher than the Riksbank had anticipated at its February meeting and does not change our view …
Although the Turkish lira is at its weakest ever level against the US dollar, it would have fallen far further by now were it not for intervention by policymakers. We anticipate that the currency will depreciate sharply before long against a backdrop of …
13th April 2023
The fading effects of the mini-budget meant that bank lending conditions to households and businesses didn’t deteriorate any further in Q1. But the latest credit conditions survey doesn’t capture the full extent of the tightening triggered by recent …
Despite the cost-of-living crisis, the leisure sector did better than expected last year as households used the savings they had built up during the pandemic to boost spending on recreation and restaurants. But with those savings now exhausted and real …
Bank of England may yet need to generate a recession The stagnation in real GDP in February means the economy probably avoided recession in Q1. But it also increases the chances that the Bank of England will need to raise interest rates further to …
Continuing to dodge recession The stagnation in real GDP in February (consensus +0.1%, CE 0.0%) means the economy probably avoided recession in Q1. But it also increases the chances that the Bank of England will need to raise interest rates further to …
Survey undermines hopes of a spring awakening The marginal improvement in the headline prices paid and new buyer enquiries balance of the RICS Residential Survey did not alter the overarching message that prices are falling and sales slumping. While the …
Sharp fall in inflation as base effects pass through Russian inflation fell sharply in March, to 3.5% y/y, as the surge in prices after the war started to fall out of the annual comparison. The 0.4% m/m increase suggests that price pressures generally …
12th April 2023
We’re not convinced by the arguments currently doing the rounds that military spending in Russia artificially boosted GDP in a significant way last year. While military spending has increased further this year and manufacturing in military-oriented …
Earthquakes take their toll on activity Turkish industrial production and retail sales figures for February showed that the impact of the earthquakes on the economy was larger than we and most others had anticipated. But we think this will be short-lived …
We think that the recent stress in the banking sector has had little impact on the outlook for monetary policy in the euro-zone. While there were significant outflows of bank deposits in the five months ending in February, that was due to higher …
11th April 2023
Are European and UK commercial real estate markets facing the same level of distress as the US? Join our Property Drop-In on Wednesday, 14th February to learn more, Register here for the 20-minute session. Recent turmoil in the banking sector has …
