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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 …
10th February 2023
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. …
While raising rates by 50 basis points (bps) today, from 3.50% to 4.00%, the Bank of England implied that rates are very close to their peak. We still think that rates may rise to 4.50%, but perhaps via two 25bps increases rather than one 50bps rise. …
Peak rate still some way off Whereas the Bank of England and (arguably) the Fed delivered dovish surprises over the past twenty four hours, we think the ECB’s statement does not amount to a clear change in the policy stance. The 50bp hike today was almost …
Rates closing in on their peak, but rate cuts unlikely to come until 2024 While raising rates by 50bps today, from 3.50% to 4.00%, the Bank of England implied that rates are very close to their peak. We still think that rates may rise to 4.50%, but …
Concerns over democratic backsliding and an escalation of the Israeli-Palestinian conflict associated with Israel’s new far-right government won’t necessarily mean that foreign investment into Israel dries up or that the economy suffers in the short run. …
1st February 2023
Headline inflation to fall sharply, but core rate will be sticky January’s drop in headline inflation should be taken with a pinch of salt because a “data processing problem” meant that the data for Germany had to be estimated and might therefore be …
Unemployment steady as the labour market remains tight The euro-zone unemployment rate was unchanged at 6.6% in December but is likely to increase over the coming months as the economy falls into recession. That said, the increase will probably be …
Headline inflation to fall sharply, but core rate will be sticky January’s bigger-than-expected decline in headline euro-zone inflation should be taken with a big pinch of salt because a “data processing problem” at Germany’s statistics office meant that …
High mortgage rates maintain downward pressure on prices Given very stretched mortgage affordability, it was unsurprising to see house prices continue to decline at the beginning of 2023. The fall in house prices since their peak last August grew to 3.2% …
While we expect employment to weaken, it’s happening at a glacial pace. That feeds into our view that once interest rates peak (perhaps at 4.50% up from 3.50% now) they will stay high for all of this year. Employment rose by 27,000 between August and …
31st January 2023
We think that the euro-zone will enter a recession in the first half of this year and then experience a slow recovery. Our new GDP forecasts show a 0.5% contraction in 2023 and growth of only 0.8% next year. Data released this morning confirmed that the …
Early data indicate that German offices saw the steepest increases in yields on record in late 2022. And we think that with policy rates set to go higher, it is too early to rule out further rises in 2023. That suggests a peak-to-trough fall in German …
Approvals fall to their lowest since 2009 A further slump in mortgage approvals in December, to the lowest level since the height of the pandemic, confirmed that the extremely high cost of mortgage borrowing has caused more buyers to withdraw from the …
Drag from higher interest rates intensified in December December’s money and credit figures revealed that higher interest rates further dampened economic activity at the end of last year. Moreover, the drag on activity will continue to intensify this …
Recession likely in first half of this year The small increase in euro-zone GDP in Q4 was better than we feared a few months ago but the economy excluding Ireland still flat-lined. As the data deteriorated towards the end of the quarter and tighter …
Further weakness in bank lending to come Much like the latest money and credit data, the Q4 Bank Lending Survey painted a much more downbeat picture of economic prospects than the latest business surveys. Banks are tightening their lending standards and …
Drag from higher interest rates intensified in December December’s money and credit figures revealed that higher interest rates further dampened economic activity at the end of last year. Moreover, the drag on activity will continue to intensify this year …
Economy likely to contract in first half of 2023 The small increase in France’s GDP in Q4 last year was worse than it first appears as household consumption fell sharply and investment growth slowed. It looks as if a (mild) recession in the first half of …
We think China’s PMIs picked up in January as its COVID wave ebbed (01.30 GMT) Euro-zone GDP probably flatlined in the fourth quarter… (10.00 GMT) …and economic growth may have weakened in Mexico and the Czech Republic Key Market Themes The Fed , ECB …
30th January 2023
The shift away from floating-rate to fixed-rate mortgages presents risks as well as benefits. It will protect homeowners who are lucky enough to have a long time remaining on their fixed rate contract from higher mortgage payments. But that reduces the …
While an improvement in appetite for risk has fuelled a strong start to 2023 by UK equities and sterling, we doubt this will remain a source of support as recessions in the US, the UK and the euro-zone economies take hold. We anticipate the FTSE 100 …
Sentiment up, price pressures coming off the boil but still strong The improvement in economic sentiment in January is consistent with the picture painted by other surveys. But the high level of firms’ selling price expectations shows that the ECB’s …
Sharp slowdown in Q4, but sentiment improves further in January Economic sentiment in Central and Eastern Europe picked up again in most countries in January and our regional-weighted measure hit a four-month high. We still think that GDP in most …
Recession not off the table yet The fall in German GDP in Q4 shows that the energy crisis started to dent activity at the end of last year. This pours cold water on the recent optimism about the prospects for the euro-zone and suggests that a technical …
A Q4 fall in GDP The 4.9% increase in Polish GDP over 2022 as a whole is consistent with a slowdown in growth to around 1.6% y/y in Q4 and a small quarterly decline in output of around 0.5% q/q, confirming that the economy slumped towards the end of the …
Recession not off the table yet The fall in German GDP in Q4 suggests that the energy crisis started to dent activity at the end of last year. This pours cold water on the recent optimism about the prospects for the euro-zone and suggests that a technical …
A streak of stronger-than-expected economic data in the euro-zone has given markets there a boost this year. But with much of the good news seemingly already discounted, and, in our view, a still hawkish ECB, we expect rallies in equities and government …
27th January 2023
