Filtered by Region: Europe Use setting Europe
Clearer signs that the economy has stabilised The latest Russian data for May suggest that activity, having declined sharply after Western sanctions were imposed in March, has started to stabilise. Some sectors of manufacturing have benefited from a shift …
29th June 2022
Inflation has continued to beat expectations across Emerging Europe over the past month, reaching rates not seen in decades in most countries. It is now weighing more heavily on consumer confidence, and the surprise inflation releases for May prompted …
Price pressures still not easing The fall in inflation in Germany and the increase in Spain in June largely reflect temporary factors and will not alter the consensus view at the ECB that interest rates need to be increased quite rapidly. The decline in …
We think developed market (DM) government bond yields will rise further while equity and corporate bond prices fall further, as central banks press ahead with tightening and the global economy slows. The past few weeks have brought hawkish surprises from …
Sharp fall in sentiment as recovery starts to slow The EC’s Economic Sentiment Indicators for Central and Eastern Europe showed broad-based declines in sentiment across the region and across sectors in June to levels not seen in a year. Economic activity …
Activity holding up better than expected The decline in EC Economic Sentiment Indicator in June was not as bad as we had feared and paints a more upbeat picture than the PMIs published last week. Nevertheless, the survey also pointed to inflationary …
Wage growth is a possible source of the “more persistent inflationary pressures” that the Bank of England has said would prompt it to act “forcefully” when raising interest rates. This Update highlights where to look for the early signs of either a …
High inflation in the euro-zone isn’t all down to energy prices and global demand-supply imbalances. Domestic price pressures are also very strong, bolstering the case for tighter monetary policy. Amid the external shocks hitting the euro-zone, the …
28th June 2022
The G7 proposal to impose a cap on the price of Russian oil and gas would introduce new supply-side risks by potentially disrupting Russian energy supplies. This could push global energy prices up further, but for now we still see Brent crude prices …
Aggregate EM food inflation has risen to its highest rate since 2008 and, while it should fall back in 2023, it’s likely to stay extremely high for at least the next four-to-six months. That will keep consumer spending under pressure and provide another …
Hungary’s central bank (MNB) stepped up the pace of tightening today with a much larger-than-expected 185bp increase in its base rate, to 7.75%, and the hawkish communications underline the view that further large rate hikes are likely to be delivered …
After reaching a record-high in June, we think that inflation in builders’ costs will soon start to ease. But even as cost pressures subside, construction volumes will slump as the housing market slows. Construction volumes strengthened in the first half …
Recent developments have further increased the chance that there is a complete end to Russian exports of gas to Germany. If this occurred, it would lead to a substantial fall in manufacturing output and make a recession – which we already think is likely …
We doubt that aggressive policy tightening by developed market (DM) central banks will be followed by a series of financial crises in major emerging market (EM) economies in the way that it has at times in the past. Even so, we still suspect that global …
27th June 2022
We are revising up our forecast for core inflation in the euro-zone because the labour market is tighter, demand stronger and inflation expectations higher than we had anticipated. Moreover, fiscal policy will be tightened only gradually and there are …
Russia’s government has now reportedly defaulted on its foreign-currency denominated debt for the first time since 1918, but this is a largely symbolic event that is unlikely to have an additional macroeconomic impact. Sanctions have already done the …
Overview – The rapid turnaround in the interest rate environment has led us to revise down our expectations for property performance in Scandinavia and Switzerland. Property valuations deteriorated sharply in Q1 and are expected to come under more …
Measures of housing market activity and prices tend to follow a predictable sequence in downturns. In this Update we highlight the key US and UK variables that clients should follow to track the housing downturn and identify turning points. With most …
24th June 2022
New ECB forecasts Fears about a possible US recession have prompted investors to revise their interest rate expectations down this week, but we have pushed ours up. We now forecast the deposit rate to peak at 2% next year. (See Chart 1.) Chart 1: ECB …
This week’s economic news didn’t appear to satisfy the criteria of “indications of more persistent inflationary pressures” that the Monetary Policy Committee (MPC) said last week would prompt it to act “forcefully”. As a result, market interest rate …
Student enrolment remained robust during the last couple of years and is likely to continue growing strongly over the next decade. But supply of purpose-built beds has grown less rapidly and the pipeline points to a continued lag against demand. This …
Hello “faster rate rises”, Goodbye “gradual” Chart 1: Use of “Gradual” in Norges Bank’s Monetary Policy Assessment or Equivalent (Number) Sources: Norges Bank, Capital Economics All eyes were on Oslo on Thursday morning as the Norges Bank delivered a …
A handful of EM central banks have ramped up FX sales to provide support to weakening currencies over the past couple of months. And with inflation high and the US dollar likely to strengthen further, others could follow suit. FX intervention is unlikely …
Ending Q2 on a weak note The renewed decline in the German Ifo Business Climate Index (BCI) for June provides further evidence that weaker demand is starting to affect manufacturing output. With inflation set to remain high and the country’s gas supply …
Cost of living crisis bites harder The fall in retail sales in May suggests that the decline in households’ real incomes from surging inflation is starting to hit consumer spending a bit harder. Even so, consumer spending appears to be softening rather …
Having begun its tightening cycle in April, we expect the Riksbank to join the trend by raising its policy interest rate by 50bps, to 0.75%, next week. We were in a minority of forecasters that correctly predicted that the Riksbank would raise the repo …
23rd June 2022
Having surged in recent months, there are some tentative signs that EM inflation is nearing a peak. Our measure of aggregate EM inflation was steady at 7.0% y/y between April and May and some indicators of pipeline price pressures have eased. But even so, …
We haven’t changed our forecast that the Bank of England will raise interest rates from 1.25% now to a peak of 3.00% by the middle of next year. But we do now think that a number of other central banks will raise interest rates faster and to higher levels …
High inflation, falls in the lira and aggressive monetary tightening elsewhere are clearly not enough to persuade Turkey’s central bank to lift interest rates, as it left its policy rate at 14.00% today. Disorderly falls in the lira are a major risk, …
Activity holding up better than expected The fact that the composite PMI didn’t fall in June means the economy could be holding up a little better than we and the Bank of England had feared. Beneath the headline numbers, the survey also suggests strong …
Overview – The weaker economic outlook and larger increases in interest rates are expected to weigh on property performance. With valuations under increasing pressure from sharply rising bond yields, we think that property yields will reach their troughs …
This morning’s decision by the Norges Bank to raise its key policy rate by 50bps, to 1.25%, was in line with our non-consensus forecast. Also, as we predicted, the Bank all but confirmed that it will break with tradition and raise rates at the “interim” …
Stagflation begins June’s euro-zone PMI surveys showed a further slowdown in the services sector, while activity in the manufacturing sector now seems to be falling outright. With the price indices remaining extremely strong, the euro-zone appears to have …
Weaker economy will limit the Chancellor’s ability to help households The larger-than-expected rise in public borrowing in May is an early blow for the government on a day when it is expected to lose two by-elections. What’s more, the combination of a …
Annual all-property rental growth reached a five-year high in May, while returns rose to levels last seen in mid-1994. But signs of a slowdown also emerged, especially in the red-hot industrial sector, where capital value growth and total returns eased …
22nd June 2022
Probably not “persistent” enough to seal the deal on a 50bps rate hike The further rise in CPI inflation from 9.0% in April to a new 40-year high of 9.1% in May won’t prevent the Bank of England from raising interest rates further, but it may encourage it …
By cutting GDP growth by about 0.3-0.4 percentage points (ppts) in Q2 and raising GDP growth by a similar amount in Q3, the impact of the extra bank holiday to mark the Queen’s Platinum Jubilee will all come out in the wash in the end. But it will add …
21st June 2022
We suspect that the main reason for the hasty withdrawal of the Financial Policy Committee’s mortgage affordability test is that it was on course to become a severe constraint on many buyers’ financial firepower. If left in place, it could have led to a …
20th June 2022
Central and Eastern European economies are experiencing their worst bout of inflation since the late-1990s as surging food and energy prices have added to strong core price pressures across a broad range of goods and services. Monetary tightening cycles …
The rise in mortgage rates from a low of 1.5% last November to 1.8% in April is beginning to weigh on home purchase demand, with the new buyer enquiries balance of the RICS survey dropping into negative territory in May. Supply is also improving according …
French President Emmanuel Macron faces five difficult years after losing his absolute majority in parliament. Proposed reforms, including to pensions and benefits, will be diluted if they happen at all, and the result suggests that the “extreme” parties …
The best way for the ECB to contain peripheral bond spreads would be via a new programme of unlimited, flexible bond purchases. This may be what happens eventually, but we suspect it will take longer than many anticipate to agree, meaning there is plenty …
17th June 2022
Assessing the risks from a more hawkish US Fed The 75bp interest rate hike by the US Fed this week and expectations for further large hikes in the coming months have caused turmoil in global markets and will have ripple effects across Emerging Europe. We …
After a more severe downturn in 2020, Manchester office rental growth has caught up with other regional cities in recent quarters. While employment growth and occupier activity may remain fairly weak, tight new supply dynamics should see Manchester office …
The appointment of Erik Thedéen as the new Governor of the Riksbank will only strengthen the relationship between the Bank and the financial regulator, and could result in more macroprudential powers being brought under the oversight of the Bank. It was …
A shock, albeit with a small “s” It goes without saying that the FX market reaction to yesterday’s surprise 50bp rate hike by the SNB was far more muted than that in the days following the Frankenshock in 2015 (when the franc surged by about one-fifth …
Words need to be followed by actions The ECB pulled off a neat trick this week: arresting the sell-off in peripheral bond markets without announcing very much at all. But there’s only so long that markets will be soothed by encouraging words about a …
Despite consumer confidence remaining extremely low, we now think household spending in the euro-zone will edge up in Q2. Excess savings and a tight labour market have helped to cushion the blow from higher prices and enabled households to release their …
Underlying inflation to continue rising Final inflation data for May confirm that the headline and core rates both rose to record highs. The recent increases in gas and agricultural commodity prices will keep the headline rate higher than we had …
Russia’s decision to once again cut supplies to Europe makes the region’s gas supply look increasingly precarious. The move will slow regional stock builds and keep prices historically high . Russia’s monopoly gas exporter, Gazprom, announced on Wednesday …
16th June 2022
