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Pandemic-related effects and higher energy prices have played a significant part in pushing up inflation in the euro-zone, but domestically-generated “underlying” price pressures have increased too. That should make policymakers more confident that …
6th April 2022
The National Bank of Poland (NBP) unexpectedly delivered its largest interest rate hike in 22 years today (100bp, to 4.50%) to get on top of the deteriorating inflation outlook and we think there’s little argument against further hikes to come. We now …
While yield curves have inverted in a number of emerging markets (and look likely to do so in several others in the coming months), they don’t have a good track record in predicting recessions in the emerging world. In most EMs, we think that growth will …
PMI results mixed, with more concern on the horizon The continued strength of the construction PMI in March suggests that activity in the sector increased despite ongoing headwinds from supply constraints and cost inflation. The rise in new orders …
The chances of right-wing nationalist Marine Le Pen winning the French presidency later this month appear to have risen sharply over the past couple of weeks. A victory for Le Pen would almost certainly worsen the public finances and place a question mark …
5th April 2022
Output expectations hardest hit in Germany March’s final euro-zone PMI surveys confirmed that output expectations fell sharply, with Germany experiencing the biggest drop. Meanwhile, price pressures remain intense across the currency union. The small …
With cyclical pandemic effects fading, the backdrop has improved for Dutch retail. However, having been hardest hit in 2020-21, the structural legacy of COVID-19 and higher economic barriers to conversion mean that the outlook is also weaker for retail in …
4th April 2022
Despite strong house price growth across the country over the past two years, including in regions that had lagged behind, valuations are most stretched in the usual places. As a result, house prices are still most vulnerable to rising interest rates in …
Inflation leaps above 60% Turkey’s headline inflation rate recorded another sharp rise to reach 61.1% y/y in March and it is likely to rise a bit further over the coming months. But there is still little sign that the central bank and, crucially, …
Hopes of a peace deal fall flat Optimism about the prospect of an end to the war in Ukraine came and went this week. Hopes were raised after negotiators met in Istanbul on Tuesday and Russia said that it would significantly pare back military operations …
1st April 2022
Even though the ejection of Russia from the MSCI EM EMEA Index has changed its country and sector composition, we doubt that this will meaningfully change how it tends to behave. Our forecasts for lower commodity prices and mediocre global growth suggest …
Another month, another inflation surprise With euro-zone inflation having jumped to 7.5% in March (see here ) it seems increasingly likely that the ECB will accelerate its plans to tighten monetary policy. We now think it will end net asset purchases in …
Shifting goalposts for Nationalbank and SNB The fact that we now expect the ECB to hike interest rates sooner and faster than we previously anticipated naturally affects our outlooks for policy in Switzerland and the Nordics. Note that we now forecast the …
The squeeze on real household disposable incomes will hit harder from today. The first day of April brings with it a 54% leap in utilities prices as well as rises in council tax, water prices and many phone contract prices. Government benefits rise too, …
Inflation overshoot will soon prompt ECB into action With euro-zone inflation rising even further above the ECB’s forecast, and likely to remain very high for the rest of the year, we think it won’t be long before the Bank starts raising interest rates. …
The rental growth premium enjoyed by Central London shops has disappeared in the pandemic. And we don’t expect it to reopen, as lower footfall in the capital, the slow recovery in tourist arrivals and higher vacancy rates weigh on rental growth. All …
Swiss inflation to remain above 2% for much of this year Swiss inflation rose further above the SNB’s definition of price stability in March, and higher commodity prices and continued supply problems will keep it there for most of this year. Given the …
The Czech National Bank (CNB) slowed the pace of its tightening cycle for the third consecutive month today with a 50bp rate hike to 5.00%, but hawkish communications after the meeting suggest that the CNB is not finished yet. We now expect a 50bp hike at …
31st March 2022
Fidesz is looking the most likely to retain power in Hungary’s election this weekend, which will pave the way for four more years of tensions with the EU over the rule of law and raise the likelihood that EU fund inflows are withheld. From a macro …
Weakening GDP growth in the euro-zone’s trading partners – and a slump in Russia’s economy – mean that the currency union’s exports look set to grow very slowly this year. The early evidence shows that the war in Ukraine has led to a drop in export …
Labour market very tight prior to Ukraine war The euro-zone unemployment rate edged down yet again in February, to a record low of 6.8%. There is little sign yet that this is feeding through to higher wages. But labour market conditions are set to remain …
The strength of Prague industrial performance last year exceeded expectations but also left valuations looking highly stretched. While there are risks stemming from trade links with Russia, we think the expectation of solid rental growth will continue to …
Households using savings to offset the fall in real incomes The leap in inflation was behind the fall in real household disposable incomes in Q4 of last year. But it is encouraging that households appear willing to reduce their saving rate in order to …
House price growth hits 18-year high, but slowdown expected The acceleration in house price growth to an 18-year high of 14.3% will add to concerns that the pandemic housing market boom is getting out of hand. With mortgage rates rising, house price …
The industrial sector would bear the brunt of any power rationing imposed as a result of Europe’s shift away from Russian energy, but the direct economic impact of this would be smaller than one might expect. However, the knock-on impact from higher …
30th March 2022
With the Ukraine war and pandemic-related prices pressures still much stronger than anticipated, we think the ECB will not want to wait much longer before beginning to raise interest rates. Our new forecast is for three 25bp rate hikes this year and five …
While buying a home is likely to remain a better option than renting, despite rising mortgage rates, the decision will become more finely balanced. That will mean some prospective first-time buyers rent for a bit longer, helping to cool house price growth …
Ouch! German inflation hits 40-year high After a further huge jump in March, German inflation is likely to average at least 7% this year, and there are plenty of upside risks, not least the threat of power shortages. With price pressures remaining very …
Chances of a manufacturing recession increasing The European Commission business and consumer survey for March is consistent with our view that economic growth will be slower than most anticipate this year while inflation will overshoot expectations. The …
War in Ukraine punctures economic sentiment The EC’s Economic Sentiment Indicators unsurprisingly fell in most countries in March amid the fallout from the war in Ukraine and there were further large increases in price pressures on the back of rising …
Overview – The war in Ukraine will have spillover effects for property in Central and Eastern Europe (CEE), albeit that Russia will be far worst hit. Economic growth is expected to be slower, which will weigh on property demand, while inflation and …
We estimate that euro-zone governments’ fiscal deficits will be around 1% higher than expected this year, as a result of the war in Ukraine, mostly due to government subsidies for energy, support for refugees and higher defence spending. This will soften …
29th March 2022
The war in Ukraine has contributed to a tightening in financial conditions that will contribute to weaker GDP growth for the rest of this year and next year. Admittedly, a lot of the initial plunges in UK equity prices and gilt yields have been reversed. …
The main long-run economic impact of the Ukrainian refugee crisis will be to boost the workforce of countries where the migrants settle, partially offsetting the unfavourable demographics that many of these areas face. According to the UN, some 10m …
Modest net lending set to continue Net lending to property eased further in February, though it remained in positive territory. We expect lending trends to remain fairly subdued as both economic and sector specific challenges loom over the coming months. …
Households still happy to spend The leap in credit card borrowing in February and smaller increase in household savings could suggest that the cost of living crisis is already starting to bite. But we think it is more likely that households had the …
Decline provides an early sign that demand has begun to wane Higher than usual home moving activity ensured that mortgage approvals remained substantially above pre-virus levels in February. But the decline compared to January could be an early sign that …
We expect European steel prices to remain elevated this year given sharply higher production costs and disruption caused by lower imports from Russia and Ukraine. That said, prices should ease back from current highs on the back of subdued demand and some …
28th March 2022
With euro-zone inflation set to average around 6% this year, we expect aggregate real household incomes to fall by about 1.5%. The impact on consumption will be cushioned to some extent by fiscal support and, to a greater extent, by a decline in the …
Russia’s financial markets return from the ashes Trading on the Moscow Stock Exchange returned this week, with the central bank allowing trading of sovereign debt from Monday and selected equities from Thursday. Russian markets remain illiquid and there …
25th March 2022
European policymakers remained divided this week on whether to impose more curbs on Russian oil and gas. As we argued here , an EU embargo on Russian oil would be less disruptive than cutting off natural gas. But the EU is determined to reduce its …
Breman vents to a bunch of 16-19 year olds Riksbank Deputy Governor Anna Breman appeared to take out her hawkish frustrations on a group of secondary students in a speech on Wednesday. One can only speculate as to what the pupils made of the talk; while …
This week’s Spring Statement felt more like a piece of political theatre than an exercise in supporting the economy. Rishi Sunak’s determination to be remembered as a tax-cutting Chancellor meant that he made a great fanfare about cutting fuel duty for …
The latest data from the industrial sector were predictably upbeat with strong take-up and dwindling supply driving rapid rental growth. There were also signs of important shifts across UK markets that we think may be significant enough to re-cast our …
Manufacturing contraction looming March’s Ifo business survey provides further evidence that Germany is heading for a sharp slowdown as the war in Ukraine and sky-high energy prices cause manufacturing output to contract. However, we still think a …
Small fall a sign of things to come The small fall in retail sales in February probably had more to do with the shift back towards non-retail spending and the impact of Storm Eunice than it did the cost of living crisis. But, with further rises in …
Most leading indicators of housing market activity and house prices remain strikingly buoyant, but the first signs that demand will soften are now appearing. There is no question that house prices will continue to rise apace over the next few months. …
24th March 2022
Activity in large parts of the emerging world has rebounded following the easing of Omicron waves, but the war in Ukraine has caused the growth outlook for most EMs to worsen again. While commodity producers across the Gulf and parts of Latin America …
Overview – Property demand in the Scandinavian and Swiss markets is expected to hold up this year, as they are more insulated from the negative impacts of the war in Ukraine on economic activity. However, structural shifts will continue to cloud the …
War impact on activity small so far, but inflation risks intensify The surprisingly small fall in the composite activity PMI in March suggests that the war in Ukraine didn’t take that much steam out of the economy at the end of the first quarter. That …
