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Slowdown in construction activity intensifies in June The third consecutive monthly fall in the construction PMI suggests that that growth in development activity is slowing. The near-term outlook has also deteriorated, with growth in new orders easing …
6th July 2022
Retail sales becoming a drag on growth The small increase in euro-zone retail sales in May, after a steep fall in April, suggests that high inflation remains a drag on consumption. Although re-opening effects may have boosted consumption in Q2, the …
It seems most likely that Italy will be able to put its public debt ratio on a gradual downward trajectory, even as interest rates rise, by running primary budget surpluses. But if 10-year government bond yields rise above 5% and stay there, the necessary …
5th July 2022
Activity slowing, prices rising June’s final Composite PMIs confirmed the message from the flash release that activity is softening and that firms expect weaker conditions ahead. And price pressures remain intense throughout the euro-zone. The final …
The Bank of Israel (BoI) stepped up the pace of tightening today with a 50bp interest rate hike, to 1.25%, as it dropped its commitment to “gradual” interest rate hikes. This suggests that similar moves may be in the pipeline and supports our hawkish view …
4th July 2022
If Russia decided to end all exports of natural gas to Japan, we suspect that Japan’s GDP would fall by around 0.5%. However, the hit could be larger as there is now less scope to reduce energy usage than after the Great East Japan Earthquake and a bigger …
No comfort for the SNB Although Swiss inflation remains enviably low compared to many advanced economies, the further increase in the core rate will only strengthen the SNB’s resolve to squeeze price rises out of the system. A return to positive nominal …
The S&P Global EM manufacturing PMI hit its highest level in over a year last month, but that was almost entirely driven by a recovery in China. The surveys softened across most of the rest of the emerging world, with external demand a key area of …
1st July 2022
Threat from Turkey’s corporate FX debts grows Plans announced late last week by Turkey’s banking regulator add to the growing risks stemming from corporates’ large FX debt burdens. Late last Friday, the regulator announced that corporates will no longer …
Surveys of pricing intentions suggest that firms are confident of being able to both make recent price rises stick and to follow them up with further big increases over the next year. So the news that consumers have a slightly smaller savings buffer than …
Riksbank eyeing a sharp but short tightening cycle The Grand Départ of the Tour de France from Copenhagen today is the first time that the race has started in a Nordic country. Fittingly, it comes in a week when the Riksbank shifted up a gear with its …
The world’s leading central bankers were in a hawkish mood when they gathered for the ECB’s conference in Sintra this week, and President Lagarde was no exception. In her most emphatic rejection of the transitory view so far, Lagarde said she doesn’t …
Inflation surprises on the upside yet again The further big increase in the euro-zone inflation rate came despite a substantial fall in Germany that was driven by regulatory changes, and shows that underlying price pressures remain exceptionally strong. …
Households exercising more caution The more muted rise in unsecured borrowing in May suggests the cost of living crisis and recent plunge in consumer confidence are prompting households to exercise a bit more caution. That adds to reasons to think …
Net lending cools in line with weaker investment activity Lending activity in the commercial property sector cooled in May, consistent with the weaker investment data seen in recent months. Looking ahead, we expect rising interest rates and high property …
Weak approvals point to subdued lending demand ahead Mortgage approvals remained relatively weak in May supporting our view that higher interest rates are now starting to curb activity. As mortgage rates are set to rise further over the next year, this …
Further signs of manufacturing weakness Manufacturing PMIs for June showed further weakness across the region with the exception of Russia, which seems to have benefitted from a shift from imports toward domestic production. There were some encouraging …
After a solid start to the year, investment activity showed signs of cooling during the second quarter. We think that stretched valuations, an increasingly negative financing gap and economic uncertainty are set to weigh on investment activity over the …
30th June 2022
Overview – Weaker economic activity and higher interest rates as a consequence of the war in Ukraine will weigh on property performance in Central and Eastern Europe (CEE). Shifts in investor sentiment and a sharp deterioration in valuations are expected …
Another record low The fall in the euro-zone unemployment rate in May to a new record low reaffirms the strength of the region’s labour market despite the apparent softening of activity. That will underpin an acceleration in wage growth this year, adding …
Ukrainian refugees have boosted labour forces and consumer spending across Central and Eastern Europe (CEE) since the outbreak of the war, but this could prove short-lived if the conflict remains concentrated in Eastern Ukraine and more refugees return …
As expected, this morning’s 50bp interest rate hike by the Riksbank, to +0.75% saw it join the ranks of the “50bp club”. But while policymakers resisted the urge to join “Club Fed” with a 75bp hike today, they indicated that they will front-load the pace …
More evidence of easing house price growth Monthly house price inflation slowed in June to its lowest since last September according to the Nationwide, while the annual rate continued to edge lower. That is consistent with our view of steady deceleration …
Households have a slightly smaller savings buffer The final Q1 GDP data leave households looking a bit more vulnerable to the big fall in real incomes that’s going to hit in Q2 and Q3. Although GDP and consumer spending won’t fall as far as real incomes, …
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
