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Ida Wolden Bache kicked off her time in charge at the Norges Bank with a rate hike and prepared the ground for even more aggressive tightening. We now expect 175bps of hikes by end-2023, to 2.50%, and there is good chance that the Bank front-loads the …
24th March 2022
Slower growth, higher inflation March’s euro-zone PMI survey is consistent with our view that the economy will grow more slowly than most anticipate this year, while inflation will overshoot expectations. The small fall in the Composite PMI, from 55.5 in …
The Chancellor, Rishi Sunak, provided more support to the economy than we had expected over the next few years in today’s Spring Fiscal Statement, but he could have gone further in 2022/23. Instead, he chose to bank some extra cash so there’s scope for …
23rd March 2022
An EU embargo on Russian oil would push up oil prices and exacerbate the cost-of-living crisis facing consumers. However, while there would be logistical challenges, oil supplies would be easier to replace than natural gas and we estimate that the direct …
Outlook for consumption darkened by war in Ukraine The huge fall in consumer confidence in March suggests that consumption may have contracted as the war in Ukraine and higher energy prices reduced households’ willingness and ability to spend. In turn, …
The potential for around 3 million refugees to settle in Central and Eastern Europe (CEE) by the middle of this year will present a large fiscal cost, but will also boost the size of the labour force and GDP in the near term. We estimate that the increase …
The war in Ukraine, as well as the hawkish tone adopted by some developed market (DM) central banks, have led us to revise up our end-22 and end-23 forecasts for government bond yields in some DMs and to lower our projections for DM equities generally . …
The war in Ukraine will have several economic repercussions for the emerging world. We have lowered our aggregate EM GDP growth forecast for 2022 by 1%-pt, to 3.2%. Russia aside, the biggest downward revisions have been to other Emerging European …
This checklist helps clients keep track of the key economic and public finances forecasts announced during the Chancellor’s Spring Statement speech at 12.30pm on Wednesday 23 rd March and to provide some instant context. We will send clients a Rapid …
Shopping centres were the hardest hit commercial property sector during the pandemic. The latest data hint that the sector may be past the worst. But the outlook remains clouded by the threat of online shopping and weak in-store retail spending. …
High inflation means both the Chancellor and BoE have more work to do The further rise in CPI inflation from 5.5% in January to a new 30-year high of 6.2% in February adds to the pressure on the Chancellor to offset more of the cost of living crisis in …
Hungary’s central bank (MNB) stepped up the pace of tightening today with a 100bp increase in its base rate, to 4.40%, and the hawkish communications underline the view that the central bank will respond to the deterioration in the inflation outlook with …
22nd March 2022
For the most part, EMs are well placed to withstand rising US interest rates, but there are pockets of vulnerability where external financing needs are significant. Among the large EMs, Turkey (unsurprisingly) stands out, and current account risks are …
Just as the supply problems facing euro-zone manufacturers showed tentative signs of easing, the war in Ukraine has created new headwinds. It would not be surprising if industrial output fell in the coming quarters. But rising services demand should mean …
Mixed bag for the Chancellor ahead of the Spring Statement Notwithstanding the deterioration in the public finances in February, large revisions to the back data mean that borrowing in 2021/22 is on track to undershoot the OBR’s October 2021 forecast by a …
A close look at banking sector linkages in Central and Eastern Europe provides encouragement that there is little direct exposure to Russia and Ukraine and that any indirect exposure through a Western European parent bank is likely to have minimal …
21st March 2022
Activity remains strong, but war in Ukraine casts a dark cloud Activity data for February show that Poland’s economy continued to expand strongly at the start of this year but the war in Ukraine is likely to drag on the recovery through a hit to exports, …
Russia dodges default The saga over whether Russia’s government would make coupon payments on two Eurobonds this week seems to have been settled for the time being. At least some creditors are reported to have received payments (albeit a little late). …
18th March 2022
The post-meeting speech by Russia’s central bank (CBR) governor Elvira Nabiullina made clear that policymakers think sanctions and autarky are here to stay for the long term. But at the same time, officials at the CBR appear to want to revert back to …
What’s Swedish for “fundamental change of view”? In a week when the US Fed and the Bank of England both raised interest rates, Riksbank Governor Ingves finally appears to have woken up to the need for tighter policy in Sweden. Mr Ingves reportedly said …
The messages sent by the US Federal Reserve and the Bank of England at their policy meetings this week were very different. While the Fed said it intends to raise interest rates from 0.25-0.50% to 2.75-3.00% by the end of 2023 (see here ), after having …
Things can only get better worse? Our economic forecasts are based on a working assumption that there is no diplomatic solution to the war in the next few months, that Russia remains economically isolated and that sanctions are not rolled back. This is …
Overview – While the direct impact of the war in Ukraine is likely to be small, we think there will be indirect consequences for euro-zone commercial property markets. Economic growth is expected to be slower, which will weigh on property demand. But as …
Commercial property is not showing any signs of slowing down. Rental growth rose further in February, while annual total returns climbed to a level last seen in Q4 2010. Industrial remains the main driver behind overall performance, with retail also …
Slower wage growth despite shortages The latest data show that euro-zone wage growth remained subdued at the end of last year, despite reports of widespread labour shortages. The tightening in the labour market that we expect is likely to put upward …
The Norges Bank will kick off the post-Olsen era next Thursday with a 25bp interest rate hike, to +0.75%, and while we expect it to raise rates three more times this year, the balance of risks is skewed towards it proceeding even faster. Meanwhile, …
17th March 2022
While Cyprus’s strong ties to Russia make it is vulnerable to recession, the country’s public finances and banking sector are in better shape than they were before the crisis which took place a decade ago. And any problems in Cyprus are very unlikely to …
Their net fall since the invasion of Ukraine means the valuations of European equities are now even lower relative to those of US stocks. While valuations have a mixed track record at predicting returns over short periods, they are key to our view that …
Headline inflation to stay around 6% until Q4 With the war in Ukraine pushing up energy and food prices and potentially exacerbating supply problems, we think euro-zone inflation will remain around 6% until Q4 and average well above 2% next year. …
Mortgage rates have been slow to respond to rising market interest rates, with lenders choosing to take a hit to their margins rather than fully offset increased funding costs. But we don’t think there is any more scope for rises in Bank Rate to be …
The Chancellor, Rishi Sunak, will use his Spring Statement on 23 rd March to soften the blow for households facing rising energy and food costs. However, any hopes that he will announce a big handout may be disappointed as he tries to strike a balance …
16th March 2022
Russia’s banking sector has held up better than might have been expected through the initial stage of the crisis due to large, timely and widespread policy support. But banks will now face the challenge of rising loan losses. While the capital buffers of …
Food inflation in the euro-zone is on the rise and the war in Ukraine will make matters worse. While policymakers might normally “look through” a period of high food inflation, with the headline rate already high there is a risk that rapid increases in …
The latest surveys show that the war in Ukraine has severely dented euro-zone investors’ and companies’ perceptions of the outlook. This is consistent with our view that the war will cause a significant hit to economic activity, but for now, we still …
15th March 2022
Fears high inflation is fuelling wage growth The further fall in the unemployment rate to within a whisker of the pre-pandemic rate will only encourage the Bank of England to raise interest rates on Thursday, probably from 0.50% to 0.75%, despite the …
Russia’s government appears to be heading towards a default on its foreign currency debts for the first time since the Bolshevik revolution. This won’t affect the Russian government’s ability to finance itself (beyond what sanctions have already done) and …
14th March 2022
We think that most of the fall in the size of the UK’s labour force since the onset of the COVID-19 pandemic should eventually be reversed. Even so, we wouldn’t be surprised if this took another two years or so. That suggests to us that the labour market …
Another blow to the notion of Swedish inflation exceptionalism The stronger-than-expected increase in Swedish inflation in February is surely the final nail in the coffin for the Riksbank’s thus-far dovish stance, and lends support to our view that the …
Cyprus is by far the most exposed euro-zone economy to the collapse in Russia’s economy and it now looks very likely to fall into recession in the coming quarters. In this Update , we take a look at the economic and financial links between the two …
11th March 2022
We expect the Fed and the BoE to raise their policy rates by 25bp… (Wed. & Thu.) … and Brazil’s central bank to hike interest rates by 100bp, to 11.75% (Wed.) In contrast, policymakers in Japan, Russia and Turkey will probably leave rates unchanged Key …
Although a gap between euro-zone corporate and peripheral sovereign spreads opened up after the start of the Russia-Ukraine war, it has begun to close recently and we think that it will shrink further . The spreads between the yields of long-dated …
Russia’s economy is in the early stages of a deep recession and we’ve revised our forecast for GDP to collapse by 12% this year. We’ve also revised our forecasts for Central and Eastern Europe as a result of the war in Ukraine with inflation set to be …
At the start of the Ukraine crisis, we felt the direct property impact would be modest, based on limited Russian ownership and capital flows. But as the conflict extends into a third week, concerns have risen about the macroeconomic impacts of the …
Franc(ie) goes to Hollywood parity The Swiss franc rose through parity with the euro in the early hours of Monday for the first time on record. However, its foray into uncharted territory was brief, and it has since given up the gains it made in March. It …
The pressure on the Chancellor, Rishi Sunak, to go beyond the £9bn (0.4% of GDP) fiscal package announced in February and shelter households from even higher energy costs in his Spring Statement on 23 rd March has intensified this week. That’s because the …
Yesterday’s ECB announcement was more hawkish than expected, but so far the Bank’s Chief Economist Philip Lane hasn’t published a new blog post to correct the message as he has done a number of times in the past. You can read our response to the decision …
Even if the West bans crude imports from Russia entirely, the Iranian experience suggests that there will still be ways for Russia to get its oil onto global markets. But any workarounds would take time to translate into a pick-up in exports, and at best …
As good as it gets for this year The cost of living crisis and the influence of the war in Ukraine probably means that the 0.8% m/m leap in GDP in January is as good as it gets for this year. Meanwhile, two-thirds of the huge 20% m/m fall in UK exports to …
War in Ukraine worsening the tricky mix between rising inflation and slowing GDP growth Rising price expectations to force MPC to raise interest rates by 25bps A tight labour market may mean that rates rise to 2.00% next year The economic consequences of …
10th March 2022
In today’s monetary policy statement, the ECB said the Russian invasion of Ukraine was a watershed moment for Europe, but it concluded that it does not require a big change in monetary policy. Indeed, the Bank announced an acceleration in the pace at …
