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Russian energy embargo to provide fillip to Gulf The news this week that the West will reduce its energy imports from Russia could open the door for some of the Gulf countries to raise oil production output more quickly. This would provide a significant …
10th March 2022
The US and UK energy embargos will reduce Russian exports by just 0.6% of GDP, but adding in the EU’s plan to reduce Russian natural gas imports takes the total loss of export revenues closer to 2% of GDP. Coming alongside growing evidence of a more …
Financial markets in Central Europe have been hit hard by the contagion from the war in Ukraine, but spill-overs to other EMs have been limited so far. If the war were to result in a sustained period of risk aversion and capital outflows, this could cause …
It is highly likely that the war in Ukraine will accelerate Russia’s shift towards isolation and into autarky. (See here .) This will prevent Russia from catching up with more advanced economies, while the West will face some difficult choices as higher …
There has been some discussion of possible FX intervention by the ECB to support the euro, but there is next to no chance of that being announced at today’s press conference, and unless the single currency falls much further we think likely the Bank will …
The South East jobs market turned a corner during the second half of 2021. But while occupier activity has picked up, vacancy has also risen. As a result of this, and the effects of economic headwinds and remote working, we only expect to see modest …
The EU is considering more joint bond issuance, reportedly of around €200bn or 1.4% of EU GDP. If this is agreed, the devil will be in the detail and the amounts involved may fall short of some expectations. But it could cover much of the additional …
9th March 2022
The UK is not as exposed to the economic consequences of the war in Ukraine as the rest of Europe. Even so, in response to the surge in global commodity prices caused by the war we have dramatically revised up our inflation forecasts and modestly revised …
Inflation picks up further with sharp acceleration in sight Russian inflation rose to 9.2% y/y in February and, more importantly, the weekly CPI figures up to 4 th March (also just released) show that the collapse in the ruble led to a particularly sharp …
While the plan to reduce Europe’s reliance on Russian gas this year seems achievable, it will only lock in higher-for-longer gas prices and prolong the squeeze on household incomes. The centrepiece of the European Commission’s “REPowerEU” package, …
The growing list of countries imposing restrictions on Russia’s energy exports has raised the likelihood of a deeper contraction in Russia’s economy this year and a wave of corporate defaults. This Update provides a primer on the composition of …
While we don’t think that 2021’s strong pace of prime office rental growth in Amsterdam will be sustained, we still expect growth to outperform the euro-zone over the next couple of years, averaging around 3% a year. Prime office rents in Amsterdam …
The war in Ukraine has triggered renewed outflows from EM financial markets as risk aversion has taken hold, but there are few signs of severe financial contagion. And even if outflows were to intensify over the coming months, the macroeconomic fallout in …
8th March 2022
The National Bank of Poland (NBP) stepped up the pace of tightening today with a 75bp interest rate hike, to 3.50%, and the marked deterioration in the inflation outlook due to the war in Ukraine is likely to mean that rates rise much further in the …
Lending set to rebound after stamp duty related pause While mortgage lending was softer at the end of last year that largely reflected the jolt from the ending of stamp duty discounts. More recent data point to very strong market activity in early 2022 …
In response to the news that the US is considering banning imports of Russian oil, which means that commodity prices will probably be higher for longer, we have raised our CPI inflation forecast and will soon cut our UK GDP growth forecast. To reflect the …
7th March 2022
We think that a complete ban on Russian energy imports would cause the prices of Brent crude oil and European natural gas to surge to $160pb and €300/MWh in the near term and settle at still very high levels into next year. The Russian economy would …
The 10-year/2-year gilt yield curve is closer to inverting than at any point since March 2020, supporting our view that GDP growth will slow this year. And while a yield curve inversion isn’t a good leading indicator of a recession in the UK, it’s clear …
House price inflation reaches 15-year high The gain in house prices reported by Halifax for February pushed the annual rate to 10.8%, its highest since June 2007. With new supply limited and mortgage rates still relatively low, we suspect that house price …
The war in Ukraine has prompted us to revise our forecasts for euro-zone GDP, inflation and monetary policy. Russia’s downturn in 2015 had no obvious impact on euro-zone GDP and Russia has become less important as an export market since then. But we …
4th March 2022
Although many commodity prices are already back to levels last seen in 2008, there is still scope for prices to rise further if Western sanctions are extended to cover energy commodities . (At the end of this Weekly Wrap , we publish forecasts in a …
Events in Russia this week have clearly upturned the outlook completely and the growing possibilities of default, a banking crisis and restrictions on energy exports could cause the downturn to spiral. Russia’s financial markets have been in chaos this …
The dollar has generally strengthened since Russia’s invasion of Ukraine, while European currencies have generally been the hardest hit by the war. But unlike in most risk-off episodes, the currencies of commodity exporters have benefitted from a spike in …
As the war in Ukraine has escalated, the upside risks to inflation and the downside risks to activity have increased. The oil price has now risen by around 16% since last Wednesday, leaving it about 25% higher than at the start of February. The UK natural …
Finland most exposed to Russian sanctions We have yet to revise down our GDP growth forecasts for Switzerland and the Nordics in response to the sanctions on Russia, but the negative impact of the conflict will be smaller than for the euro-zone. (Note …
The war in Ukraine has intensified this week, and we have continued to write extensively across all our services about the financial and economic implications, all of which can be found here . In last week’s Weekly , we argued the war in Ukraine would …
PMI rises further as housing activity accelerates The construction PMI rose to its highest level in eleven months in February. Although encouraging, supply constraints remain a major impediment and input costs high, which we think will limit growth in the …
Outlook for retail sales darkened by war in Ukraine The small rise in retail sales in January, after a steep fall in December, suggests that Omicron remained a drag on consumption. Although spending will have rebounded in February, higher energy prices …
The constraints on Russian supply will work in tandem with an improving demand-side picture from auto production to keep palladium prices elevated. As a result, we have revised up our price forecasts . Palladium prices have rocketed by almost 51% since …
ECB will stress caution and flexibility in light of Ukraine war. New ECB forecasts will show lower growth, much higher inflation. Policymakers will still plan to resume normalisation when and if the situation is clearer. At next week’s monetary policy …
3rd March 2022
The EU’s decision to suspend its debt reduction rule for another year gives countries the green light to ramp up spending on defence and cushion the blow from higher energy prices. Depending on how long the conflict lasts, and how severe the side effects, …
While supply-chain links between the EU and Russia and Ukraine are small, shortages of seemingly obscure inputs can cause significant disruption, and add to price pressures, if alternatives cannot be sourced quickly. Aside from the most energy-intensive …
The sharp downturn in consumer confidence in February showed that the cost of living crisis was starting to bite even before the war in Ukraine began. But despite the worrying correlation between house prices and sentiment, our base case remains that …
While the war in Ukraine may well push down the yields of long-dated developed market (DM) government bonds further in the near term, we think that a sustained rally in bonds is unlikely unless the war causes a sharp fall in output in major DMs, which, …
2nd March 2022
While gilt yields could drop further if the war in Ukraine escalates much further and/or it becomes clear that it is significantly reducing economic activity in the UK, at the moment we think gilt yields are more likely to rise over the next two years. …
One immediate effect of the war in Ukraine will be to push Russia several places down the league table of the world’s largest economies. However, the impact on the global economy over the long run will depend to a large extent on its political and …
As fears over Russian oil supply mount, negotiations between Iran and world powers on reviving the Iran nuclear deal have been advancing in Vienna. If the nuclear deal is revived, we think there will be an immediate increase in Iranian supply, but fears …
Russia has already suspended the transfer of coupon payments on local-law sovereign debt to foreign investors, and the likelihood that the government and companies are unable or unwilling to make external debt repayments (besides those already affected) …
Inflation to breach 6% in the coming months After February’s surprisingly strong inflation outturn and with energy prices surging, euro-zone inflation is very likely to rise above 6% in the coming months. It then looks set to remain well above the ECB’s …
The spread of Russian interbank interest rates over the central bank’s policy rate – which was hiked aggressively on Monday – has widened pointing to some stress in the banking sector. But for now it is far from the levels recorded during 2008/09 and …
The EU would have a number of options to help compensate if Russian gas supplies were to be turned off, but in practice we suspect that some degree of power rationing would be needed. Past episodes of energy rationing were not as damaging as one might …
1st March 2022
February's manufacturing PMIs point to decent industrial growth last month and support our view that the impact from Omicron waves on EM industry will be limited. However, the surveys suggest that supply chains remain stretched. And looking ahead, the war …
The ratcheting up of Western sanctions, alongside a tightening of financial conditions and the prospect of a banking crisis, mean that Russia’s economy is likely to experience a sharp contraction this year. The outlook of course remains incredibly …
The impact of the war in Ukraine on energy prices will have a bigger effect on inflation in Italy and Spain this year than in Germany and France. Since the beginning of 2021, energy inflation has surged across the euro-zone, and the latest legs up in oil …
Higher government bond yields and falls in property yields across all sectors contributed to a deterioration in European property valuations in Q4. (See Chart 1.) While most industrial markets now look overvalued, for now we think that this is justified …
We expect that the rise in the gold price so far this year will continue in the near term as safe-haven demand builds. That said, we expect that the price will fall when/if tensions cool. But the extent to which the Central Bank of Russia (CBR) might …
Inflation rising, but ECB will pledge not to tighten prematurely The increase in inflation in Germany and much bigger jumps elsewhere mean that euro-zone inflation for February will come in well above expectations. However, the ECB has bigger concerns at …
The war in Ukraine and the ratcheting up of sanctions on Russia will have knock-on effects on the rest of the emerging world mainly through its impact on supply chains and commodity prices. Some EMs (e.g. Gulf oil producers) stand to benefit from higher …
Weaker borrowing likely to persist The muted rise in consumer credit in January suggests that the Omicron wave was still prompting households to exercise caution at the start of this year. With interest rates rising and the cost of living crisis only set …
More evidence that home movers remain active A third consecutive monthly rise in mortgage approvals suggests that housing market activity will remain higher than usual in the coming months as households continue to adjust to remote working. The rise in …
