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Stagflation risks building The small increase in euro-zone GDP in Q1 means that the region will avoid a technical recession in the first half of the year. But rising inflation and the fallout from the Ukraine war mean that GDP is likely to contract in Q2, …
29th April 2022
Slowdown in Q1, contraction likely in Q2 The 0.7% q/q expansion of Czech GDP in Q1 was slightly stronger than expected, although it still marked a slowdown in growth and, in particular, there were signs of weakness at the end of the quarter. We think that …
While Q1 investment data showed further strength, the impact of the war in Ukraine on investor sentiment, economic growth and interest rates support our view that pan-European (excl. UK) investment activity will slow further ahead. There was little impact …
We think that the Norges Bank will keep interest rates on hold, at +0.75%, next Thursday, before resuming its tightening cycle in June. We forecast one rate hike per quarter this year and next, which would leave rates at 2.50% by end-2023. But the balance …
28th April 2022
The cap on the wholesale natural gas price for the Iberian market will result in a bigger fall in energy inflation in Spain than we had previously expected. It might also dampen underlying price pressures, but the big picture is that core inflation will …
Rising price/wage expectations will prompt MPC to raise interest rates by 25bps MPC to announce its decision to sell some of its gilt holdings A tight labour market/more persistent price pressures may mean rates rise to 3.00% in 2023 The weakening …
Surging commodity prices have pushed up inflation across the region and we expect inflation to hit fresh multi-year highs in the coming months. A loss of Russian gas supplies should not lead to rationing in Poland, but it will have a big impact in …
Small fall in energy inflation will not put ECB off rate hikes The further rise in headline inflation in Germany, and increase in the underlying rate in Spain, suggest that euro-zone inflation will come in around 7.4% in April. This will do nothing to …
Office and retail occupier activity stages a comeback The latest RICS survey showed that office and retail occupier activity improved significantly in Q1 and that respondents were more positive about the prospects for property over the next 12 months. But …
As we had expected, the Riksbank finally bowed to economic logic in its April meeting by raising the repo rate, to +0.25%, and announcing that it will begin to shrink its balance sheet this year. While the Bank has spoken in the past of the need to tread …
A weaker economic outlook and larger increases in interest rates this year and next mean that we now think euro-zone all-property yields will reach their trough by the end of this year and will come under more upward pressure than previously expected. In …
Surprising resilience in March, but deeper downturn likely in Q2 The latest activity data for Russia beat expectations in March and suggest that the economy entered a softer downturn than had been expected. We have reservations about the accuracy of the …
27th April 2022
Russia’s decision to suspend gas deliveries to Poland and Bulgaria from today because of a payments dispute will only strengthen the EU’s resolve to end its dependency on Russian gas, keeping gas prices historically high for months to come. The move also …
Our new forecast that interest rates will be raised from 0.75% now to a peak of 3.00% next year is more hawkish than the peak priced into the financial markets (2.50%) and the peak expected by the consensus of economists (2.00%). That’s because we think …
The higher prevalence of renewables in the energy mixes than in most of Europe means the squeeze on incomes from higher gas prices will be less acute in Switzerland and the Nordics, and Norway even stands to benefit from elevated commodity prices. But as …
Our new, higher, interest rate forecasts mean that we now expect house prices to fall marginally in 2023 and 2024. While there are risks on both sides, our base case is that prices drop by 5% overall, reversing a fifth of the surge in house prices since …
Overview – Even though a further surge in CPI inflation to a 40-year high of 10% in October will take the economy to the brink of recession, we think the Bank of England will raise interest rates from 0.75% now to a peak of 3.00% in 2023 to contain …
26th April 2022
Public finances won’t offer much help to the Chancellor in 2022/23 Total borrowing for the 2021/22 fiscal year overshot the Office for Budget Responsibility’s (OBR) March 2022 forecast by some £24bn, rounding out the third-worst year for the public …
In our latest European Economic Outlook , we set out three non-consensus forecasts for the euro-zone. First, we think inflation will overshoot expectations this year. Second, the hit that this will deliver to spending power means that the economy is …
25th April 2022
Slight recovery in April but Q2 contraction still likely The Ifo survey for April was a little stronger than we had expected and suggests that the services sector in particular is growing rapidly. But the index is still well below its pre-Ukraine war …
The re-election of French President Emmanuel Macron gives him five more years to improve France’s economic potential and its public finances, with pension reform and the green transition central to his plans. But Le Pen’s greater vote share suggests he …
Overview – The war in Ukraine has delivered a shock to Europe just as it was coming out of the pandemic. Higher energy prices will keep inflation elevated, squeeze household incomes and dent business confidence. We think the euro-zone economy will do no …
22nd April 2022
This Update presents our revised forecasts for the yields of developed market (DM) long-term government bonds, in light of recent market moves and changes to our expectations for monetary policy. We argued last month that the increase in DM government …
Russia: crisis easing, but challenges await Comments from Elvira Nabiullina this week during her appearance in the State Duma to be reappointed as CBR governor for another five-year term underline the view that the most acute phase of Russia’s economic …
The news on the economy was distinctly downbeat this week with evidence of a consumer slowdown mounting (see here and here ) and the IMF predicting that the UK economy will grow by just 1.2% in 2023, the slowest among G7 countries. But that did not stop …
We first said in late March that we thought the ECB was likely to raise rates as soon as July. This was because inflation had been higher than expected for several months in succession and we thought it would continue to surprise on the upside, while the …
The latest monthly MSCI figures indicate that commercial property is holding up well. Rental growth rose further in March, while annual total returns matched July 2010 levels, which were the highest since Q3 1994. Industrial continues to be the driving …
Boom time for Salmon prices In an otherwise extremely quiet week for tier-1 macroeconomic data releases, the publication of weekly salmon price data from Statistics Norway stood out. In short, it’s boom time for the fishing industry. The export price of …
The perfect storm of surging commodity prices due to the war in Ukraine and the hawkish shift by major DM central banks has pushed a few frontier markets to the brink of sovereign default . Sri Lanka has already announced the suspension of debt payments …
PMIs point to continued easing in economic growth The fall in the composite PMI in April suggests GDP growth has continued to slow as the cost of living crisis has intensified. But economic activity doesn’t appear to be collapsing. And, beneath the …
Services sector propping up activity, but for how long? The rise in the euro-zone Composite PMI in April suggests that the services sector rebound from the Covid restrictions earlier in the year is offsetting weakness in the manufacturing sector. But with …
Despite the permanent increase in working from home, the end of pandemic restrictions has triggered a resurgence in demand in London’s rental and house purchase markets. Annual inflation in the ONS House Price Index for London has already risen from 3.8% …
Solid expansion in Q1, but growth to soften this quarter Industrial production and retail sales figures in Poland remained incredibly strong in March and point to a solid expansion in Q1. A lot of this strength is unlikely to last as the effects of the …
Past delays in development projects mean that office completions will exceed demand in Budapest this year and next. As such, having held broadly steady in 2021, office vacancy is set to rise again and put downward pressure on rents over the next couple of …
Gloomy signs of spending crunch The hefty fall in retail sales in March marks the second consecutive month of decline and adds to signs that the real wage squeeze is hitting consumer spending. With CPI inflation already at a 30-year high and set to keep …
We think the recent upturn in office market performance is largely down to the one-off release of pent-up demand and remain downbeat about future prospects. With occupancy still languishing and remote working firmly established, we think that the risks to …
21st April 2022
Consumption to be a significant drag on growth The rise in consumer confidence in April was slightly better than expected. Nevertheless, confidence is still very low and points to household spending falling in April. That’s consistent with our assumption …
Having so far been a bastion of dovishness amongst G10 central banks, we think that the stage is set for the Riksbank to start to raise the repo rate next Thursday, and it will press on with further rate rises thereafter. But with “QT” likely to do some …
We don’t expect ongoing tightening by the Federal Reserve will see the valuations of emerging market (EM) equities or bonds plunge, even if they are unlikely to rebound much either. Sharp rises in bond yields in developed markets this year – amid …
Inflation hasn’t peaked yet Headline inflation rose to 7.4% in March and further increases are likely. This will put a big dent in consumer spending, so we think that 2022 will be a year of stagflation for the euro-zone. Data released this morning showed …
Overview – The Russian economy will collapse this year and we expect spillovers from the war in Ukraine to cause a recession in many of the smaller countries in the region, particularly Bulgaria and the Baltic States. Loose fiscal policy and strong labour …
20th April 2022
A win for Marine Le Pen would need to be followed by a strong showing for her party in June’s legislative elections if she is to implement most of her programme. A government of national unity or “cohabitation” would clip her wings, at least on domestic …
Despite facing very strong demand housebuilders appear reluctant to commit to new sites. This is because a shortage of materials is delaying completions, while rising interest rates and the end of the Help to Buy Equity Loan scheme mean demand is …
19th April 2022
ECB President Christine Lagarde suggested at today’s post-meeting press conference that the Bank would be sticking to its plans for policy normalisation, despite inflation surprising to the upside since the last meeting. She highlighted the hit to …
14th April 2022
Today’s ECB statement and press conference indicate that policymakers expect to end their net asset purchases early in Q3 and raise interest rates soon after that. With inflationary pressures still rising, we think they will lift the deposit rate sooner, …
Price pressures building This week brought March inflation releases from Norway, Denmark and Sweden. Norway’s inflation data were a little weaker than expected, with the headline rate at 4.5% and the core rate unchanged at 2.1%. (See here .) Those …
If Chancellor Rishi Sunak was hoping that the economy would provide some respite from the political hot waters that he’s found himself in recently then data released over the past week will have come as another blow. First came figures released on Monday …
Fiscal support may not prevent Q2 contraction Governments stepped up policy support this week to protect against the surging cost of living and, while the measures should help to shield households and firms from surging inflation, we don’t think they will …
Rising market rates tighten conditions Banks expect mortgage availability to fall back in Q2 as lenders push up borrowing rates to reflect increases in Bank Rate, but other lending criteria are expected to be stable or loosen. The availability of mortgage …
While economic growth is forecast to slow, limited supply and further strong growth in e-commerce-related demand mean Belgium industrial rental growth is expected to outperform its pre-pandemic average as well as most other euro-zone markets. Industrial …
