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A new scheme announced by Turkey’s President Erdogan last night, which compensates holders of lira deposits for exchange rates losses, has triggered a sharp rally in the lira and will help to mitigate some of the risks that had started to crystalise in …
21st December 2021
While we have raised our end-22 and end-23 forecasts for the S&P 500, we still expect gains in the index to be smaller over the next two years than they have been in 2021 and on average over the past decade . After rising sharply in October, the S&P 500 …
Riksbank looking increasingly behind the curve The resilience of the ETI in December underlines that the Swedish economy is comparatively well-placed going into 2022. All told, the pressure on the Riksbank to soften its so-far dovish stance is building. …
Borrowing overshoot could continue in the coming months The rise in government borrowing in November suggests the public finances could be already starting to feel the strain from higher spending on NHS Test & Trace and booster vaccines. Now that tighter …
Inflation pressures have shown no signs of letting up across Emerging Europe, with headline inflation rates surging to multi-year highs in November. Producer price inflation has hit rates not seen in decades, food inflation continues to surge and strong …
20th December 2021
Foreign investors have been net sellers of EM assets for much of this year and tighter monetary policy in the US and a stronger dollar suggest that the environment for EMs next year will remain challenging. The good news is that most major EMs should be …
The pandemic-driven boost in scientific research and development will support demand in the European life science sector, at least for the next few years. This bodes well for several markets we forecast, including Warsaw and Copenhagen. The shift to more …
Following yesterday’s interest rate cut in Turkey, the lira has plunged again and is now faring worse than other Emerging Europe currencies have done during recent sudden stops. There are some signs of stress emerging in the banking sector. These aren’t …
17th December 2021
Poland: overheating fears, but NBP stepping up Concerns that Poland’s economy is overheating will have only been reinforced by figures this week that showed a surge in nominal wage growth and a sharp widening of the current account deficit in October. But …
Twelve months ago we said that 2021 would bring a “quicker and fuller” recovery, still-loose monetary policy and that the pandemic wouldn’t leave a large permanent dent in the economy and the public finances. (See here .) So we have managed to notch a …
The majority of this week’s multiple central bank decisions turned out to be a little more hawkish than most had anticipated, and the ECB was no exception. We commented on its decision here , but a couple of points are worth underlining. First, the ECB …
Russia’s central bank (CBR) stepped up the pace of its tightening cycle today with a 100bp interest rate hike, to 8.50%, and the hawkish communications reinforce the message that it will not hesitate to raise interest rates further. We now expect a 75bp …
Shifting sands at ECB change landscape for the SNB As expected, Thursday morning’s SNB announcement did not throw up any surprises, and the ability of Swiss policymakers to play a straight bat puts England’s openers to shame. However, the mildly hawkish …
Inflation to stay above 2% until late 2022 November’s detailed inflation breakdown shows that the increase in price pressures is not just due to high energy costs and global demand-supply imbalances for durable goods. Services inflation has risen too. We …
Another bleak midwinter The fall in the Ifo BCI for December underlines that German’s economy has been hit hard by the latest Covid wave even before the Omicron variant has taken hold. The only consolation is that manufacturers are holding up well. It now …
Black Friday boost, but Omicron threatens Christmas for retailers The strong growth in retail sales in November feels like a bit of a consolation prize for retailers who are now once again facing a difficult Christmas in light of the rapidly worsening …
The Riksbank (along with the RBNZ) is one of the few major central banks not to have a scheduled meeting in December. But with the Fed having put its hawkish cards on the table, rate hikes by the Bank of England and Norges Bank , and a chance that even …
16th December 2021
While the hike in Bank Rate from 0.10% to 0.25% came a little earlier than we expected, it does not change our view that the overall rise in interest rates over the next couple of years will be modest. However, the continued strength of both inflation and …
The ECB confirmed today that it will reduce the pace of its monthly asset purchases to €40bn by April next year. It plans to reduce them to €20bn by October and then continue as long as necessary. We have brought forward our forecast of the first rate …
The surprise hike in interest rates by the Bank of England today, from 0.10% to 0.25%, could just be a case of the Bank moving a bit quicker than expected, but the hawkish tone of the commentary suggests to us that it is now also willing to move a bit …
Overview – With the recovery running out of steam and the emergence of the Omicron variant posing a downside risk, the economic backdrop is likely to provide less support to the property recovery over the coming quarters . Nevertheless, we think that both …
Yesterday’s Fed meeting confirmed a hawkish shift. Turkey aside, we doubt that this is likely to cause major strains in the balance of payments of most EMs. But the Fed’s hawkish turn may cause domestic monetary policy to be tightened slightly more …
Turkey’s central bank shrugged off a currency crisis, rising inflation as well as the recent hawkish turn from the Fed and remained obedient to President Erdogan by cutting its one-week repo rate by another 100bp, to 14.00%, today. The accompanying …
Rebound in wage growth won’t trouble the ECB The rebound in euro-zone hourly wage growth in Q3 is a sign of base effects fading and there is no evidence that this is the beginning of a wage-price spiral that would concern the ECB. Indeed, wage growth is …
Omicron already hitting services hard The fall in the composite PMI in December doesn’t come as much of a surprise given the surge in cases of the Omicron variant of COVID-19. But it was much bigger than expected, and shows that caution among businesses …
Ending Q4 on a weak note The renewed decline in the Composite PMI in December suggests that growth slowed to a crawl as tighter restrictions and growing consumer caution are taking their toll on economic activity, with the service sector bearing the …
While the Swiss National Bank maintained the status quo once again this morning (yawn), the Norges Bank continued its tightening cycle, as expected, and opened the door to another rate hike in March. We are sticking to our hawkish forecast that rates will …
Given the fast-moving virus situation in Europe, and mindful of the fact that Omicron won’t be taking a festive break, this Update identifies five key areas of uncertainty to watch over the coming weeks. Europe was labelled the epicentre of the pandemic …
15th December 2021
The recovery from the crisis over the course of this year has been uneven, with strong retail spending and industrial output setting the stage for a sharp rebound in the likes of Chile, Colombia and Poland, while recoveries in South Africa and Brazil have …
Investment activity has bounced back sharply after the initial COVID-19 shock and is on track to hit a three-year high in 2021. But we expect more modest growth in 2022 as softer economic activity and structural factors in some sectors weigh on …
The discovery of the Omicron COVID-19 variant in late November rattled UK markets. Equities tumbled, sterling weakened and corporate credit spreads jumped. And, while the initial reaction was not unique to the UK, it does seem that investors remain a bit …
Inflation close to being further above the target than ever before Inflation is close to being further above the target than at any point since the UK started targeting inflation in October 1992. This makes tomorrow’s interest rate decision look closer, …
The decision by Hungary’s central bank (MNB) to raise its base rate by 30bp, to 2.40%, at today’s meeting is largely symbolic. The key point is that the central bank struck a clear hawkish tone and will continue to push up interbank interest rates …
14th December 2021
Reports that the surge in Omicron COVID-19 cases is causing some people to stay away from work, schools, pubs and restaurants increases the downside risks to our December and January GDP forecasts. But the big step down would happen if there were another …
While mortgage lending slowed in Q3 as the stamp duty holiday was tapered, an easing of deposit requirements supported first-time buyer demand. Meanwhile, the Financial Policy Committee’s plan to withdraw its affordability stress test will allow banks to …
Overview – The near-term economic outlook has weakened, though GDP in the region had already surpassed its pre-virus levels by Q3. Meanwhile, inflation is set to fall back next year, allowing most central banks to keep interest rates on hold. While the …
Industry has better start to Q4, but supply problems persist The rise in euro-zone industrial production in October means euro-zone industry started Q4 on a decent note. But supply-chain problems remain acute and, in any case, any improvement is likely to …
More fodder for the Riksbank’s hawks The increase in Swedish CPIF inflation in November strengthens the hand of the hawks at the Riksbank and supports our view that policymakers will reduce the size of the balance sheet next year. But with energy effects …
Furlough fears fading, COVID-19 concerns climbing Even though the fallout after the furlough scheme was smaller and shorter than the Bank of England had feared, concerns over the deteriorating COVID-19 situation will probably prevent it from raising …
Consumers will feel a squeeze on their finances next year as inflation and taxes rise. That will take some wind out of the housing market’s sails, but it will not cause a correction. A spike in inflation and a hike in National Insurance contributions in …
13th December 2021
Italy will elect its next president in January, with prime minister Mario Draghi widely touted as a favourite to take up the post. If he did so, the current government would probably fall apart, making it more difficult to pass necessary economic reforms …
Strong start to Q4, but currency crisis to hit activity before long Turkey’s industrial production and retail sales data for October suggest that the economy made a strong start to Q4, but these predate the recent currency crisis and we think the economy …
Sanctions threat rears its ugly head again The newswires have been abuzz this week with reports of a potential Russian military conflict with Ukraine and a renewed threat of US sanctions. The proposed sanctions are at the more aggressive end of the …
10th December 2021
Office space under construction declined for a third consecutive quarter according to the Winter London Crane Survey, despite an uptick in new starts. Given the challenges the office sector faces, we believe that activity is likely to decrease even …
The government’s recently-imposed “Plan B” COVID-19 restrictions mean there is a good chance that the economy contracted in December. If the pressure on the NHS increases, restrictions might be tightened further, implying substantial downside risks to Q1 …
Interview coaching for SNB candidates This week’s announcement that Fritz Zurbrügg – one of the three members of the SNB’s Governing Board – will retire at the end of July 2022 sounded the starting gun to appoint his successor. We are not privy to the …
This week brought yet more bad news for the euro-zone economy. Although German industrial output grew by 2.8% on the month in October, driven by a rebound in the struggling auto sector, this followed months of declines and left production 6.5% below its …
Energy effects to subside next year Headline inflation reached a 13-year high in November, mainly driven by energy inflation. But the core rate was more subdued and is likely to remain below the Norges Bank’s target throughout 2022. The rise in headline …
Touch-and-go whether economy grows or contracts in December The news that the economy was hardly growing at all before Omicron means it is touch-and-go whether it will grow a bit in December or shrink a bit. Against that background, we doubt the Bank of …
Bank to raise 2022 inflation forecast but still predict an undershoot in 2023. Policymakers will keep open possibility of using the PEPP after March. Christine Lagarde will stress uncertainty and need for flexibility. Just a day after we expect the Fed to …
9th December 2021
