Filtered by Region: Europe Use setting Europe
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 …
17th March 2022
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 …
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 …
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 …
