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It is possible that equity prices will continue to struggle in the near term if central banks send more signals that they are willing to raise interest rates further in order to control inflation. But without a significant economic downturn or recession …
31st January 2022
The Socialist Party’s victory in yesterday’s election means there will be no substantial change in economic policy, but the government should be more stable. In any case, Portugal’s economy is set to grow rapidly this year, from a fairly low base, as the …
Weak end to 2021 but Omicron hit set to be short-lived The small increase in euro-zone GDP in Q4 came as no surprise given the country-level data published last week and shows that the euro-zone economy was struggling at the end of last year. But …
Figures consistent with a strong rebound in Q4 The larger-than-expected 5.7% increase in Polish GDP over 2021 as a whole is consistent with another large expansion in Q4 and meant that the economy recovered faster than most other European economies from …
By re-electing Sergio Mattarella as president and ensuring that Mario Draghi remains prime minister, Italy’s political establishment has achieved what appears to be the best possible outcome. The Recovery Plan should remain on track and Mr Draghi could …
There is a perception that a shift in workspace preferences brought about by the pandemic has redirected demand towards higher quality office space. But while there is some evidence of a flight to quality in Central London office data, the evidence is …
28th January 2022
CBRT puts emphasis on “lira-isation” The upward revision to the Turkish central bank’s inflation forecast in its Q1 Inflation Report this week, from 11.8% y/y to 23.2% y/y for end-2022, was just a matter of catching up with reality. The lira has sunk 30% …
Prime Minister Boris Johnson is in a precarious position. With Sue Gray’s (delayed… again) report on ‘Partygate’ due to be published at some point in the next few weeks and the police now conducting a criminal investigation into the scandal, support for …
The raft of country-level Q4 GDP data published this morning point to the euro-zone eking out some marginal growth at the end of last year, with Germany contracting by 0.7% q/q. (See here and here .) Nor does the euro-zone appear to have made a strong …
Stage set for Riksbank mea culpa in February The 0.3% m/m increase in Sweden’s GDP Indicator in December, released this morning, left it a whopping 4.7% higher than its February 2020 level. (See Chart 1.) We will have to wait until the 28 th February for …
Supply-shortages continuing to bite The EC Economic Sentiment Indicator weakened in January as the Omicron wave took a toll on economic activity, particularly in the services sector. The survey also showed that supply shortages remained acute and …
Sentiment holds up well at the start of the year The EC’s Economic Sentiment Indicators for January generally showed sentiment in Central and Eastern Europe holding up across all sectors of the economy. With Omicron waves likely to peak in the coming …
Weak end to last year but better start to 2022 The decline in economic activity at the end of last year left GDP well below its pre-pandemic level and much weaker than in other major advanced economies. Activity seems to have stabilised in January so …
Stronger than expected Both the French and Spanish economies ended 2021 on a strong note, but for different reasons. In France, domestic demand pushed output above its pre-virus level, a boon for President Macron ahead of April’s election. By contrast, a …
While we think the direct risks to property from the pandemic have reduced, the uncertain impact of structural change and our expectation that interest rates will now be increased from late this year reinforce our view that Stockholm property returns will …
The unfavourable growth/inflation trade-off has worsened We think investors are right to price in an interest rate hike in February to 0.50% And we expect rates to rise to 1.25% by end-2022, further than most anticipate The further surge in inflation …
27th January 2022
We expect the major central and eastern European (CEE) currencies to depreciate against the euro this year. We think that the Czech koruna will continue to fare better than the other CEE currencies, although not by as much as last year. To recap, the …
Industry across Emerging Europe turned a corner in Q4 as auto production rebounded strongly. This comes amid signs that supply shortages are starting to ease; our proprietary shortages dashboard suggests that product shortages may have peaked. We think …
Omicron deals a blow to office and retail demand, while industrial surges The spread of the Omicron variant took some of the steam out of the property recovery in Q4 2021, but the latest RICS results are consistent with further growth in 2022. They also …
Omicron, market sell-off and Ukraine tensions won’t worry the ECB unduly. Lagarde to stress uncertainty over inflation and note rapid house prices increases. We think the Bank will prepare the ground for limited rate hikes next year. The impact of Omicron …
The early data indicate that Paris offices recovered last year, though much of this reflected strength in the core CBD market. With the economic background supportive and supply relatively contained, we expect further prime office rental growth at a touch …
The sell-off in Russia’s financial markets in response to the reassessment of the likelihood of conflict with Ukraine has pushed up the risk premium on Russian assets to a similar level to that which followed the annexation of Crimea in 2014. There is …
A Russian military invasion of Ukraine would adversely affect the euro-zone economy by further disrupting the market for energy, pushing up inflation and reducing households’ real incomes. However, any economic fallout would probably be fairly small and …
25th January 2022
Even though the valuations of technology stocks have, in general, already fallen sharply in recent weeks, we suspect they may decline further over the next couple of years. This is one reason why we expect the sectors in which they are heavily represented …
The jump in transactions during the pandemic was larger in London than other regions as the market didn’t experience the same drop in supply as elsewhere. That reflected many existing homeowners adjusting to remote working by moving further afield, giving …
Euro-zone inflation would be even further above target if owner-occupied housing costs were included in the region’s headline measure. Their formal inclusion won’t take place for a few years yet, but the ECB has pledged to take them into account in the …
Economy stabilising The increase in the Ifo Business Climate Index (BCI) in January provides more evidence that, after contracting in late 2021, conditions have stabilised at the start of the year. With disruption from the Omicron wave likely to ease in …
Inflation a headache, but Chancellor still has wiggle room Stronger tax revenues were just enough to offset big rises in debt interest costs in December. But we don’t expect this to last: further rises in inflation will mean borrowing soon overshoots the …
Omicron hangover to be short-lived, signs of shortages easing The third consecutive decline in the composite PMI indicates that the Omicron variant weighed further on activity in January. But the recent fall in COVID-19 cases, relaxation of restrictions …
24th January 2022
Sluggish January, but outlook improving The small decline in the Composite PMI in January confirms that Omicron has taken a toll on the services sector, though Germany performed surprisingly well. We think governments will ease restrictions sufficiently …
#Commercial property ended last year strongly. Annual rental growth climbed to a five-year high, while annual total returns crossed the 20% level. This was largely the result of dynamism in industrial, though all sectors saw positive annual returns, even …
21st January 2022
Italy’s presidential election, which will begin next week, threatens to reignite political uncertainty that has been quiescent since Mario Draghi became prime minister last year. While we agree that losing Mr Draghi as prime minister would put the …
Consumer confidence proving to be resilient January’s broadly unchanged reading for consumer confidence suggests that household spending might be holding up fairly well, despite a surge in Covid cases. We expect consumption to recover quickly once the …
Ukraine’s markets in for a tough few months A positive reaction to today’s talks between the US and Russia may have brought some relief but, even if a renewed conflict doesn’t materialise, local markets are likely to face a difficult few months. Tensions …
The key event of this week (for us at least) was the release of our European Economic Outlook setting out our forecasts for 2022 and 2023. We think the euro-zone will come through the Omicron wave of coronavirus relatively well but think growth will be …
Denmark achieves a geranium “greenium” Denmark joined the growing list of countries to offer a green sovereign bond, on Wednesday. The country is far from a trailblazer in the area, with the Netherlands, Germany, and the UK all amongst those to have …
While Boris Johnson has survived another week without a formal challenge on his leadership, next week’s publication of the (delayed) report on “Partygate” by Sue Gray may well determine his fate one way or the other. We highlighted in last week’s UK …
Huge fall points to bigger Omicron hit The fall in retail sales volumes in December was bigger than expected and supports our view that the Omicron outbreak in the run-up to Christmas may have dragged down GDP by 0.5% m/m, if not more. The 3.7% m/m fall …
We expect UK retail sales to have fallen in December (Fri. 07.00 GMT) Japan’s headline inflation probably edged up to 0.8% last month (Thu. 23.30 GMT) Read our key calls for economies and markets in the year ahead here Key Market Themes For the first time …
20th January 2022
The long and detailed account of December’s Governing Council meeting underlines that there are significant differences of opinion about the inflation outlook. We suspect that the balance of opinion will shift in the coming months towards forecasting …
The looming squeeze on real wages means that the near-term outlook for consumption and GDP has weakened. That said, we don’t expect anything as bad as the squeeze in 2008-14. In fact, real household disposable income may well recover by early 2023. Real …
Overview – We expect regional GDP growth to come in below expectations this year as high inflation erodes households’ real incomes and policy becomes more restrictive. Despite this view on the growth outlook, we think that persistent capacity constraints …
The industrial sector had its best year in over three decades in 2021 as demand soared and supply struggled to keep up. Although we expect the sector to perform well again this year, we don’t think that yields can continue to fall at the rate seen in …
Turkey’s central bank (CBRT) followed kept its one-week repo rate on hold at 14.00% today and, even though inflation is likely to breach 40% in the coming months, President Erdogan is unlikely to permit interest rate hikes. We think it’s more likely that …
Core inflation to remain high Euro-zone inflation is likely to have peaked at 5% in December, with energy inflation set to fall sharply this year. But we think that core inflation will settle at around 2%, prompting the ECB to prepare the ground for …
After twelve years in the job, Øystein Olsen was never going to spring a surprise at his last meeting in charge of the Norges Bank. Instead, the Bank left its policy rate unchanged at 0.5% and reiterated that it “will most likely be raised in March”. We …
With the notable exception of Turkey, net capital outflows from emerging markets have eased over the past month. However, the global backdrop for EMs this year will be challenging, particularly for those countries where external vulnerabilities are high …
19th January 2022
A breakdown of house price growth over the past two years confirms that remote working has altered the nation’s housing needs. But what households can afford, rather than what they desire, will be a more important driver of house prices over the next few …
German inflation to remain uncomfortably high Final inflation data for December showed that the decline in Germany’s HICP inflation rate to 5.7% was due to energy and services. We expect both headline and core inflation to fall this year, but only to …
Target-busting inflation heading to 7% After rising from 5.1% in November to 5.4% in December, CPI inflation is now further above the Bank of England’s target than at any point since the UK first adopted an inflation target in October 1992. (See Chart 1.) …
