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We expect the Turkish lira to remain among the worst-performing currencies over the next two years, as political pressures, high inflation, and a vulnerable external position continue to weigh on the currency. The lira has been the worst-performing …
22nd October 2021
Markets and monetary policy The markets easily shook off this week’s news that CPI inflation fell back in September, from 3.2% to 3.1%, and continued to price in some rapid rises interest rates. That makes sense when everyone knows that CPI inflation is …
Riksbank Board increasingly finely balanced Like any good double act, Riksbank Governor Ingves and Deputy Governor Flodén stuck to the same script when they jointly addressed the Bank’s Finance Committee on Tuesday. Both reiterated the view that the …
Building price pressures raises chances of near-term interest rate hike The fifth consecutive fall in retail sales in September, together with signs that non-retail spending was also weak, supports our view that the economic recovery slowed to a crawl …
Supply problems getting worse October’s euro-zone PMI surveys suggest that supply problems in the manufacturing sector are getting worse, weighing on output and causing price pressures to intensify. The fall in the Composite PMI from 56.2 in September to …
Flash composite PMIs for the euro-zone and the UK probably dropped back in October We expect the central bank of Russia to hike its policy rate by 50bp, to 7.25% (11.30 BST) Inflation in Mexico likely to have stayed above target in mid-October (12.00 BST) …
21st October 2021
By any standard, retail property has had a torrid time during the pandemic. The latest data on online sales look like further bad news, with the share of spending much higher than expected after lockdowns. But the recovery in consumer demand has also been …
ECB will acknowledge upside risk to inflation but say the rise is mostly temporary. The Bank will also push back against expectations for a rate hike next year. The bigger decisions on future asset purchases will be delayed until December. Nobody expects …
Any remaining confidence in the credibility of Turkey’s central bank (CBRT) was shattered after today’s larger-than-expected 200bp interest rate cut, to 16.00%. The lira hit a fresh record low against the dollar and we think that it will continue to …
After a fall this year, we expect Warsaw retail rents to return to growth in 2022. That said, the city’s reliance on office workers means that the shift to remote working will weigh on retail spending and keep a lid on rental growth. Following …
Despite the improving outlook for the public finances, the rumours that the Chancellor will set himself some fairly stringent fiscal rules suggest that there’s not going to be a net giveaway in the Budget and Spending Review on Wednesday 27 th October. …
Shortages of construction materials are unlikely to ease for at least another 6-12 months, restraining activity in the renovation sector and among smaller housebuilders . That is likely to cap housing starts for the next year or so at about 40,000 per …
Prime office rental growth in Germany is on track to be stronger than forecast in the near term. However, we think rental growth will slow in the coming years as the supply of modern space is expected to continue to outpace demand, even accounting for a …
20th October 2021
Inflation will rise further before it comes back down Euro-zone inflation looks set to climb further in the coming months as higher input and energy costs feed through. An unusually cold winter would put even more upward pressure on gas prices in the …
The lull before the storm The dip in CPI inflation in September feels a bit like the lull before the storm as we expect inflation to jump to close to 4.0% in October and to between 4.5% and 5.0% by April next year. As such, the fall in September probably …
Overview – The UK economy is experiencing a taste of stagflation. This won’t be anywhere near as severe or as persistent as in the 1970s. But for the next six months, the worsening product and labour shortages will put the brakes on the economic recovery …
19th October 2021
There is an outside risk that the UK could face some limited short-term rationing of electricity this winter if weather conditions were to be unfavourable. This risk isn’t yet significant enough to factor into our forecasts. But if the supply of …
18th October 2021
The supply shortages that have affected many DMs have also intensified in emerging economies over the past couple of months. The automotive sector has been hit hard by global semiconductor shortages, weighing on recoveries in Mexico, Czechia and Hungary …
We don’t think the low valuations of emerging market (EM) equity indices relative to those of developed markets (DMs) is reason to expect EM equities to outperform over the next couple of years. Equity market valuations, as measured by price/forward …
GDP in the Baltic States has already surpassed pre-pandemic levels and we expect this strength to be sustained, with growth outpacing Central Europe and the euro-zone as a whole over the coming years. This strong recovery will use up spare capacity fairly …
While the UK has seen house prices boom over the past year, central London has not joined in as increased remote working led buyers to shun the capital for more space in the suburbs and further afield. (See Chart 1.) But indicators of demand show that it …
With workers spending more time away from city centres, some expected that out-of-town offices could swing back into fashion. It is still early, but from the UK data, the evidence suggests that it is suburban retail, not offices, that is benefiting most …
15th October 2021
Core inflation still subdued While global financial markets are obsessing over the possible rebirth of inflation, there are precious few signs that it is about to take off in Scandinavia. We learnt this week that the headline rate rose in both Norway and …
Erdogan playing with fire in push for rate cuts After putting the final nails in the coffin of the Turkish central bank’s credibility with last month’s surprise interest rate cut, the grave started to be dug this week with the firing of three MPC members. …
Despite strong demand, we think that high capital values have kept development profitable and have prevented an acceleration in euro-zone prime industrial rental value growth. However, as capital value growth slows there is a risk that some markets will …
Perhaps the most significant event of the past week came as markets opened on Monday morning. In response to two hawkish interviews by members of the Monetary Policy Committee (MPC) in the weekend papers – one by Governor Bailey and another by Michael …
Higher oil and gas prices… lower inflation? The rollercoaster ride in European gas prices continued this week, but the big picture is that they remain very high. Meanwhile, oil prices have continued to climb. We think that this will contribute to a bigger …
Inflation close to reaching a peak The further rise in Israeli inflation to 2.5% y/y in September contained no major surprises and we think it will ease towards the lower end of the central bank’s 1-3% target next year. Even so, with the recovery motoring …
The supply constraints that have hit global vehicle output have probably reduced the level of GDP by a modest 0.1-0.2% in most EM auto producers, but some countries like Czechia, Hungary and Mexico have suffered much bigger blows. And the drag from …
Improving credit conditions may protect housing market from higher rates An ongoing improvement in credit availability may offset the increase in Bank Rate we expect in 2022. That offers support to our forecast that mortgage rates will remain low. A …
14th October 2021
The latest MSCI data show that the wider market has moved roughly in line with our prime data since the onset of the pandemic and provide support to our outlook for property values. The recent release of MSCI’s Pan-European Index for Q2 provides a good …
While the yields of long-dated government bonds in the euro-zone, UK and US have dropped back a bit in recent days, we think they will rise between now and the end of 2023. We expect increases in yields to be particularly large in the US given our view …
Core inflation to stay moderate While CPIF inflation in Sweden rose to a 155-month (!) high in September, we expect core inflation to remain at a more moderate level over the coming years, and lower than in the US, say. As a result, we forecast the …
Central and Eastern Europe is one of the regions of the world where we think that the risk of sustained higher inflation in the next few years is greatest. The Phillips curve is alive and we think the combination of a cyclical recovery in demand for …
13th October 2021
Supply shortages biting The large decline in euro-zone industrial production in August was largely due to supply shortages affecting production, particularly in the German auto sector. While demand is still strong, prolonged supply shortages and high …
Shortages may now be biting harder The 0.4% m/m rise in GDP in August confirms that the rapid gains in output, which in just 16 months lifted GDP from being 25.1% below its February 2020 pre-pandemic peak to 0.8% below, are now behind us. And shortages, …
Core inflation in the euro-zone rose to 1.9% in September, its highest level in nearly 13 years, but other measures of underlying inflation are much lower. This supports our view that when the temporary forces pushing up inflation have faded, the core …
12th October 2021
Labour shortages seem to be worse and more widespread than we had expected. Although the end of the furlough scheme in late September may ease some of the shortages, we doubt it will plug all the holes. As such, we now think labour shortages are unlikely …
Economy bounces back from weak start to Q3 Turkey’s industrial sector bounced back in August following a weak start to the quarter and, while retail sales growth slowed, it looks like the economy recorded another robust increase in GDP in Q3. Industrial …
Tight market may tip MPC towards earlier rate hike The further strengthening of the labour market in August may prompt some members of the Monetary Policy Committee (MPC) to put more weight on the upside risks to inflation rather than the downside risks …
Weak core inflation will not prevent December rate hike There was nothing in today’s release of Norwegian inflation data for September to overly trouble the Norges Bank, or cause it to deviate from its stated intention to raise interest rates again in …
11th October 2021
We forecast that the valuation of the US stock market will deflate a bit further over the next couple of years, though we are not expecting a sharp decline . To recap, the valuation of the S&P 500, as measured by its blended 12-month forward …
8th October 2021
Moves in wholesale natural gas and electricity prices have continued to dominate this week in the euro-zone, with the price of European natural gas having doubled over the past month and currently trading almost 12% higher than it was just a week ago. …
Halloween came early this year in Sweden It might not be Halloween until the end of the month but the 3.8% m/m drop in Sweden’s GDP Indicator in August (released on Wednesday) was a horror show in its own right. (See here .) (Incidentally, the fact that …
Poland-EU tensions crank up a notch The decision this week by Poland’s Constitutional Court to rule that some EU laws are in conflict with the Polish Constitution has sent shockwaves through Europe. The ruling gets to the heart of the conflict over the …
Truth be told, neither Boris Johnson’s nor Rishi Sunak’s speeches to the Conservative Party Conference this week contained anything new on the economic front. Instead, the most notable development came in an interview to the BBC in which PM Johnson …
We think a greater reliance on foreign capital and tighter monetary conditions will leave CEE investment activity lagging the euro-zone in H2. Overall, transactions are set to end the year 5% lower than their already weak 2020 levels, before catching up …
Although the krone has rallied this year on the back of high energy prices and the expectation of tighter monetary policy, we do not expect this to continue. We think slowing global growth and normalising energy prices will work against the krone over the …
7th October 2021
Supply shortages and rising energy prices are becoming stronger headwinds to the euro-zone recovery. The latest data from Germany showed sharp falls in industrial orders and production (see Chart 1), with manufacturers citing supply bottlenecks as a …
The Bank of Israel revised up its forecast for GDP growth at today’s meeting and struck a more hawkish tone on inflation as it announced that it will end its asset purchase programme later this year. This was in line with expectations, but Governor Yaron …
