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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 …
14th October 2021
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 …
The account of September’s ECB meeting revealed many policymakers believed that inflation may stay higher for longer than the Bank’s projections show. Recent developments have added to the upside risks. As a recap, at its September meeting the ECB …
The extraordinary rise in European gas prices in recent weeks has raised the possibility that, as a last resort, European governments may need to ration the supply of electricity to businesses or households. The economic impact of rationing would depend …
UK employment has recovered strongly in recent quarters and is set to see further growth into 2022. This will be good news for UK offices, especially in regional cities. But with occupiers set to look beyond headcount when making their space decisions, we …
The pandemic and widespread use of remote working appeared to entice some Europeans to leave cities last year. However, the recent improvement in city mobility adds evidence to our view that this would prove short-lived, as cities remain attractive for a …
Growing fears of a “bottleneck recession” The whopping 4.7% m/m fall in German manufacturing production in August left industrial output 9.0% below its February 2020 level. With conditions having worsened since then, Germany’s manufacturing problems …
Inflation hits a new high, tightening cycle may continue for longer Russian inflation accelerated to a fresh five-year high of 7.4% y/y in September and, while this was mainly driven by a sharp increase in food inflation, the central bank is likely to …
6th October 2021
The price of European natural gas (TTF) surged by around 35% this morning, before crashing back down on Putin’s reassuring comments about Russian supply. The latest price moves appear speculative, and we retain our view that it is just a matter of time …
The National Bank of Poland (NBP) unexpectedly hiked its policy rate by 40bp to 0.50% at today’s MPC meeting, but the accompanying communications were underwhelming and suggest that the rate hike was not as hawkish a move as might have been first …
The Czech parliamentary election that kicks off on Friday looks to be one of the most unpredictable for some time. A victory for the incumbent ANO party would continue the recent trend of loose fiscal policy and support GDP growth, but at the cost of …
The eye-watering decline in Swedish GDP in August suggests that supply shortages and weakening global growth will continue to take the shine off the impressive rebound in the Swedish economy in late 2021. The 3.8% m/m plunge in Statistics Sweden’s GDP …
Retail sales levelling off, but consumption strong in Q3 August’s euro-zone retail sales data suggest that consumer spending on goods is flatlining. But overall consumption is still likely to have grown fairly strongly in Q3 as spending on services …
Recovery in construction falters due to shortages The further drop in the construction PMI in September suggested that the recovery in construction has faltered amid a severe lack of materials and staff, spiralling costs, and softening demand. The drop in …
Overview – Natural gas and coal prices soared in September. In turn, this has raised the output costs of industrial metals, most notably those which are especially energy intensive such as aluminium and steel. At the same time, reports suggest that some …
5th October 2021
The recent sharp rise in public and market-based measures of inflation expectations has worried the Bank of England. Inflation expectations will probably rise further as actual inflation continues to climb. And if they rise by more than the increase in …
Changes to the weights applied to the goods and services in the inflation basket pushed inflation up in January, but since April the new weights have kept the headline rate lower than it would otherwise have been. The impact of next year’s changes in …
The National Bank of Romania (NBR) raised its policy rate by 25bp to 1.50% at today’s meeting, and the backdrop of rising inflation, large twin deficits and currency weakness means that further rate hikes are likely to be delivered over the next 12 …
Recovery continues, but loses momentum The PMIs are consistent with the euro-zone’s economic recovery losing some momentum as GDP approaches its pre-pandemic size and as supply shortages take their toll, especially in manufacturing. The surveys also show …
Households continued to accumulate “excess” savings in Q2 this year, with those held as cash and bank deposits equivalent to about 4% of GDP. We do not expect all of this to be spent, but some of it will. And it should also provide a small indirect …
4th October 2021
We expect a gradual normalisation in demand growth and a rebound in supply will start to weigh on oil prices from the fourth quarter. So far this year, growth in demand has outpaced supply, helping prices to hit multi-year highs, but we expect this …
Switzerland didn’t get the “inflation surprise” memo Inflation is a rare beast in Switzerland at the best of times and the lower-than-expected September print means that we now doubt it will even breach 1% this year. Against this backdrop, the stage is …
Inflation rises, but further rate cuts still on the cards Turkey’s headline inflation rate rose further to 19.6% y/y in September and core inflation partially reversed its recent decline, but political pressure means that the central bank is likely to cut …
Industry coming off the boil, but consumer demand remains strong Russia’s hard activity data for August showed that industry has continued to struggle while loose fiscal policy has supported consumer spending. We think that consumer demand should hold up …
1st October 2021
Although the emerging market manufacturing PMI ticked up last month, EM industry has been undergoing a slowdown for some time. And the surveys show that supply constraints are mounting, which is likely to weigh on manufacturers’ output in the months …
CEE: loose fiscal policy set to persist in 2022 Government budget drafts approved for 2022 this week in Czechia and Poland and further details of social support in Hungary suggest that fiscal policy will remain supportive of growth in Central Europe and …
The 3.4% euro-zone inflation rate recorded in September (up from 3.0% in August) is probably not the peak. (See here .) Surging European gas prices, which have risen by more than twenty-fold from last year’s lows, prompted us to revise up our forecasts …
Clouds are darkening over the outlook for the UK economy. A combination of broadening shortages, the fuel crisis, less fiscal support and the risk of higher interest rates will make it difficult for the UK economy to perform as well as its European peers. …
United façade at the Riksbank set to be tested Against the backdrop of the recent hawkish shifts by the US Fed and the Bank of England – and the start of hikes in Norway – the release of the minutes from the Riksbank’s last policy meeting underline that …
Inflation heading to 4% Euro-zone inflation looks set to continue on its upward trend and we think it will soon hit 4%. That makes it more likely that the ECB will scale back its asset purchases substantially in March. But we still expect headline and …
Industrial activity so far holding up in face of global constraints The set of manufacturing PMIs from Switzerland and the Nordics for September suggest that industrial activity has so far been pretty resilient in the face of global supply-chain …
We doubt that a larger rise in Bank Rate over the next two years than we previously expected will put much upward pressure on mortgage rates. Low interest rates and increased spending on housing costs will continue to provide a supportive environment for …
While the announcement of a 10bp interest rate cut by Denmark’s Nationalbank this afternoon seemingly goes against the grain of the recent hawkish shifts by the US Fed and Bank of England, it is the logical culmination of sustained upward pressure on the …
30th September 2021
