Can the world cope with higher interest rates? We expect the most aggressive policy tightening cycle in decades to cause a slowdown in global economic growth, not a severe downturn. The biggest risk is that inflation stays higher for much longer than we anticipate, causing central banks to raise interest rates well beyond neutral levels to quash it. We judge that an extra ~100bp of hikes beyond our forecasts might be enough to cause downside risks to crystallise. 1st June 2022
Russia’s economy is wounded, not screaming in pain Western sanctions have caused activity in certain sectors of Russia’s economy to collapse, but activity has held up reasonably well in key areas such as oil production and less import-dependent manufacturing. What’s clear, though, is that the full effect of sanctions will take years to feed through. This underpins our view that sanctions have severely reduced Russia’s medium-term growth potential. EM Drop-In (4th August, 10:00 ET/15:00 BST): Join our monthly online session on the big issues in emerging markets. In this 20-minute briefing, the team will be answering your questions about debt risks amid global tightening, the latest on the inflation outlook and much more. Register now. 3rd August 2022
Weighing up the relative prospects for stock market sectors We think the macroeconomic backdrop that we envisage is consistent with certain “defensive” sectors of the S&P 500 – utilities, healthcare and consumer staples – outperforming over the rest of this year. 17th August 2022
Private sector well placed for higher rates in major DMs In addition to revealing that higher interest rates had barely affected household and corporate finances, national accounts data for Q1 suggested that, with the exception of households in a handful of medium-sized economies, private sectors are generally well placed to cope when debt service costs rise. 19th August 2022
Is there really such thing as a ‘jobful’ recession? While history shows that recessions can begin even while employment is still rising, the current rate of payroll employment growth is far too strong to be consistent with an economic downturn. By the same token, although we think an outright contraction will be avoided, any recession over the next couple of years would almost certainly coincide with a decline in employment and rise in the unemployment rate. 11th August 2022
We’re less upbeat about OPEC oil supply Concerns about the demand outlook have dragged the Brent crude oil price towards $90 per barrel this week. But, the supply-side concerns which pushed the price over $120 per barrel not too long ago haven’t entirely vanished. Indeed, following the OPEC+ meeting this week, we are now less upbeat on supply. Oil and the Gulf Drop-In (9th Aug): What’s the outlook for oil prices and what does that mean for Gulf economic outperformance? Join economists from our Commodities and Emerging Markets teams for this 20-minute briefing. Register now. 5th August 2022
Gloomy outlook for use of agriculturals in industry Deteriorating global economic growth over the coming quarters will weigh on industrial demand for cotton, natural rubber and lumber. That said, high oil prices will offer some support to cotton and natural rubber prices, and our expectation for rate cuts in the US in late 2023 could boost the price of US lumber. 10th August 2022
The six major markets will not be the only losers Pandemic-accelerated migration patterns were already driving outperformance in the southern states. But they have also brought the poor performance of weaker markets to the fore. With those structural changes likely to continue to play out over the next few years, we expect metros such as Detroit, Indianapolis and Minneapolis to underperform in the coming years. 10th August 2022
Global trends point to a more difficult decade ahead Commercial property wasn’t initially hit by the worsening in economic conditions at the turn of the year, but there are now growing signs of anxiety. Not only that, but even if the economic gloom is short lived and any downturn is mild, we expect structural factors to make for a listless global real estate recovery. In view of the wider interest, we are also sending this UK Commercial Property Update to clients of our European and US Commercial Property Services. 12th August 2022
Which candidate in the Brazilian election will be better for the economy? Current polling suggests that Lula is ahead of Bolsonaro by quite a large margin and his manifesto does point to a sharp leftwards turn but it's quite likely that the Lula presidency wouldn't be as radical as that manifesto suggests. He has, for example, appointed a centre-right politician as his vice-presidential candidate, indicating that he could govern as more of a moderate. Jair Bolsonaro is at the other end of the ideological spectrum and is campaigning on a pro-market agenda. So there are two quite different candidates but neither is likely to address some of the deep-seated issues in Brazil's economy. Neither are showing any appetite for the fiscal austerity needed to consolidate the public finances and it's also unlikely that we'll see the necessary reforms to address weak productivity growth. The upshot is that we'll probably see quite weak growth in Brazil over the coming years and the debt-to-GDP ratio will rise again from next year. 2 hours
Middle East Economics Update External strains building in North Africa The Gulf countries have benefitted enormously from higher energy prices and will run large current account surpluses. But external positions have deteriorated in other parts of the region. That... 27th September 2022 · 3 mins read
Capital Daily Italy’s new leadership may still put more pressure on spreads Italy’s new governing coalition doesn’t seem to have troubled investors for now, but we suspect worries about debt sustainability will still result in long dated Italian government bonds struggling... 26th September 2022 · 6 mins read
Euro-zone Rapid Response Italian General Election Right-wing victory not immediate concern, but long-term risks remain The widely-anticipated right-wing coalition victory in Italy’s general election does not pose an immediate risk to bond markets... 26th September 2022 · 3 mins read
UK Economics Update Chancellor gambles everything on growth The Chancellor claimed that this was a plan for growth. But unless the Chancellor’s gamble pays off and the government’s fiscal policy boosts GDP growth by 0.5-1.0ppts per annum, the risk is that once... 23rd September 2022 · 6 mins read
Euro-zone Economics Update What to expect from Italy’s general election With Italy’s general election scheduled to take place this weekend, this Update answers six key questions about what to expect in the days and months following the vote. In view of the wider interest... 22nd September 2022 · 4 mins read
Latin America Economics Focus Will Brazil’s spending cap survive? The credibility of Brazil’s spending cap – the country’s key fiscal anchor – has been seriously undermined by tweaks and workarounds since the start of the pandemic. And it looks likely that the cap... 21st September 2022 · 16 mins read
Latin America Economics Weekly Colombia’s fuel subsidies, Brazil’s presidential race The commitment of Colombia’s new administration to address costly energy subsidies is the fiscally responsible thing to do, but it will come at the expense of exacerbating the country’s inflation... 16th September 2022 · 7 mins read
Euro-zone Economics Update Italy: reforms, not fiscal policy main post-election risk Italy’s right-wing coalition, which looks set to win the upcoming general election, will probably run slightly looser fiscal policy than Draghi’s government, but clashes with the EU similar to those... 15th September 2022 · 4 mins read
Latin America Economics Focus Lula: lessons from the past While Luiz Inácio Lula da Silva (better known simply as Lula), the front-runner in Brazil’s presidential race, has been vague about his policy stance, one common theme from his campaign is nostalgia... 14th September 2022 · 11 mins read
Canada Economics Update Is the government to blame for labour shortages? The public sector has been responsible for almost 90% of the rise in total employment since the pandemic and now accounts for the largest sustained share of employment since the early 1990s. The... 13th September 2022 · 4 mins read
Latin America Economics Weekly Chile goes back to the drawing board The surprisingly strong rejection of Chile’s proposed new constitution has eased concerns about a radical shake up of the country’s economic model. But the constitutional process is set to continue... 9th September 2022 · 5 mins read
China Economics Weekly Party Congress puts a chill on the rest of the year Early indicators suggest that China’s economy was even weaker in August than it was in July, when the rebound from the Shanghai lockdown prematurely fizzled out. And constraints faced by policymakers... 9th September 2022 · 6 mins read
Africa Economics Weekly Zambia debt, SA data and stimulus, election challenges Analysis from the IMF this week suggests that, even with debt relief in the pipeline, putting Zambia’s public debt on a sustainable footing will be a tall order. Meanwhile, data this week have raised... 9th September 2022 · 7 mins read
Latin America Economics Update Brazil Election Watch – the state of the race Former President Lula holds a commanding lead in the polls ahead of Brazil’s presidential election on 2nd October. It seems unlikely that he would govern as radically as his party’s manifesto suggests... 6th September 2022 · 5 mins read
Middle East Economics Update Five key questions on Egypt answered Egypt is facing growing external strains and downward pressure on the pound, with policymaking coming under increased scrutiny in recent weeks following the sudden resignation of central bank governor... 5th September 2022 · 6 mins read
