Saarah Ghazi 
African purchasing managers’ index (PMI) readings for Q3 2022 reflect economic weakness on the continent and we expect GDP data to tell the same story. We find that larger economies such as South Africa and Egypt have struggled more on their recovery paths than some of the smaller countries like Kenya and Uganda.
We expect eurozone industrial production to contract by a cumulative 3% over the next few quarters due to the severe energy crisis. This would represent a moderate industrial recession by historic standards – about in line with the 2018-2019 auto sector crisis and just one-sixth of the pandemic slump.
We estimate the recent surge in swap rates – a key driver of mortgage rates – means that UK house prices are 37% overvalued based on mortgage affordability. Though other metrics suggest prices are less stretched, we expect the plunge in affordability will cause a sharp drop in new buyer demand and forecast house prices will drop by 10%-15% over the next two years.
Further moderate downgrades to the near-term outlook for advanced economies (AEs) have pushed our global GDP forecast perilously close to recession territory – defined as two successive quarters of falling per capita GDP.
BoE governor Andrew Bailey’s insistence that emergency support will end on Friday is an
unsustainable position that we expect to be reversed quickly.
As spiralling energy prices threaten to cause huge pain for consumers and businesses, governments across Europe are rolling out initiatives to cap the impact. Despite that, poorer households are likely to be hardest hit and will need to take their own steps to strengthen their financial resilience.
More needs to be done to increase female participation in the workplace, which will allow Japan to significantly raise its growth potential by enhancing the working style and productivity of female workers relative to that of male workers.
According to the proposal of the German government’s expert commission around half of the recently agreed €200bn fiscal package or about 2.5% of GDP could be used for a gas price break for households and industry.
The September jobs data report and the August JOLTS offered some signs of a loosening in labor market conditions. Job growth decelerated slightly, job openings declined, layoffs have ticked higher and wage growth appears to be cooling, if only marginally.
The National Bank of Poland (NBP) kept its policy rate unchanged at 6.75% yesterday,
undershooting consensus and our expectation of a 25pbs move. The decision took place against the backdrop of another upward surprise in inflation, which picked up to 17.2% in September, as well as mounting pressure on the PLN, not least due to the hawkish shift of AE central banks.
The pieces are almost in place for a high conviction OW on Asian local currency debt, but not quite. Indeed, we maintain a cautious view on all EM local currency sovereign bonds, including Asia, given the relentless concern over the dollar and domestic inflationary pressures.
The question of debt restructuring is becoming a more pressing one: in recent weeks, a number of African sovereigns have openly or discreetly mulled public debt reorganisation, called for debt relief, or suffered credit rating downgrades owing to rising default odds.
The ongoing surge in mortgage rates in advanced economies threatens to push some housing markets into steep downturns. Housing prices are already flat or falling in many economies, including the US, and downward pressures are set to intensify as bank credit standards tighten and recessions start to bite.
As far as markets are concerned, the Fed’s expected path of short term rates, peaking at 4.4% early next year, will be enough to quash the inflation beast over the medium term.
Lula da Silva (PT) won the first round of the presidential election with 48% of the votes. He is favourite to beat Jair Bolsonaro (PL), who tracked him by 6mn votes, in a runoff in four weeks.
Data for Q3 on the volume of China’s imports of crude from Russia show a drop against the June level. Rather than an indication that China’s demand has peaked, this may be a sign that China is preparing for the Russian oil price cap recently agreed by G7 by shifting some of its purchases to the grey market.
Although easing restrictions in China have helped to reduce global supply chain pressures, we expect rising costs and weakening demand to weigh on global supply chains for the second half of this year and into 2023.
The evidence of the past year shows that inflation has been far from transitory. But we still believe supply factors and relative demand shifts have been important inflationary forces across the advanced economies, and pressure from these channels will subside from here.
The Global Climate Service quantifies the macroeconomic impacts of five climate scenarios against a stated policies baseline. These scenarios help businesses understand the trade-offs and implications of climate mitigation.
The government’s levelling up ambition has probably been made more, not less, difficult by the new “Plan for Growth”. Policies of lower taxes, less regulation, and a smaller state are unlikely to have much beneficial impact on long-term growth at the national level, let alone in those regions with long track records of underperformance.
