Figure 1: Heightened default concerns and a big interest rate response in Russia
Introducing
Andrew Cates
in:Our Authors
Andy Cates joined Haver Analytics as a Senior Economist in 2020. Andy has more than 25 years of experience forecasting the global economic outlook and in assessing the implications for policy settings and financial markets. He has held various senior positions in London in a number of Investment Banks including as Head of Developed Markets Economics at Nomura and as Chief Eurozone Economist at RBS. These followed a spell of 21 years as Senior International Economist at UBS, 5 of which were spent in Singapore. Prior to his time in financial services Andy was a UK economist at HM Treasury in London holding positions in the domestic forecasting and macroeconomic modelling units. He has a BA in Economics from the University of York and an MSc in Economics and Econometrics from the University of Southampton.
Publications by Andrew Cates
Global| Mar 01 2022Monitoring the Impact of the Russian/Ukraine Conflict
by:Andrew Cates
|in:Viewpoints
- Ukraine| Feb 23 2022
Conflicting Supply Side Messages and Ukraine
Figure 1: Flash PMI surveys suggest global supply side congestion may be easing
by:Andrew Cates
|in:Viewpoints
- Global| Feb 08 2022
Demand or Supply? That Is the Question!
With many Central Banks now more actively tightening monetary policy, financial markets have unsurprisingly been more unsettled in recent weeks. The dilemma for investors is obvious. Should they assume that policymakers are applying a gentle brake to a world economy that is barely breaching its speed limit and will now seamlessly guide it back to a more inflation-friendly speed? Or, are they slamming on the brakes far too hard, and far too early – and to mix the metaphors – now taking a sledgehammer to crack a nut?
To this scribe the risks are tilted toward the second scenario. There is little question that monetary policy is still accommodative and that a slow normalisation campaign is warranted as the world economy normalises in a likely post-pandemic adjustment phase. But a growing number of Central Banks appear to be of the view that inflationary pressures have been building because their monetary policies have been too loose. A more active tightening campaign is therefore deemed necessary in order to squeeze out these pressures. But as we argue in more detail below this strategy carries tremendous risks. And global economic and financial stability are in danger at present of being sacrificed somewhat unnecessarily at the altar of Central Banks' inflation-fighting credentials
This view is based on several messages from the analysis below. Firstly, that the inflationary pressures that have been building in recent months are globally - not nationally - rooted. Secondly, that those global pressures have largely been driven by COVID-related supply side congestion, not by excessively loose monetary policy and overheating demand. Thirdly, and to that last point, credit impulses in most major economies have moved into negative territory in recent months. That's not symptomatic of excessively loose monetary policy. Fourthly, nearly every major economy - including the US - is still operating below levels that would have been expected based on pre-pandemic trends. And that's not symptomatic of an overheating world economy. Finally, wage inflation in nearly every major economy is not yet even close to keeping pace with headline price inflation. Household purchasing power is therefore being significantly eroded even in the absence of tighter monetary policy and igniting recession risks as a result.
Globally-rooted supply side pressures
Let's start with those global roots and those supply-side roots. A recent paper from the Federal Reserve Bank of New York (see The Global Supply Side of Inflationary Pressures) assessed in some detail the recent evolution of inflationary pressures in the US and Euro Area. One of the key findings is that globally-rooted supply factors – including those that pertain to the price of oil - are very strongly associated with the levels of - and persistence of - recent producer price inflation across countries, as well as with consumer goods price inflation (see figures 1, 2 and 3 below). This is noteworthy because all major advanced countries have experienced a large rise in goods price inflation during the initial pandemic recovery phase. Services inflation in contrast has been more muted.
As the paper's authors additionally note if their analysis is accurate and the bulk of many major economies' inflation issues can be traced to global roots and to supply-side roots, it suggests that domestic monetary policy actions could have only a limited effect in containing inflationary pressures.
Figure 1: US goods price inflation has been highly correlated with goods price inflation elsewhere
by:Andrew Cates
|in:Viewpoints
- Global| Jan 13 2022
What's the Consensus Call?
The evolution of consensus forecasts can often yield useful insights about the plight of the world economy. And the latest Blue Chip survey of economic forecasters, published earlier this week, is no exception. The latest January survey, for example, suggest that global growth prospects remain hostage to the COVID pandemic. But inflation concerns are also mounting in some countries and taking a toll on their growth outlook at the same time. Those inflation concerns are now mapping more into the interest rate outlook as well in some of those countries following recent hawkish communications from, for example, the US Fed and the Bank of England. The absence of any material inflationary pressures in Japan and China has been noteworthy, however, as has the relatively dovish response to recent events in Europe from the ECB. And the implications of all this for expected interest rate differentials between the US and most other major economies has had some predictable implications for consensus forecasts for the US dollar as well.
In what follows we briefly discuss some of these considerations with reference to a few exhibits.
Growth forecasts pared back in the US and Europe, lifted in China and Japan
We'll start with the outlook for economic growth. Consensus forecasts for GDP growth in most major economies for 2022 have been pared back in recent months (see figure 1 below). COVID considerations, inflation concerns and the policy response to both of these have been arguably to blame.
Figure 1: The evolution of consensus forecasts for GDP growth for 2022
by:Andrew Cates
|in:Viewpoints
- Global| Dec 29 2021
Five Reasons to Be Cheerful
Rapidly rising case numbers, fuelled by the Omicron variant, have once again dampened hopes that the COVID pandemic would shortly come to an end. In the meantime, lingering supply-side bottlenecks, still-high inflation and fading policy support are further derailing expectations for global growth next year. Against this backdrop of gloom is there anything about the global economic scene at present to be positive about?
In the spirit of the current holiday season we'd suggest the answer is yes. In what follows we offer five specific reasons to be a little more cheerful about the outlook than some of the more gloomy commentators might suggest.
1. The Omicron variant does not (yet) to appear to be as harmful as prior strains
The first reason concerns the Omicron variant. To be sure the emergence of that variant is clearly inflicting some damage to global economic activity via stricter social distancing measures, ebbing mobility and heightened consumer fear. However, although Omicron case numbers in South Africa have surged in recent weeks, there has not yet been as much follow-through (yet) into hospitalizations relative to previous strains. What's more there has even less follow-through so far from hospitalizations to fatalities (see chart below). The same is true incidentally from an analysis of other countries that have seen a surge in Omicron cases (e.g. the UK).
It's still far too soon to draw strong conclusions from this but at face value – and at present - this suggests that this strain of the virus, while more contagious, may not be as harmful as previous strains.
Figure 1: South Africa has seen far few hospitalisations and fatalities from Omicron relative to prior strains
by:Andrew Cates
|in:Viewpoints
- Global| Dec 16 2021
The Year Ahead
Haver Analytics released a webinar this week with some thoughts about the global economic outlook in 2022. Some of the key messages from this are documented below together with a few of the key exhibits.
Global growth should normalise as pandemic disruption fades
The first key message is that pandemic disruption ought to ease and global growth should therefore become more like normal in the year ahead. One important caveat to this concerns the recent emergence of the Omicron variant and the damage this is already inflicting to economic activity via stricter social distancing measures and ebbing mobility. However, despite that caveat there are reasons for optimism. Although COVID case numbers in South Africa have surged in recent weeks, there has been hardly any follow-through (yet) into fatalities (see figure 1 below). That suggests that this strain of the virus, while more contagious, may not be as harmful as previous strains.
Figure 1: Surging COVID case numbers in South Africa have not yet led to increased fatalities
by:Andrew Cates
|in:Viewpoints
- Global| Jun 28 2021
Six Lessons from 2021 H1
As we head into the second half of 2021, here are a few exhibits that offer some colour on what we have learned about the global environment in the first half of this year. Vaccines are working The first lesson is that vaccines are [...]
by:Andrew Cates
|in:Viewpoints
- Global| Jun 07 2021
Vaccines, Capex and China Now Hold the Key
The incoming economic data over the past few days have – on the whole - painted a bright picture of the world economy. May's purchasing managers surveys for the US and Europe, published last week, suggested a broadly based improvement [...]
by:Andrew Cates
|in:Viewpoints
- Global| Jun 07 2021
Vaccines, Capex and China Now Hold the Key
The incoming economic data over the past few days have – on the whole - painted a bright picture of the world economy. May's purchasing managers surveys for the US and Europe, published last week, suggested a broadly based improvement [...]
by:Andrew Cates
|in:Economy in Brief
- Global| May 27 2021
The Inflation Debate Is Full of Surprises
Navigating the twists and turns of economic and financial market data has never been easy. But the interplay between economic outcomes and financial market outcomes is often the most perplexing. Who would have thought, for example, [...]
by:Andrew Cates
|in:Viewpoints
- Global| May 27 2021
The Inflation Debate Is Full of Surprises
Navigating the twists and turns of economic and financial market data has never been easy. But the interplay between economic outcomes and financial market outcomes is often the most perplexing. Who would have thought, for example, [...]
by:Andrew Cates
|in:Economy in Brief
- Global| May 20 2021
The Case Against An Inflation Surge
Last week’s surprisingly big climb in April’s US CPI data has further energised a debate about inflation. In one corner of that debate are a majority of economic forecasters and policymakers. The view here is that any recent and [...]
by:Andrew Cates
|in:Viewpoints
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