- Our updated calendar identifies the top events that should be on your radar this week.
- We also provide an outlook overview region by region for the rest of the year.
- In our episode of the week ahead podcast we are looking at the top three market moving themes that should be on your radar.
Our view in a nutshell
- The recovery of real economy will be gradual, although pent-up demand could push up apparent real growth rates above potential.
- We expect core CPI inflation to continue to decelerate and to plunge below -1.0% y-o-y through Q1 2021 led by lower oil prices.
- We do not expect the Suga cabinet to make any significant change in economic policy and in BOJ’s monetary policy.
- The risk is renewed yen appreciation, caused by deepening US-China tensions and further risk averse moves in markets.
- After a Q3 rebound, GDP growth should improve further in Q4 and Q1 2021, but rising infections imply slower sequential momentum.
- We expect Northeast Asia to outperform Southeast Asia and India, due to COVID-19 containment and a resilient tech cycle.
- Emerging Asia (India, Indonesia, the Philippines) remains vulnerable amid rising cases and due to limited policy support.
- Beyond pent-up demand, fragilities remain due to the knock-on effects on the labor market, SMEs and on bank asset quality.
- We expect further rate cuts in Thailand, Malaysia, the Philippines and India, while rates are likely to remain on hold elsewhere.
- China: We maintain our real GDP growth forecast of 5.7% y-o-y in Q4 and expect Beijing to maintain a wait-and-see policy mode.
- Korea: We expect Korea’s growth momentum to improve in Q4 on exports and investment despite sluggish domestic consumption.
- India: Economic normalization amid above-target inflation suggests rates on hold and a gradual withdrawal of excess liquidity.
- Indonesia: With rising fiscal deficits and concerns on central bank independence, more debt monetization is a risk.
- Australia: We see a somewhat bumpy road to recovery, amid conflicting forces, with continuing subdued inflation.
- After the US elections, we expect some additional fiscal support, but not enough to fully offset the drag from expiring measures.
- The worsening COVID-19 pandemic will weigh on short-term activity, but a better vaccine outlook is positive for the medium term.
- We expect the Fed to maintain a flexible stance on asset purchases to ensure long-term rates do not constrain the recovery.
- The Fed will likely stay at the ELB at least through 2023 with inflation remaining the key determinant to liftoff.
- The unemployment rate will decline more gradually from here as the pace of recovery slows.
- COVID-19’s impact on service prices and the impact of labor market slack, particularly on rent, will weigh on core inflation.
- Notable risks include the ongoing surge in new COVID-19 cases along with both upside and downside risk around fiscal policy.
- With new lockdowns across Europe we now see euro area GDP stagnating in Q4 and falling by 0.5% q-o-q in Q1 2021.
- The combination of a protracted demand shock and energy prices below pre-pandemic levels suggest a disinflationary effect.
- We expect €400bn more PEPP, looser TLTRO terms and – more contentiously – a 10bp rate cut from the ECB in December.
- In April UK GDP had fallen 25%. September was still 8.5% below peak , and a full recovery takes until beyond 2022.
- While pent-up demand and policy stimulus should be supportive, we expect a renewed fall in GDP in the UK over the winter.
- Following the BoE’s decision in November to expand QE by £150bn, we do not expect negative rates – but risks have risen.
- The risk of a Brexit cliff edge at the end of 2020 remains, which could mean lower growth, higher inflation and looser policy
For more information read our weekly report here
Chief US Economist
Chief UK & Euro Area Economist
Chief China Economist
Chief Japan Economist
Head of Global Macro Research and Co-head of Global Markets Research
Chief Economist, India and Asia ex-Japan