Charts of the Week

May 13, 2022

UK recession forecast, ageing populations, the perils of investing in crypto

This week's chart pack covers the following data: UK inflation forecast revisions, UK unemployment forecast revisions, German GDP forecasting with vintage data, euro area inflation dispersion, US early retirement trend, Japan population and house prices, China’s ageing population, plunging Chinese imports, falling copper and aluminium prices, ARK Invest hedge fund performance.

Julius Probst PhD, with contributions from Arnaud Lieugaut, Patrick Malm and Karl-Philip Nilsson

<span id="UK-inflation-forecast-revisions">UK inflation forecast revisions</span> 

Among advanced economies, the UK is hurting most from inflation and soaring global commodity prices. The Bank of England has had to significantly revise up its inflation forecast in the past year – and our first chart shows the stark 8.25% gap between its prediction in May 2021 and May 2022. The BOE now expects inflation to hit a record 10% this year before normalising back to its target 2% in 2024. 

The next three charts use revision history and can only be accessed with Macrobond Data Plus.

Macrobond users, access the chart here

<span id="UK-unemployment-forecast-revisions">UK unemployment forecast revisions</span>

Our next chart covers one of the factors contributing to UK inflation – a tight labour market that is forcing wages higher. See how much the jobless rate has fallen after shooting up in the early stages of the pandemic. 

However, as the chart shows, the BOE now forecasts unemployment, currently at 3.5%, to exceed 5.5% by 2025. In other words, the central bank is expecting the UK to tip into recession this year or next – which, at least, would help it rein in inflation. 

Macrobond users, access the chart here

<span id="German-GDP-forecasting-with-vintage-data">German GDP forecasting with vintage data</span>

Germany could also fall into recession should it fully ban gas imports from Russia. The Ukraine war has already dampened the country’s growth prospects, which had started to look rosier after the start of the pandemic triggered a collapse in GDP. 

Our next chart looks at how Macrobond’s vintage data can predict German economic growth. We created a model using industrial production and foreign trade as a proxy for GDP. Note that we used the vintage data available on 15 September 2020, and not the final data revisions for the time series in the model. As you can see, our regression accurately predicted a V-shaped recovery for German GDP after the initial Covid recession.

Tip: The change region function can be applied this chart. 

Macrobond users, access the chart here

<span id="Euro-area-inflation-dispersion">Euro area inflation dispersion</span>

Looking at the wider euro area, inflation rose to a record 7.5% in April – but just as worrying is the high degree of inflation dispersion within the bloc. Baltic economies are plagued by the sharpest rises – even exceeding 15% for Estonia while in Malta, the rate is as low as 5%.

This dispersion is problematic for the eurozone as it cannot control price levels of individual countries; it can only target an average for the entire bloc.

(Note: Country weights for the Baltics and Malta are too low make a marked impact on the aggregate eurozone inflation index.)

Macrobond users, access the chart here

<span id="US-early-retirement-trend">US early retirement trend</span>

Like the UK, the US labour market took a huge hit when the pandemic struck in early 2020 – leading millions to take early retirement. As our chart shows, the population of people aged above 55 not at work rose rapidly above trend. However, that trend is now reversing as the labour market recovers – sending the unemployment rate to the lowest in 50 years. 

Macrobond users, access the chart here

<span id="Birth-rate-and-house-prices-in-Japan">Birth rate and house prices in Japan</span>

An ageing population coupled with a low birth rate is adding to Japan’s housing market woes. Prices have been falling since its massive real estate bubble burst in the early 1990s and will struggle to recover as the population shrinks. 

Tip: The change region function can be applied to the next two charts.

Macrobond users, access the chart here

<span id="China’s-ageing-population">China’s ageing population</span> 

China’s population is also set to have a disproportionate number of elderly people – not helped by its 35-year one-child policy that was scrapped in 2015. Our China age pyramid shows that by 2050, those aged 50 and above will represent the largest share of the population. 

Macrobond users, access the chart here

<span id="Plunging-Chinese-imports">Plunging Chinese imports</span>

In markets, Chinese imports fell sharply in the first quarter as Covid-19 curbs hampered freight arrivals and weakened domestic demand. A rapid depreciation of the yuan will add further pressure to import prices in the following months, exacerbated by high commodity prices. 

Macrobond users, access the chart here

<span id="Falling-copper-and-aluminium-prices">Falling copper and aluminium prices</span> 

Copper and aluminium are among the commodities that saw a significant boost in the past year as demand rose for materials that would help economies transition to net zero; the two metals are used in the production of solar panels and batteries. 

However, prices fell recently amid slowing global activity. Could this spell the beginning of an end to ‘greenflation’? 

Macrobond users, access the chart here

<span id="ARK-Invest-hedge-fund-performance">ARK Invest hedge fund performance</span> 

Finally, we look at the fate of a prominent US hedge fund after its sizeable holdings of Coinbase shares tumbled. Total assets under management at ARK Invest, which bets on disruptive innovations, have plummeted from USD50 billion in February to less than USD20 billion today after the cryptocurrency company missed Q1 estimates.

As our last chart shows, the performance of its fintech ETF is now significantly worse than both the S&P 500 and Berkshire Hathaway’s self-described “boring” investments.

Macrobond users, access the chart here

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