0e3d4e53dc39047191f43808b87cca419b5e48e28ad3cbc686db7d301999fa57;;[{"layout":"linklist","uid":29072,"publicationDate":"19 Mar 13:21","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184777.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGlpiFwyM1XCeuJfYmk5L7U=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Sunday Wrap - Sunday Wrap","product":"Sunday Wrap","synopsis":"<ul class=\"ucrBullets\"><li> The sources of recent weeks\u00b4 financial market stress. I conclude that while it\u00b4ll most likely rumble on for some time, it\u00b4s unlikely to develop into a systemic banking crisis in the US or Europe. <\/li><li> The ECB\u00b4s statement on Thursday was near-perfect, given the circumstances (even though I still think the pace of the tightening is excessive ' and it included some peculiarities.)<\/li><\/ul>","hash":"0e3d4e53dc39047191f43808b87cca419b5e48e28ad3cbc686db7d301999fa57","available":"0","settings":{"layout":"linklist","size":"default","showanalysts":"0","showcompanies":"0","showcountries":"0","showcurrencies":"0","synopsislength":"-1","synopsisexpand":"0","nodate":"0","nolinktitle":"0","notitle":"0","dateformat":"d M G:i","noproduct":"0","noflags":"0","shownav":"0","oldestedition":"","limit":"12"}},{"layout":"linklist","uid":29063,"publicationDate":"15 Mar 16:47","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184768.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGlpiFwyM1XCPSuco2MtZUs=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Eurozone: profit margins have been at least as important as wages in driving inflation","product":"Chart of the Week","synopsis":"<p><ul class=\"ucrBullets\"><li>Our Chart of the Week illustrates how the growth of the GDP deflator ' which measures the 'price' of gross domestic product per unit of output and is a gauge of domestic price pressure ' accelerated last year at the eurozone level and across the largest economies of the bloc. We break down the deflator into its main determinants ' namely labor costs; firms\u00b4 profitability, as measured by the gross operating surplus (the national-account equivalent of EBITDA); and taxes on production and imports, less subsidies ' all divided by real GDP. In the eurozone, the contribution of unit profits (a proxy for profit margins) to the growth rate of the GDP deflator slightly exceeded that of unit labor costs and was higher than its average over the last two decades. Quarterly data indicate that its contribution significantly increased in the second half of last year.<\/li><li>Our chart also shows that the contribution of unit profits to the growth of the GDP deflator varied significantly from country to country, with Spain and France representing extreme situations in this regard. In Spain, unit profits accounted for almost all the growth of the GDP deflator as solid labor productivity growth largely offset upward pressure from labor costs. In contrast, France experienced a contraction in unit-profit growth, which dampened the increase in the growth rate of the GDP deflator, partly offsetting a strong pick-up in the growth of unit labor costs. The situation was more balanced in Germany and Italy. In Italy, the solid contribution of unit profits largely reflects a significant acceleration in their growth in 4Q22. Of course, our analysis is based on aggregate data, which disguises a lot of variation at the sector level.<\/li><li>This evidence suggests that the ECB should broaden its inflation narrative from its recent focus on labor costs to include the drivers of corporate profitability, which has been surprisingly strong in the last couple of years despite a massive increase in the price of imported inputs. This would provide a more comprehensive picture of the current drivers of underlying price pressure in the eurozone, although this is unlikely to have any meaningful implications for monetary policy (See our Sunday Wrap, 5 March). Going forward, profit margins are likely to ease as demand growth slows, while unit labor cost growth may remain high for longer as wages rise to partly compensate workers for past and current high inflation.<\/p><\/li><\/ul>"},{"layout":"linklist","uid":29057,"publicationDate":"14 Mar 16:11","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184757.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGlpiFwyM1XCV-7a2prYIME=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - US CPI: core inflation moving in the wrong direction ","product":"Data Comment","synopsis":"<ul class=\"ucrBullets\"><li> The January CPI report was not the blip that many had hoped for, with consumer inflation rising strongly in February too. Headline CPI inflation was unchanged (and still high) at 0.4% mom, which translated into a 6.0% yoy increase (from 6.4%). The headline figure benefited from a 0.6% mom drop in the energy component, with the natural gas index leading the way with the largest one-month decrease since October 2006. The food index, instead, increased 0.4% mom.<\/li><li> However, it is core inflation that represents the greatest source of concern. Core consumer prices continued to head in the wrong direction, recording the second straight month of acceleration. Core inflation climbed to 0.5% mom from 0.4%, which in yearly terms translated into a meager 0.1pp deceleration to 5.5% yoy. While core-goods prices were flat (largely due to another large fall in used car prices) after rising in January, core-service inflation continued to trend higher, rising 0.6% mom (or 7.3% yoy, the highest pace since 1982). <\/li><li> Housing prices were the main contributor to the price increase in February, with shelter rising 0.8% mom (up from 0.7%). As we argued in previous notes, shelter prices are likely to decelerate in the coming months given that private surveys of new rents are falling. But attention should be focused on core services excluding housing, which is the key variable to gauge signs of durable disinflation as this category is sensitive to domestic labor-market tightness. Price inflation of this category accelerated to 0.6% mom in February, up from 0.4% mom in the prior month. Both prices for transportation services and recreational activities rose above 1.0% mom. The main drag came from health insurance prices, which dropped 4.1% mom ' mainly due to a statistical technicality that does not affect the PCE deflator that is due to be released later this month. <\/li><li> These price dynamics are especially concerning when thinking about the path for the core PCE deflator ' the Fed\u00b4s preferred measure of inflation. Core-services inflation excluding shelter accounts for about 55% of the PCE basket as opposed to around 30% for the CPI one. Disinflation ahead driven by rents will be much less pronounced in the PCE readings than in the CPI.<\/li><li> At a time of market turmoil, today\u00b4s CPI reading complicates the job for the Fed, which must perform a complicated balancing act between bringing inflation down and preserving the stability of the banking system. Last week, during his testimony before Congress, Fed Chair Jay Powell said the central bank was 'prepared' to accelerate the pace of rate hikes at its 21-22 March meeting if the 'totality' of the data warranted it. Today\u00b4s strong CPI report, combined with the mixed February employment report, might well have tipped the balance in favor of a 50bp hike. However, the stress in the banking system has clearly changed the balance of risks in favor of a more prudent approach. We stick to our view that the Fed will hike rates by 25bp next week. This is in line with market expectations. More in detail: Chart 1 shows that the disinflation process for core CPI inflation in year-on-year terms is progressing at a slow pace. CHART 1. CORE CPI INFLATION GETTING STICKY<\/li><\/ul>"},{"layout":"linklist","uid":29049,"publicationDate":"12 Mar 13:00","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184747.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGlpiFwyM1XCJv0PjxL-i-E=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Sunday Wrap","product":"Sunday Wrap","synopsis":"<ul class=\"ucrBullets\"><li> I\u2019ll discuss how I think the Fed and ECB will handle the uncertainties ahead, and the risk to what markets increasingly price in.<\/li><\/ul><ul class=\"ucrBullets\"><li> I\u2019ll suggest that one of the reasons for the escalation in China\u2019s aggressive stance towards the US may be the prospect of less impressive domestic economic growth \u2013 which only makes de-escalation more complicated.<\/li><\/ul>"},{"layout":"linklist","uid":29048,"publicationDate":"10 Mar 17:03","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184746.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGlpiFwyM1XC7te1pmBOUjM=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - US payrolls: The chances of a soft-landing rise","product":"Data Comment","synopsis":"<ul class=\"ucrBullets\"><li> The US economy added a very robust 311k jobs in February after the surge of 504k in January. Payroll gains over the previous two months were revised down a net 34k, but it didn\u00b4t stop the three-month average rising to 351k. This is considerably more than the around 100k per month gain that we estimate would be required to keep the labor market steady i.e. to absorb new entrants and not lead to a rise in the unemployment rate.<\/li><li> In the event, the unemployment rate rose to 3.6% from a 54-year low of 3.4%. This was partly due to a rise in labor force participation, which was larger than the rise in household employment. The rise in the participation rate by 0.1pp to 62.5% is welcome news. It was driven by those aged 16-24 and 25-54, while the participation rate of those aged 55+ continued to fall.<\/li><li> Arguably the single most important data point is the moderation in average hourly earnings (AHE) growth to 'only' 0.2% mom (or 2.9% annualized), down from 0.3% mom in January. In year-on-year terms, AHE growth rose to 4.6% from 4.4%, but it was entirely due to a base effect. We had warned before today\u00b4s release that a likely fall back in average weekly hours (which in the event did fall to 34.5 from a downward-revised 34.6 in January) could have mechanically pushed up monthly AHE growth as some pay is recorded monthly and simply divided by average hours worked to yield the AHE amount. In this respect, the moderation in AHE growth looks particularly impressive. Annualized AHE growth has averaged just 3.1% over the last two months, which is broadly in line with its pre-pandemic average and inside the 3-3.5% range that many Fed officials consider to be consistent with the inflation target. Still, it is only two months, and the Fed will want to see whether such pay moderation is sustained.<\/li><li> The Fed will almost surely welcome the moderation in pay growth, and the rise in both unemployment and participation, which points to the labor market becoming better balanced. And, with payroll gains remaining strong, it somewhat increases the chances of a soft-landing. In our view, this favors the Fed hiking by 'only' 25bp at its meeting on 21-22 March, in line with our forecast, and not accelerating the pace of rate hikes. Earlier this week, in his testimony to Congress, Fed Chair Jerome Powell said the central bank was 'prepared' to re-accelerate the pace of rate hikes, but this was conditioned on the key incoming data surprising to the upside, and he said no decision had been taken regarding the size of the hike at its March meeting. Of course, the February CPI report to be released on Tuesday, and other data due for release next week, could materially change the picture, but we don\u00b4t think it will. Recent market turmoil related to bank stress is also likely to favor a more gradual approach by the Fed.Chart 1 shows that nonfarm payrolls rose 311k in February, an easing from the 504k surge in January. The three-month average change rose slightly to 351k from 344k in the prior month, while the six-month average fell slightly.CHART 1: STILL ROBUST PAYROLL GAINS<\/li><\/ul>"},{"layout":"linklist","uid":29032,"publicationDate":"07 Mar 9:26","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184727.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGlpiFwyM1XCZFt1WimMIq0=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - The Fed\u00b4s inflation dilemma","product":"Chart of the Week","synopsis":"<p><ul class=\"ucrBullets\"><li>Today, Fed Chair Jerome Powell will appear before the Senate Banking Committee to deliver the semi-annual monetary policy report to Congress. The testimony will be an opportunity for him to clarify how the thinking among FOMC members has changed since their meeting back in early February, when policy rates were raised by 25bp and the overall communication was less hawkish than before in the wake of a disinflation process that looked to be well on track. In the timespan of a few weeks, all the key activity, employment and inflation-related data have surprised to the upside, triggering a rise in the market-implied path for the federal funds rate, by around 50bp to 5.5% in six months\u00b4 time. <\/li><li>Our Chart of the Week shows that different measures of PCE inflation, which is the measure the Fed targets, indicate that the disinflation process still has a long way to go. Besides the sharp reacceleration in January, the 3-month and 12-month trimmed measure, which smooth out the PCE indicator across both categories and time, has stabilized at around 5% for the last six months ' more than twice as much as the inflation goal. Moreover, as we discussed in our Data Comment ' US CPI: Disinflation hit pause button in January, 14 February, core PCE inflation will likely prove to be stickier than its CPI counterpart over the next few months, due to the different weights used to build the two indicators, with the weight of core services excluding housing much larger in the PCE basket than in the CPI basket. The Fed is particularly focused on this component because wages account for a large share of these service providers\u00b4 costs. <\/li><li>During his testimony, Mr. Powell will likely say that further rate rises are appropriate and that, if the data were to continue to surprise to the upside, then rates would likely have to rise by more than the Fed previously expected. The upcoming payroll and CPI figures will probably determine whether the Fed hikes by another 25bp or 50bp at its upcoming 21-22 March meeting. We think the bar for reaccelerating the pace of rate hikes is high, given that the Fed only recently stepped down the pace and, in the current view of most Fed members, the peak for rates is not far away.<\/li><li>At the moment, we expect the Fed to hike two more times, by 25bp in March and May, and to remain on hold for the rest of the year as the effects of cumulative monetary tightening make their way through the economy. However, given the degree of uncertainty, there are clear upside risks to our forecast. If the March releases come in solid but show signs of cooling activity, then we think that the Fed will opt for a more cautious approach. In contrast, if they point to a reacceleration in price and wage dynamics, then the Fed could act boldly at its March meeting, hiking by 50bp and pointing to a higher terminal rate.<\/p><\/li><\/ul>"},{"layout":"linklist","uid":29021,"publicationDate":"05 Mar 14:12","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184716.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGlpiFwyM1XC6LgFmyKYAmE=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Sunday Wrap","product":"Sunday Wrap","synopsis":"<ul class=\"ucrBullets\"><li> A higher and later peak in core inflation is likely to push the ECB to tighten beyond 3.50%. We have put our forecast for policy rates under revision; <\/li><li> The ECB is increasingly looking at the important role played by buoyant corporate profits in the post-pandemic inflation outbreak. While this might ease exaggerated fears of a wage-price spiral, it is unlikely to affect the trajectory of policy rates in the short term.<\/li><\/ul>"},{"layout":"linklist","uid":29020,"publicationDate":"03 Mar 16:28","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184715.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGlpiFwyM1XCPOOcV_yU5aE=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Beating inflation? A risk-taking attitude is needed","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> Euro area inflation continues to surprise to the upside, posing a concern for consumers and policymakers. It also causes a headache for investors, as it threatens the real value of their investments. Which strategy has better chances of beating inflation in the long run' Our Chart of the Week shows the average return and volatility for a number of asset classes over the last twenty years. Looking at such an extremely eventful period, which includes the global financial crisis, the sovereign debt crisis, the low-inflation period that eventually triggered QE, the pandemic and a severe escalation of geopolitical tensions, can provide a good idea about unconditional asset returns. During this period, euro area inflation has averaged 2% with wide swings, from slightly less than 0% to double-digit peaks not seen since the late seventies.<\/li><li> With the benefit of hindsight, exposure to various risk factors has been the best way to achieve real returns significantly above inflation. Equities have delivered the highest real return (at the price of highest volatility) and HY dominated in fixed income. Commodities performed better than inflation, although this came with significant volatility. A portfolio of European ILBs would have delivered good protection against inflation but only modest real returns, mainly because of negative real yields from 2012 onwards. BTP'Is would have delivered a better performance thanks to a credit-risk component. Liquidity, proxied by a European government bond index with a maturity of 1-3Y delivered negative real yields, mostly because highly expansionary monetary policy after 2012 compressed yields at the short end.<\/li><li> The sample is very long, so one may wonder whether these results also hold for sub-periods. The picture remains broadly the same when focusing on the period of low inflation, from mid-2009 until mid-2021. During the last year or so, when inflation accelerated sharply, equities managed to keep the pace. Inflation-linked bonds outperformed other fixed-income assets, unsurprisingly proving to be the best pick. However, even this asset class failed to deliver positive real returns.<\/li><li> What can we learn from this' First, exposure to risky assets and credit risk is likely to remain a key source of real returns in the long run. Second, cash flows directly linked to inflation are important but not sufficient. ILBs provide good protection from inflation, but positive real yields are needed to produce value. Third, monetary policy is key. Periods of expansionary monetary policy compress real yields and make it more challenging to beat inflation without a contribution from credit-risk exposure. This has become less of an issue in the current environment of monetary policy tightening but whether this is a structural shift (to positive real yields) or not (i.e. back to the pre-pandemic era of negative real yields) remains to be seen.<\/li><\/ul>"},{"layout":"linklist","uid":29011,"publicationDate":"02 Mar 14:07","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184706.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGlpiFwyM1XCuLZUjdwg2ak=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - Italy: inflation deceleration continues despite a sustained increase in food prices","product":"Data Comment","synopsis":"<ul class=\"ucrBullets\"><li> CPI inflation in Italy declined to 9.2% yoy in February, stronger than expected (UniCredit and consensus: 8.9%). This implies an 0.8pp reduction compared to January and is 2.6pp below the peak hit in October last year. The downward adjustment in February was mainly due to a base effect, with the CPI increasing by 0.3% on a monthly basis compared to a surge of about 1% in February last year. <\/li><li> A further significant reduction in the prices of energy products contributed to a moderation in the dynamic of headline inflation. Energy prices now explain 'only' 30% of it, down from about 55% during the October peak. The annual growth rate of energy prices decelerated to 28.2% (from 42.5% in January) amid 1. a reduction of gas tariffs in the regulated market ' reflecting an additional 17% mom decline in gas prices for the European benchmark ' and 2. a decline of electricity and gas tariffs in the non-regulated market, with energy providers in this segment gradually catching up with the price reduction observed in the regulated market in recent months. We expect a downward adjustment in energy prices to continue for both the regulated and the non-regulated market in the coming months.<\/li><li> In contrast, food prices continued to rise at a strong pace. This category now accounts for about 25% of Italy\u00b4s inflation rate. In particular, prices of unprocessed food rose by 2.2% mom, interrupting the downward trend observed in the previous months. This partly explains today\u00b4s positive surprise. Moreover, prices of processed food were up by 1.5% mom, higher than our expectation of a sustained increase due to the stickiness observed so far for this component.<\/li><li> Core inflation (which excludes energy and fresh food) rose further in February (to 6.4% yoy from 6.0% in January), as expected, while its counterpart which mainly excludes energy and all food (as is typical for eurozone inflation) was up to 4.9% yoy. There was an increase in prices of both non-energy and non-food goods and services. For the latter, the acceleration was mainly due to a rise in transport prices, prices of services related to recreation and housing services. We expect housing services to be characterized by a sustained price increase in the coming months, albeit it explains less than 15% of inflation for all services.<\/li><li> Following today\u00b4s inflation reading, we continue to expect the inflation rate in Italy to decline to around 6.0% in 2023 (2022: 8.1%) and to 2.2% in 2024. Risks to our forecast mainly depend on: 1. the gas-price dynamic going forward after the very fast decline observed at the beginning of the year, and 2. the pace of adjustment in some determinants of core inflation, primarily related to services inflation, which might turn out to be slower than expected. In greater detail:CPI inflation fell to 9.2% yoy in February from 10% in January (slightly revised downward from the 10.1% initially estimated). We are now back close to the level reached at the end of 3Q22. While the deceleration in headline inflation is now well rooted, core inflation was up further in February (by 0.6% mom and 6.4% yoy), lagging the adjustment in the headline, as expected. CHART 1: INFLATION: HEADLINE VS. CORE ADJUSTMENT<\/li><\/ul>"},{"layout":"linklist","uid":29010,"publicationDate":"02 Mar 9:52","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184704.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGlpiFwyM1XC3SZir3Nkg9M=&T=1&T=1","protectedFileLinkDe":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184708.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGlpiFwyM1XCAD0-SJpFTTU=&T=1&T=1","protectedFileLinkIt":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184707.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGlpiFwyM1XC91QxuqklWck=&T=1&T=1"},"title":"Natural Gas Update - Why natural gas prices in Europe are likely to go up again","product":"Natural Gas Update","synopsis":"<p>We are launching the Natural Gas Update, a new thematic publication about the European gas market. <ul class=\"ucrBullets\"><li>Thanks to a combination of energy-saving measures and mild weather, the consumption of natural gas has so far been exceptionally contained across Europe, creating an unprecedented storage buffer that has contributed to bringing the TTF price down by around 85% from its summer peak. <\/li><li>For next winter, the market seems to be pricing in a scenario where Europe manages to keep its gas consumption at the low levels recorded in 2022. In such a scenario, current domestic production and imports will likely be enough to balance the market and so TTF prices might stabilize at around EUR 50\/MWh. <\/li><li>With lower consumption cuts, instead, Europe will need to secure more imports of LNG, which is in short supply. And the situation could become more complex if there were a complete halt of imports of Russian gas. <\/li><li>Overall, it is more likely than not that gas prices will rise from current levels. We expect TTF prices to average EUR 80-90MWh in 2H23.<\/p><\/li><\/ul>"},{"layout":"linklist","uid":29007,"publicationDate":"01 Mar 13:40","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184701.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGlpiFwyM1XC1_QjB1xyYlk=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - Italy\u00b4s 2022: strong growth, a high budget deficit and a declining public debt\/GDP ratio","product":"Data Comment","synopsis":"<ul class=\"ucrBullets\"><li> Data on GDP and public-finance indicators for 2022 were released by the Italian National Institute of Statistics (Istat) today. In terms of economic growth, nominal GDP rose by 6.8% yoy in 2022, showing another very strong reading (2021: 7.6%). This was a result of significant increases in both real GDP (around 3.7% for the unadjusted data) and the GDP deflator (+3.0%). Private consumption, fixed investment and exports all provided a strongly positive contribution to real GDP growth in 2022 (to the order of 2-3pp each), but this was partly offset by a negative contribution from imports (about -4pp). GDP-deflator growth was less than half of that observed in consumer prices (8.1%), as expected, with this gap likely to narrow this year. <\/li><li> Istat revised upward its estimate of the budget deficit (calculated on an accrual basis according to the Maastricht definition) for 2021 and 2022, to 9.0% of GDP (from 7.2% previously) and 8.0% of GDP (from 5.6% forecast by the government). This is a sizeable revision, and it is explained by a methodological change recently communicated by Eurostat concerning the recording of tax credits. This has frontloaded most of the impact on the budget deficit from tax credits linked to building renovation (including the so-called Superbonus 110%), which were mainly approved by the government since 2020. Today\u00b4s revision increases the chances that there will be a limited impact to the government\u00b4s budget-deficit figures for this year; the budget deficit was estimated by the government to equal 4.5% of GDP in late autumn. The final outcome will depend on how demand for tax credits linked to building renovations evolves this year, after the implementation of government intervention aimed at making them less appealing. <\/li><li> The public-debt-to-GDP ratio declined to 144.7% of GDP in 2022, from 149.8% in 2021. This was about 10pp below the level hit in 2020, at 154.9%, thus halving the increase induced by the pandemic crisis. We highlight that public debt is affected by changes in the budget deficit that occur on a cash basis, rather than on an accrual basis. Therefore, its evolution was not impacted by the methodology change introduced in the recording of tax credits. The downward adjustment in 2022 public debt\/GDP was enabled by a strong, positive contribution from nominal GDP growth and the resulting improvement in fiscal revenue since the previous year. <\/li><li> We expect the public-debt-to-GDP ratio to decline slightly this year amid lower nominal GDP growth and still-high interest expenditure (estimated to remain around 4% of GDP in 2023). While we expect real GDP to expand by 0.5% this year, nominal GDP growth is likely to be supported by an acceleration in GDP-deflator growth. Indeed, the observed easing in energy prices will prompt a fast deceleration in import-price-deflator growth, while the annual increase in the consumer-price deflator is expected to remain high, but to decline, supporting acceleration in GDP-deflator growth in 2023.In greater detail:Nominal GDP growth was 6.8% in 2022. Real GDP growth decelerated from 7.0% in 2021 to a still-high 3.7% in 2022. This compares with a 9% decline in 2020, induced by the COVID-19 crisis. The nominal GDP reading in 2022 was also boosted by an acceleration in GDP-deflator growth (to 3.0% from 0.6% in 2021). One would need to go back to 2003 to see such a high rate of price growth. CHART 1: THE DRIVERS OF STRONG NOMINAL GDP GROWTH<\/li><\/ul>"},{"layout":"linklist","uid":28995,"publicationDate":"26 Feb 14:04","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184685.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJKqnvtMyyPsZHkH3rGwFP0I=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Sunday Wrap","product":"Sunday Wrap","synopsis":"<ul class=\"ucrBullets\"><li> What the yield curve tells us about the future performance of bond markets.<\/li><li> What can go wrong'<\/li><li> What the yield curve tells us about the future performance of equity markets.<\/li><\/ul>"}]

fca5774f669803887558f1f8bf49f8ba6cbad35f9de48a9f1720f5619f212128;;[{"layout":"linklist","uid":28820,"publicationDate":"09 Jan 12:33","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2023_184441.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRo7oSiWTU9yyA8K_ZQ8Wb5BQ==&T=1&T=1","protectedFileLinkDe":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2023_184511.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRo1VsaZ7M0QsRKPBOMsgOvsg==&T=1&T=1","protectedFileLinkIt":""},"title":"CEE Quarterly - Weathering geopolitical and economic shocks (1Q23)","product":"CEE Quarterly","synopsis":"<p><ul class=\"ucrBullets\"><li>We forecast a technical recession throughout CEE over the winter due to falling purchasing power and foreign demand, tighter financial conditions and lower fiscal spending. A rebound is likely from 2H23 onwards if the eurozone economy recovers as well.<\/li><li>We expect the economies in EU-CEE to grow by around 0.5% in 2023 and 3.3% in 2024, slowing from 4.4% in 2022. The Western Balkans might trail the EU-CEE recovery.<\/li><li>In Turkey, we expect economic growth of 2.9% in 2023 and 3.6% in 2024, with growth improving in 2024 only if financial risks are addressed after the 2023 elections. In Russia, the recession could accelerate to -5% in 2023, followed by a small rebound to around 2.5% in 2024 if import substitution improves, underpinning a gradual recovery in aggregate supply. <\/li><li>We forecast inflation to peak in 1Q23 in both EU-CEE and the Western Balkans. Thereafter, fiscal transfers, tight labor-market conditions and higher energy and food prices could keep inflation outside target ranges in 2023-24.<\/li><li>As a result, we see the scope for rate cuts in EU-CEE as being limited to 4.5-7% by 2024, while in Turkey we expect rates to be hiked to 45% this year if the opposition wins the elections. In Russia, cuts to 6.5% are possible if inflation returns to target in 2024.<\/li><li>All CEE central banks will continue to intervene in FX markets, with those in Romania and Serbia being more successful. The CBR could allow the RUB to depreciate gradually.<\/li><li>We assume that the Russia-Ukraine war will continue into 2024, without escalating to the use of non-conventional weapons and\/or spilling over to the rest of Europe.<\/li><li>Besides a more damaging conflict, the main risks for CEE in 2023 are the lack of a common European energy policy, a standoff between the European Commission and Hungary and Poland due to weak adherence to the rule of law, low reform appetite ahead of elections in Bulgaria, Poland, Slovakia and Turkey, a financial crisis in Turkey if monetary and fiscal policies are not tightened after the elections, nationalist tensions in the Western Balkans, and Russia\u00b4s deepening economic isolation.<\/p><\/li><\/ul>","hash":"fca5774f669803887558f1f8bf49f8ba6cbad35f9de48a9f1720f5619f212128","available":"0","settings":{"layout":"linklist","size":"default","showanalysts":"-1","showcompanies":"-1","synopsislength":"-1","showcountries":"-1","showcurrencies":"-1","synopsisexpand":"0","nodate":"0","notitle":"0","dateformat":"d M G:i","nolinktitle":"0","noproduct":"0","noflags":"0","shownav":"0","oldestedition":"","limit":"1"}}]