b0fde0b6ecb55212003648d5a588a33955d9b2f11f3ccfbe008aff11d89147a1;;[{"layout":"linklist","uid":2812,"publicationDate":"30 Apr 13:05","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186458.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJMfHK85BPUzZ-Tzeja2eQQk=&T=1&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - Italy: GDP growth accelerated in 1Q24, while inflation eased in April","product":"Data Comment","synopsis":"<p class=\"ucrIndent\"><\/p><\/p><p><ul class=\"ucrBullets\"><li>Italy\u2019s real GDP was up by 0.3% qoq in the first quarter, accelerating compared to the 0.1% qoq reading in 4Q23. This outcome is better than expected and shows a picture of moderate growth at the beginning of the year. The annual GDP growth rate for 1Q24 was 0.6%, broadly in line with the previous three quarters.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Istat reports that GDP growth was the result of a recovery in activity in industry, services and agriculture, forestry and fishing. The positive surprise was most probably due to a good recovery in services value added, after it contracted by 0.1% qoq in 4Q23. The services PMI averaged 52.7 in 1Q24, well up on the fourth-quarter reading of 49. Tourism data for the first two months of the year also provided an encouraging message, adding to evidence of a possible improvement. Moreover, recent data on monthly production seems to suggest that there was an ongoing good expansion in construction activity following an increase of about 5% qoq in 4Q23. Activity in industry (excluding construction) is likely to have been somewhat weaker in 1Q24, probably dragged down by persisting weakness in output in energy-intensive sectors \u2013 which has stalled in recent months \u2013 while production in the other manufacturing sectors might have started to recover, as suggested by the manufacturing PMI indicator. <\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Net exports provided support to GDP growth, although this was likely mostly due to a significant contraction in imports rather than a good increase in exports. Instead, domestic demand, including inventories, was a drag. When more details are released on 31 May, we expect to see a gradual improvement in private consumption, as nominal disposable income probably held up well and the disinflation process is proving to be even faster than initially thought, supporting household purchasing power. The consumer confidence indicator improved over the quarter (it was at 96.6 on average, compared to 93.3 in 4Q23), although some of this improvement was reversed in April. In contrast, monthly data on the production of capital goods seems to indicate a deceleration in machinery and equipment investment in 1Q24, amid still contained demand and high financing costs for firms, while construction investment likely increased further.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Confidence indicators available at beginning of 2Q24 support our expectation that GDP will increase at a modest pace in this quarter, mainly supported by private consumption and a recovery in exports, as the worst in terms of global trade is probably behind us. We think that GDP growth will be more sustained from 2H24, when we project the negative impulse coming from restrictive monetary policy to moderate. Moreover, at that time, the ongoing implementation of the National Recovery and Resilience Plan will become even more effective in supporting an acceleration in public investment, while the positive impact of building-renovation tax credits will probably fade. We currently expect GDP to expand by 0.6% in 2024, with some slight upside risks after today\u2019s outcome, and by 1.1% in 2025. The main downside risks remain related to geopolitical tensions in the Middle East, with Italy being particularly vulnerable to lower external trade via Red Sea routes.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Today, Istat also published Italy\u2019s inflation data for April, showing CPI inflation easing to 0.9% yoy from 1.2% in the previous month. This was mainly explained by a base effect, as the CPI was up by 0.2% mom, after stabilizing in March. The inflation report shows that energy prices continued to decline by more than 10% on an annual basis, also due to a significant reduction in electricity prices. This was only partly offset by an increase in fuel prices as oil prices rose due to geopolitical tensions. Core inflation was down from 2.3% to 2.2% yoy, supported by an easing in both core-goods and services inflation. We expect CPI inflation to remain around 1% yoy throughout the second quarter.<\/p><\/li><\/ul><p class=\"ucrIndent\"><p>Italy\u2019s real GDP was up by 0.3% qoq in 1Q24, accelerating from 0.1% qoq in 4Q23 (revised downward from 0.2%). GDP is currently 4.6% above its pre-pandemic level (4Q19), compared to 3.4% for the eurozone. In 4Q23, private consumption was particularly weak (down by 1.4% qoq), with GDP growth mainly driven by an acceleration in total fixed investment (up 2.4% qoq), particularly construction investment (up 3.8% qoq). We expect private consumption to have shown a gradual improvement in 1Q24.<\/p>","hash":"b0fde0b6ecb55212003648d5a588a33955d9b2f11f3ccfbe008aff11d89147a1","available":"0","settings":{"layout":"linklist","size":"default","showanalysts":"-1","showcompanies":"-1","showcountries":"-1","showcurrencies":"-1","nodate":"0","notitle":"0","noproduct":"0","noflags":"0","dateformat":"d M G:i","nolinktitle":"0","synopsislength":"-1","synopsisexpand":"0","shownav":"0","oldestedition":"","limit":"12"}},{"layout":"linklist","uid":2811,"publicationDate":"30 Apr 11:08","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186456.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJMfHK85BPUzZsovNJ9yn79o=&T=1&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - German GDP: The worst is finally behind us","product":"Data Comment","synopsis":"<p class=\"ucrIndent\"><\/p><\/p><p><ul class=\"ucrBullets\"><li>German real GDP rose 0.2% qoq in the first quarter of 2024 and therefore came in slightly stronger than expected (UniCredit and consensus: +0.1%). The figure in the previous quarter was revised down to -0.5% qoq from -0.3% (3Q23: +0.1%; 2Q23: -0.1%; see also chart 1 below). On a year-on-year basis, economic activity (adjusted for working days) still shrank 0.2% in 1Q24. As usual, the preliminary estimate released by the Federal Statistical Office today does not provide concise details on single GDP components, but the office did give a few hints this morning. As largely expected, growth impulses came from fixed investment in the construction sector and export activity, while consumer spending shrank, each on a qoq basis. <\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li><strong>To give the most important message right in the beginning: <\/strong> Yes, it is true that special circumstances played an important role in lifting economy activity in 1Q24. But no, this is not a flash-in-the-pan, i.e. the German economy is unlikely to fall back into recessionary territory in the further course of 2024. In our view, the worst is finally behind us, as rising global trade but also lower inflation rates compared to last year will probably lead to further moderate growth in the next few quarters. Such a forecast is not just wishful thinking but, in the meantime, has been corroborated by such a forward-looking and reliable indicator as the Ifo business expectations component. The latter has managed a turnaround across sectors (see chart 2 below). <\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>The \u201cspecial-circumstances\u201d story for 1Q24 is about the construction sector. Unusually mild winter weather led to a temporary strong rise in construction activity. Based on so far publicly available data, construction activity surged about 4\u00bd% in January\/February compared to 4Q23. While a setback in March seems to be inevitable, the construction sector probably still posted its strongest growth in nearly three years. To be sure, forward-looking business expectations of companies in the housing sector and commercial real estate have also started rising, albeit from depressed levels. In other words, it is likely that the downward pressure in construction activity will probably ease in the second half of 2024. But to be crystal-clear, the 1Q24 construction data are statistical noise without any fundamental meaning. <\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Despite the latest rise, the German economy has still been lagging other eurozone countries and the US, as shown in chart 3. Since 4Q19, and hence before the start of COVID-19, real German GDP increased a meager 0.3% on a cumulative basis compared to 8.7% in the US, 2.2% in France and 4.6% in Italy. Hence, what is still missing for a (somewhat) stronger and sustainable recovery' We think that the consumer has still been in \u201cwinter sleep\u201d in the first quarter, as flagged by depressed levels of consumer confidence. This morning\u2019s release of strongly rising retail sales in March (+1.8% mom) does not change the fundamental picture, as it was probably just a technical counter reaction to weak readings in the previous two months (February: -1.5% mom; January: -0.1%). However, we think that the combination of a robust labor market, comparatively strong wage hikes and lower inflation compared to last year will finally lead to a moderate recovery in consumer spending in the next few quarters. Chart 1 plots real GDP growth in quarterly terms, along with our forecasts through end-2025. We expect moderate GDP growth in the coming quarters.<\/p><\/li><\/ul><p class=\"ucrIndent\"><p><\/p>"},{"layout":"linklist","uid":2810,"publicationDate":"30 Apr 10:21","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186454.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJMfHK85BPUzZ6JhFUJgtsx0=&T=1&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - France: Slow recovery sets in","product":"Data Comment","synopsis":"<p class=\"ucrIndent\"><\/p><\/p><p><ul class=\"ucrBullets\"><li>French GDP expanded 0.2% qoq in 1Q24, after increasing 0.1% qoq at the end of last year. On an annual basis, growth accelerated to 1.1% from 0.8% previously. Looking at the GDP breakdown, final domestic demand re-accelerated, adding 0.4pp to GDP growth after no contribution in the previous quarter. This more than offset a negative contribution from inventories (-0.2pp). Net exports made no contribution to GDP growth as a further moderate increase in exports was offset by higher imports. <\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>On the supply-side, business-oriented services were the main growth driver. Services growth was supported by a re-acceleration in information and communication, services to businesses and, to a lesser extent, retail trade, and transport services. The contribution from manufacturing activity and agriculture was zero.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Private consumption moderately accelerated compared to the previous quarter, reflecting a partial rebound in spending on food products and energy and a further increase in spending on services, especially transport services and hotel and restaurants. The positive news was an increase in gross fixed investment after two consecutive declines. The increase reflected a partial rebound in investment spending by non-financial corporates and a solid increase in spending by the public administration. Investment by households continued to contract, albeit at a slower pace compared to the previous quarter. <\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Today\u2019s outcome indicates that economic activity in France is slowly recovering, although it remains subdued. The decline in consumer inflation is bringing some relief to households\u2019 real income, supporting private consumption growth. Gross fixed investment by non-financial corporations resumed expanding signaling that the peak effect of the transmission of monetary policy is probably behind us. We expect economic activity to continue to grow at a similar pace to that of 1Q also in 2Q, benefiting from a gradual recovery in private consumption, and moderately accelerate in the second half of this year as global demand improves. In greater detail: Today\u2019s outcome lifts French GDP 2.2% above its pre-pandemic level, although activity remains well below its pre-pandemic linear trend.<\/li><\/ul>"},{"layout":"linklist","uid":2802,"publicationDate":"26 Apr 14:36","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2024_186446.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRoL4EO2l3nHcINy4lcqCPDzQ==&T=1&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"CEE Data Watch","product":"EEMEA Macro Note","synopsis":"<p class=\"ucrIndent\">Next week\u2019s highlights will be the 1Q24 GDP flash estimates for Czechia, Hungary and Serbia, April PMI data for CEE, the monetary policy decision in Czechia, and April inflation data for Poland and Turkey. Additionally, S&P will review Turkey\u2019s sovereign rating and an upgrade could be on the cards, in our view.<\/p><\/p><p class=\"ucrIndent\"><p> <\/p>"},{"layout":"linklist","uid":2800,"publicationDate":"26 Apr 12:11","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186444.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJMfHK85BPUzZPFqU10d6VCE=&T=1&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - The hidden Iran-China oil trade","product":"Chart of the Week","synopsis":"<p class=\"ucrIndent\"><\/p><\/p><p><ul class=\"ucrBullets\"><li>US President Joe Biden recently signed into law the package on Iran oil sanctions, also known as \u201cStop Harboring Iranian Petroleum Act\u201d. The legislative package is a response to the airborne attack against Israel that was recently launched by Teheran for the killing of Iranian military officials in Syria. The measures toughen existing sanctions on Iran\u2019s oil sector, targeting foreign ports, vessels and refineries that knowingly process or ship Iranian crude. In addition, the legislation expands secondary sanctions covering all transactions between Chinese financial institutions and sanctioned Iranian banks.<\/p><\/li><\/ul><p class=\"ucrIndent\"><p><\/p><\/p><p><ul class=\"ucrBullets\"><li>Our Chart of the Week shows that the enforcement of existing sanctions has been poor. Since 2018, when Washington departed from the nuclear deal with Teheran and adopted a strategy of \u201cmaximum pressure\u201d, China\u2019s official imports of Iranian crude have been insignificant. But imports from Malaysia have picked up massively since then. At the moment, they are close to 1.1mb\/d \u2013 that is more than 500kb\/d above the production capacity of the country. According to the Energy Information Agency, China rebrands Iranian oil as originating from Malaysia (but also from the UAE or Oman), moving oil from ship to ship to camouflage the origin of the commodity. In turn, as reported by Bloomberg, Beijing uses small financial institutions to facilitate this commerce and shelter large financial entities, while leveraging the yuan-based Cross-Border Interbank System to clear transactions instead of SWIFT. The economic gain for China is represented by sizable price discounts, especially for small, semi-independent refineries known as teapots, while the strategic one is represented by reinforcing diplomatic ties with Teheran. <\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>The lack of sanction enforcement goes beyond the China-Malaysia trade. Iranian oil production peaked in 2018 at around 3.8mb\/d and troughed at 1.9mb\/d in 2020. Since then, it has continued to increase, hitting 3.2mb\/d last March. As described in detail by the Middle East Institute, this additional output is shipped across the world through a variety of tactics to evade sanctions. So far, as noted by the Congressional Research Service, the US has turned a blind eye to this illegal trade in order to limit oil-price spikes and inflationary pressures following the curtailing of Russian oil exports in the aftermath of the war in Ukraine. In addition, the Biden administration was willing to reduce somewhat the pressure on Teheran to resume talks on its nuclear program. There are also legal issues that constrain the Biden administration because the law of the sea limits the enforcement of sanctions on Iranian oil at sea such as confiscating a vessel. With the November presidential election approaching, it remains to be seen how willing President Biden will be to enforce this new package of sanctions, considering how inflation has weighed on his popularity, clouding a positive economic growth track-record.<\/li><\/ul>"},{"layout":"linklist","uid":2797,"publicationDate":"25 Apr 16:43","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186440.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJMfHK85BPUzZVR54RJg4Hwk=&T=1&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - US 1Q24: Solid GDP growth, higher than expected core inflation ","product":"Data Comment","synopsis":"<p class=\"ucrIndent\"><\/p><\/p><p><ul class=\"ucrBullets\"><li>The US economy expanded at a solid 1.6% qoq annualized rate (or 0.4% non-annualized) in 1Q24. This is a slowdown from the rapid growth of 3.4% in 4Q23 and 4.9% in 3Q23, but only slightly below trend growth of around 2%. The details were stronger than the headline, since GDP growth in 1Q24 was dragged down by the volatile components, with net exports and inventories subtracting a combined 1.2pp from GDP growth. Excluding these volatile components, GDP growth would have been a strong 2.8%.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>The main upward contribution to GDP growth again came from personal consumption expenditure, which rose 2.5% annualized and contributed 1.7pp to GDP growth in 1Q24. The increase in real spending was entirely driven by services, which rose at its fastest pace in two and a half years. Real spending on goods fell slightly, driven by a fall in durable goods, particularly motor vehicles. Strong personal consumption in 1Q24 went hand-in-hand with a jump in imports, which meant net trade provided a large downward contribution of 0.9pp to GDP growth. Real disposable personal income growth slowed in 1Q24, to just 1.1% annualized, and so the increase in spending was largely financed by a fall in the personal savings rate to 3.6% from 4.0%. The personal savings rate is unlikely to keep falling from its historically-low level, particularly if the labor market slows as we expect. If so, personal consumption growth is likely to slow later this year.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Investment spending rose at a solid 5.3% annualized rate in 1Q24, with both an increase in business investment and a jump in residential investment. Within business investment, the main upward contribution came from intellectual property spending (likely in part reflecting spending on AI), while investment in structures fell slightly, which is the first fall since 3Q22 after which there was a boom due to the financial incentives within the 2022 Inflation Reduction Act and Chips Act. It seems like the boost to activity from these incentives has now faded. The pickup in residential investment (14% annualized) largely reflects the easing of 30Y mortgage rates from 8% at the end of October 2023 to 7% at the turn of the year. Residential investment is likely to soften in 2Q24, reflecting that mortgage rates have since risen to 7.5%.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>The major surprise in the 1Q24 GDP release today was that the core PCE price index (the Fed\u2019s preferred measure of inflation) rose at a 3.7% annualized rate, materially higher than expected. It comes after core PCE inflation hit 2.0% in 4Q23 and 3Q23. Assuming no revisions to past data, it would imply a 0.45% mom rise in the March core PCE deflator (due to be released tomorrow), much higher than our forecast for a 0.3% increase. However, it seems likely that past months (January and\/or February) will be revised up, such that the rise in March is more contained. <\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>The Fed will likely see the 1Q24 GDP report as solid, while the upward surprise to core PCE inflation will support the central bank\u2019s case for waiting longer before cutting rates. At least, it won\u2019t provide the Fed with the \u201cgreater confidence\u201d that it needs (that inflation is sustainably moving down to 2%) to cut rates. Last week we pushed back our expectation for the timing of the first rate cut to September from June previously. We see a total of 75bp of cuts this year, which is dovish compared to market expectations, as we still expect GDP growth to slow and disinflation to resume.<\/p><\/li><\/ul><p class=\"ucrIndent\"><p>Chart 1 plots GDP growth in quarterly annualized terms and year-on-year terms, along with our forecasts through end-2025. We expect GDP growth to slow in the coming quarters.<\/p><\/p><p class=\"ucrIndent\"><p><\/p>"},{"layout":"linklist","uid":2784,"publicationDate":"23 Apr 12:53","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186426.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJMfHK85BPUzZ_uZH6HdGAWQ=&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - Eurozone PMIs: Services drive a slow recovery","product":"Data Comment","synopsis":"<ul class=\"ucrBullets\"><li> The eurozone composite PMI for April rose to 51.4 from 50.3, exceeding expectations of a mild increase (UniCredit: 50.8, consensus: 50.7). This is the second consecutive reading above 50 and the highest level since May last year. The improvement reflects a further acceleration in services activity while the pace of contraction in manufacturing intensified. Taken at face value, the outcome signals a moderate acceleration in economic activity at the beginning of the second quarter. This seems consistent with our forecast for a 0.2% qoq increase in 2Q GDP, after a likely 0.1% qoq increase in 1Q (1Q GDP data will be published next week). At country level, the composite PMI edged up above 50 in Germany while it remained only marginally below it in France. The note accompanying the data release for the eurozone indicates that \u201cthe rest of the region\u201d recorded once again the best performance, although this was slightly weaker than in the previous month.<\/li><\/ul><ul class=\"ucrBullets\"><li> Manufacturing remains the weak spot. The main disappointing news was the renewed downward pressure on new orders, the index of which move back to the 43-44 area, while the pace of contraction in output was little changed compared to the previous month. Weak demand conditions eased pressures on supply chains for a third consecutive month. Services activity accelerated amid a further improvement in new and outstanding business. In particular, the new business index recorded the second consecutive increase above 50. <\/li><\/ul><ul class=\"ucrBullets\"><li> The composite PMI for employment improved in April, indicating that the labor market remains resilient. New hiring continued to be driven by the services sector, where firms increased their headcounts at a faster pace amid expectations of future higher levels of activity. In manufacturing, firms reduced their workforce at the slowest pace since September last year.<\/li><\/ul><ul class=\"ucrBullets\"><li> Persistent divergence across sectors is fully reflected in relative trends for prices, with price pressures remaining elevated in services, well-above pre-pandemic levels. Importantly, in services, output price inflation reaccelerated in April as the improvement in demand conditions probably made firms confident of being able to pass on higher input prices to final customers. In manufacturing, both input and output price indexes remained below the 50 threshold. While the input price index increased to the highest level since February last year, the output price index was broadly unchanged and still stuck in the 47-48 area. This indicates that goods inflation is likely to remain well-behaved. <\/li><\/ul><ul class=\"ucrBullets\"><li><strong> Implications for monetary policy: <\/strong> Today\u2019s PMIs leave the ECB on track for a June cut. However, the ongoing strength in the pricing power of services providers is likely to limit the speed at which the central bank will want to dial back monetary restriction. We continue to expect a cumulative 75bp of easing for this year, with one cut of 25bp every quarter. <\/li><\/ul><p class=\"ucrIndent\"><strong>In greater detail: <\/strong> <\/p><p class=\"ucrIndent\">The composite PMI rose to 51.4 from 50.3. The index for manufacturing declined to 45.6 from 46.1, while that for services increased to 51.9 from 51.5, its highest level since May last year.<\/p>"},{"layout":"linklist","uid":2774,"publicationDate":"21 Apr 15:01","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186416.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJMfHK85BPUzZbV9BSVBOBB8=&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Sunday Wrap","product":"Sunday Wrap","synopsis":"<ul class=\"ucrBullets\"><li> Geopolitics is indeed bad. US-China relations are deteriorating rapidly as economic policies adjust to support the national security concerns.<\/li><\/ul><ul class=\"ucrBullets\"><li> The risk of a Trump victory in November and what it may mean for the US and the world. Spoiler: Not good!<\/li><\/ul><ul class=\"ucrBullets\"><li> The economic outlook is fundamentally more uncertain than at any time during the 40 years I have come to IMF annual and spring meetings. Discussions about economic policies often seemed disjointed. A few observations on particularly US fiscal and European monetary policies.<\/li><\/ul>"},{"layout":"linklist","uid":2770,"publicationDate":"19 Apr 14:06","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2024_186412.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRoNM4Q6WQS0n-zr0WxttQDmA==&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"CEE Data Watch","product":"EEMEA Macro Note","synopsis":"<p class=\"ucrIndent\">The highlights next week are the central bank meetings in Hungary, Turkey and Russia, and the presidential elections in North Macedonia. Fitch will review Bulgaria\u2019s sovereign rating and S&P will review Hungary\u2019s and Slovakia\u2019s sovereign rating. We expect no changes.<\/p>"},{"layout":"linklist","uid":2769,"publicationDate":"19 Apr 13:52","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186411.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJMfHK85BPUzZRgM4NLkeUpk=&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Comparing Germany\u2019s trade risk with China","product":"Chart of the Week","synopsis":"<p><ul class=\"ucrBullets\"><li>Chancellor Olaf Scholz\u2019s recent trip to China has again triggered a public discussion about the German economy\u2019s dependence on China. Where do we currently stand' Our latest Chart of the Week shows one simple but crucial yardstick for Germany but also for other major industrialized countries over time: trade in goods with China and Hong Kong (HK), as a share of each national GDP.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Accordingly, there are signs of a moderate \u201cde-risking\u201d. For instance, Germany\u2019s traded goods with China &amp; HK were worth nearly 5% of national GDP in 2023 compared to more than 6% in 2022 and roughly 5% in 2019 before the start of COVID-19. At the same time, Germany\u2019s traded goods with the rest of the world were higher in 2023 (66% of GDP) than in 2019 (with less than 65%), i.e. the decline in trade with China has been a distinct pattern. The major driver for the temporarily rising dependence in 2022 was probably the start of the Russia-Ukraine conflict which led to a rerouting of import flows. Especially petrochemical goods previously imported from Russia were (temporarily) replaced by goods produced in China, where huge petrochemical capacities exist.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Of course, apart from a deliberate shift in strategy of German companies, cyclical factors might also have played an important role in reducing the trade dependency on China. For instance, anemic growth in China has \u201cquasi-automatically\u201d limited the potential for further rises in German exports and will probably continue to do so, at least in 2024 and 2025.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>In respect to other major industrialized countries, the trade dependency on China has also recently decreased, although it still has remained at (much) higher levels in the case of South Korea and Japan. For instance, South Korean exports and imports to China &amp; HK accounted for more than 17% of national GDP in 2023 compared to 20% in 2022 and less than 17% in 2019. In the case of France and Italy, trade ratios were far lower but still somewhat above their pre-pandemic levels in 2023, with 2\u00bd% and 3\u00bd%, respectively.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Going forward, we think that a further gradual, but long-lasting \u201cde-risking\u201d is likely in major industrialized countries. The most important reasons are the strategic competition between the US and China, the Russia-Ukraine war and related national security concerns in key industries such as semiconductors but also companies\u2019 efforts in putting more weight on the resilience of supply chains instead of efficiency. The latter factor will probably play a major role in the case of Germany, as signalled by recent surveys which flag companies\u2019 attempts in diversifying their suppliers and increasing their insourcing activities.<\/p><\/li><\/ul>"},{"layout":"linklist","uid":2765,"publicationDate":"19 Apr 10:01","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2024_186407.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRozxsvVNKkJg3RSzi3ly2SLA==&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"EEMEA Macro Flash - Croatian elections: tough negotiations ahead with HDZ in pole position to form a government","product":"EEMEA Macro Note","synopsis":"<p><ul class=\"ucrBullets\"><li>In Wednesday\u2019s election, the ruling party, the Croatian Democratic Union (HDZ; center right), together with a group of smaller parties, won the most seats (61 of 151), but this was not sufficient for a majority. This was broadly in line with expectations.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>The main opposition group, the coalition led by the Social Democratic Party (SDP; center left), supported by President Zoran Milanovi', received 42 seats.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>HDZ, led by incumbent Prime Minister Andrej Plenkovi', is the most likely party to lead the next government, but forming a coalition will likely involve tough, and potentially lengthy, negotiations.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li><strong>We see three potential outcomes: <\/strong> the most likely is a coalition between HDZ, the Homeland Movement (DP) and national minority representatives; a less likely option is one in which DP is replaced by Most; the least likely option is a coalition of opposition parties led by SDP.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Unless the third option materializes, President Milanovi', will likely remain in his post until the presidential elections in December.<\/p><\/li><\/ul><p class=\"ucrIndent\"><p>The results of the elections on Wednesday were in line with expectations. The ruling HDZ party (together with some small parties) won the most seats, but this was not sufficient for a majority.<\/p><\/p><p class=\"ucrIndent\"><p>The HDZ-led group won 61 seats out 151, five less than in the previous elections of 2020, while the main opposition group, the SDP-led coalition Rijeke pravde (Rivers of Justice) won 42 seats, one more than in the previous elections. The SDP-led coalition was supported by President Milanovi', who has signaled his aspiration to become prime minister, although he was not allowed to run as an official candidate in the elections (this would have required him to resign from his position as head of state, which he refused to do).<\/p><\/p><p class=\"ucrIndent\"><p>Regarding the other parties, Homeland Movement (DP; conservative right) won 14 seats (two less than in the previous election); Most (Bridge; right) won 11 seats (three more) and Mo\u017eemo! (We Can!; left), which leads in the Croatian capital, Zagreb, confirmed itself at the national level by winning ten seats (three more than its showing in 2020). The rest of the seats went to two regional parties (Istrian Democratic Union [IDS]) in Istria two seats and Independent Platform North (NPS) in Northwestern Croatia, also two seats) and a liberal party (Fokus), which won one seat. Eight seats go to national minorities\u2019 representatives.<\/p><\/p><p class=\"ucrIndent\"><p>At the time of writing, all votes have been processed, but the final results will be confirmed only once the State Electoral Commission confirms the validity of the election process in the coming days, which will also require repetition of the election process in some electoral locations due to confirmed irregularities (this is the usual procedure if such irregularities occur and generally has a minor impact on the overall results).<\/p><\/p>"},{"layout":"linklist","uid":2759,"publicationDate":"17 Apr 15:10","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186400.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJMfHK85BPUzZsvDXz5EXu6Y=&P=1","protectedFileLinkDe":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186404.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJMfHK85BPUzZiaaJy-KquDg=&P=1","protectedFileLinkIt":""},"title":"Oil Update - Oil prices are likely to gradually decline","product":"Oil Update","synopsis":"<p><ul class=\"ucrBullets\"><li>So far, the reaction of oil prices to Iran's attack on Israel has been contained. Given the diplomatic pressure by Western powers, investors expect Israel to adopt a restrained response against Iran.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>We agree with the market and we continue to expect tensions in the Middle East to remain mostly limited to the Gaza Strip, with limited regional fallout. For this reason, and given market fundamentals, we expect Brent prices to move back towards USD 85\/bbl soon.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>An escalation of tensions, instead, involving an unrestrained retaliation by Israel, a blockade of the Strait of Hormuz, or attacks on oil facilities in Saudi Arabia, would likely push Brent prices above USD 100\/bbl.<\/p><\/li><\/ul><p class=\"ucrIndent\"><p>So far, the reaction of oil prices to Iran's attack on Israel has been contained. After crossing USD 92\/bbl last Friday, Brent is now trading below USD 90\/bbl. The market already priced in a major attack on Israel since Teheran preannounced it but has found comfort in the limited damages and in the diplomatic efforts by Western and regional powers in avoiding an escalation of tensions. There is still a lot of uncertainty about how tensions in the region will unfold, but we continue to see a regional conflict involving direct conflict between Israel and Iran as unlikely -- which explains the muted reaction of oil prices.<\/p><\/p><p class=\"ucrIndent\"><p>The different fronts<\/p><\/p><p class=\"ucrIndent\"><p>Teheran\u2019s preannounced attack on Israel over the weekend, which involved hundreds of missiles and drones, was likely an isolated response to the suspected Israeli strike in Syria at the beginning of the month that killed Iranian military officers in the Iranian embassy in Damascus. It seems it was not intended to mark the beginning of a broader regional conflict at a time when the Iranian regime is already busy keeping order at home. On Sunday, Iran\u2019s permanent mission to the UN, tweeted: \u201cThe matter can be deemed concluded\u201d.<\/p><\/p><p class=\"ucrIndent\"><p>Furthermore, no major regional actor wants an escalation in tensions.. In an official statement that was released today, Saudi Arabia and the United Arab Emirates (UAE) called for maximum \u201cself-restraint\u201d in the Middle East to avoid \u201cthe dangers of war and its dire consequences\u201d. The UAE has formal diplomatic ties with Israel, while relations with Saudi Arabia have been improving in recent years. Similarly, Western powers are calling for restraint on Israel\u2019s side. The G7 officially condemned Iran\u2019s attack, and while the US reiterated its commitment to Israel\u2019s defense, it warned that it will not participate in any offensive action against Iran.<\/p><\/p><p class=\"ucrIndent\"><p>The Israeli government is clearly split on how to react. The hawks are pushing for a military response for fear of looking weak and encouraging further attacks from Iran. Options range from strikes on Iran\u2019s nuclear facilities or military bases within the country to cyberattacks or attacks on Iran\u2019s proxies in Lebanon or Yemen. The doves call for a tough diplomatic response from the West in order to focus all military efforts on the war in Gaza. Initially, the doves seemed to have prevailed. In an official statement that was released on Sunday, the government led by President Benjamin Netanyahu asked for: 1. The immediate recognition of the Iranian Revolutionary Guards Corps as a terrorist organization and 2. The imposition of tougher sanctions against Iran. The statement referred directly to sanctions on missiles. But then the hawks took over. On Monday night, Military Chief of Staff Herzi Halevi declared that Israel would respond militarily to Iran\u2019s attack, without providing any detail on the possible options.<\/p><\/p><p class=\"ucrIndent\"><p>Now, doves and hawks are battling again on what comes next. A meeting of Israel\u2019s war cabinet set for yesterday was put off until today, as Western allies are putting in place a package of sanctions against Tehran to dissuade Israel from a major escalation. In general, Israel feels constrained not just diplomatically, but also militarily. The weekend events highlighted that, without US support, its defense capabilities are limited. Moreover, Israel benefited from the support of the Middle East Air Defense Alliance, which involves the US, Israel and some allied Arab countries (along with the UK and France). Without the support of its Western allies to undertake a bolder response against Teheran, Israel has little incentive to go on the offensive. It can actually claim victory that it was able to intercept the Iranian missiles and defend its territory, particularly after the Hamas-led 7 October attacks had put this into question. And it can concentrate its military efforts in the war against Hamas in the Gaze Strip.<\/p><\/p><p class=\"ucrIndent\"><p>A drop in oil prices is our baseline<\/p><\/p><p class=\"ucrIndent\"><p>Even if the situation is extremely fluid and the degree of uncertainty extremely elevated, our baseline scenario assumes that Israel will likely opt for a restrained response, relying more on diplomatic than military action. There might be a military response, but that would probably be largely symbolic and not trigger an Iranian retaliation. When it comes to sanctions and the oil market, it is possible that the US will choose to better enforce existing sanctions on Iranian oil, without fully removing the around 1.5mb\/d that Tehran is smuggling into the global market. Since the beginning of the war in Ukraine, Western powers have not fully enforced sanctions on Iranian oil exports to contain upward price pressures, given the market distortions created by sanctions on Russian oil. With the presidential elections approaching, US President Biden is likely to act cautiously on tightening Iranian oil sanctions, because tighter oil supply would risk fueling inflationary pressure domestically at a time when inflation is weighing on his popularity despite a solid economy, adding to risks that the Fed might have to delay rate cuts.<\/p><\/p><p class=\"ucrIndent\"><p>Given all these considerations, our baseline scenario is that the conflict in the Gaza Strip does not further escalate into a clash between regional powers but will have only limited fallout in the region. This implies that no major oil facilities or trading routes (the Strait of Hormuz, in particular) will be affected, while Iranian oil exports will be only partly curtailed. At the same time, according to the latest update of the International Energy Agency, global oil demand is losing momentum now that the post-Covid rebound is largely complete, an expanding EV fleet acts as a further drag and China\u2019s economic performance disappoints (Chart 1).<\/p><\/p>"}]