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78f6c72b509229f3ef77a71224b9fc6b147da4ee04fe56b12377231eaa21e01d;;[{"layout":"detailed","uid":28500,"publicationDate":"28 Sep 22","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_184012.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJKZXH2GAVJvL78LWAPe4_o0=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Economics Chartbook - Central banks\u00b4 inflation fight raises recession odds (4Q22)","titleDe":"","titleIt":"","product":"The Unicredit Economics Chartbook","synopsis":"<ul class=\"ucrBullets\"><li><strong> Global: <\/strong> The growth outlook is deteriorating. After likely subdued growth of 2.7% this year, we forecast global GDP rising by only 1.9% next year. The weakening reflects tighter financial conditions, surging energy bills in Europe and reduced economic momentum across the US, Europe, and China. The manufacturing sector is under pressure, the boost to services from the reopening of the economy is fading, and consumer confidence is low. Supply constraints have eased but remain elevated compared to before the pandemic. High excess savings and the tight labor market should mean any recession is mild. We expect global inflation to ease next year amid negative base effects, lower demand, a further easing of supply constraints and lower commodities prices. The risks to growth are to the downside as central banks prioritize fighting inflation.<\/li><li><strong> US: <\/strong> We forecast GDP growth of 1.5% this year and -0.1% next year (previously +0.1%), with the economy teetering on the edge of recession. The weakness is concentrated in interest-rate-sensitive sectors, notably housing and durable goods. Monthly headline inflation will likely ease sustainably to levels consistent with the 2% target from the spring, while core inflation is likely to take longer to do so. The midterm elections seem likely to result in political gridlock. We now see the Fed raising interest rates to a peak of 4.50-4.75% (previously 3.75-4.00%) by early next year, followed by a first rate cut in late 2023.<\/li><li><strong> Eurozone: <\/strong> GDP growth is likely to average 3.1% this year and come to a standstill in 2023 (0.2%). The latest survey indicators point to a recession at the turn of the year, in line with our baseline scenario. Inflation is likely to hover at around 10% for the remainder of the year, before entering a downward trajectory that would take it towards 2.5% by the end of 2023. We are raising our forecast for the peak level of the deposit rate by 25bp to 2.25%, to be reached in 1Q23. As policy rates rise towards, or above, the upper end of the neutrality range, the ECB is likely to start looking at quantitative tightening (QT) as its next policy step.<\/li><li><strong> CEE: <\/strong> We forecast GDP growth to slow from 4.3% in 2022 to 0.8% in 2023 in EU-CEE and from 5.5% in 2022 to 3.2% in 2023 in Turkey. In Russia, we expect the economy to shrink by around 5% this year and 4% in 2023. We believe that CEE can avoid an energy crisis, but not a technical recession in 4Q22-1Q23 due to high energy prices, circumspect consumers, negative credit and fiscal impulses, destocking, imports outpacing exports, low EU fund inflows and falling public investment. A gradual recovery is possible in 2H23. Inflation is likely to peak this winter in all CEE countries and to remain well above target in 2023. We expect tightening cycles to end at 13% in Hungary, 7% in Czechia and Poland, 6% in Romania and 5% in Serbia. The CBRT is likely to cut its policy rate to single digits and the CBR to 7%. FX interventions will likely continue in Czechia, Poland, Romania, Serbia and Turkey.<\/li><li><strong> UK: <\/strong> We are revising our GDP growth forecasts down slightly to 3.3% for this year (previously 3.5%), and to -0.3% for next year (previously -0.1%). The economy is likely already in recession. The energy price cap means inflation will probably peak at just under 11% in October. Large and poorly targeted fiscal easing at a time of constrained supply will likely force the BoE to hike the bank rate sharply to 4.50% (previously 2.50%).<\/li><li><strong> China: <\/strong> We are reducing our GDP growth forecast for 2022 to 2.0% from 2.4%, and for 2023 to 3.4% from 4.0%. The combination of power shortages, sporadic lockdowns and a real estate sector in disarray is weighing on economic activity. However, contained inflationary pressure, both on the producer and consumer front, is allowing the government to use its monetary and fiscal policy levers to support the economy ahead of the party congress that will likely elevate Xi Jinping to a third term as president of the country. After hitting new lows since 2008, the CNY is set to remain weak against the USD, beyond 7.20. <\/li><\/ul>","synopsisDe":"","synopsisIt":"","hash":"78f6c72b509229f3ef77a71224b9fc6b147da4ee04fe56b12377231eaa21e01d","available":"0","settings":{"layout":"detailed","size":"default","showanalysts":"2","showcompanies":"2","showcountries":"2","showcurrencies":"2","nodate":"0","notitle":"0","noproduct":"0","noflags":"0","dateformat":"d M y","nolinktitle":"0","synopsislength":"300","synopsisexpand":"1","shownav":"0","oldestedition":"","limit":"5"}},{"layout":"detailed","uid":28481,"publicationDate":"23 Sep 22","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183987.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJI3owJG455DyBOr9iK-WXoA=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Household squeeze intensifies","titleDe":"","titleIt":"","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> The squeeze on real disposable income caused by surging inflation has taken a heavy toll on consumer sentiment globally, and the eurozone is no exception. The preliminary estimate for consumer confidence for September, published yesterday, recorded a drop to a new all-time low. <\/li><li> Our Chart of the Week shows the unprecedentedly large gap that has opened up between sentiment among households and retailers, with the latter displaying very good resilience so far. The main reason is probably the high pricing power of retailers as the economy rebounded from the slump caused by the pandemic. This has allowed them to pass on to consumers a meaningful share of their higher input costs, thus safeguarding profit margins. <\/li><li> We suspect that this trend will not prove sustainable as the economic outlook darkens and households become progressively less keen on spending the large savings accumulated during the pandemic. Despite a resilient labor market, in the eurozone this is likely to translate into a consumer-driven recession at the turn of the year and reduced profitability for retailers.<\/li><\/ul>","synopsisDe":"","synopsisIt":"","analysts":[{"first":"Marco","last":"Valli","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=analyst&tx_research_piedition%5Banalyst%5D=37&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=dc3604fb61baa8c1a3f2aed1d2468de2"}],"countries":[{"name":"Euroland","ticker":"","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=country&tx_research_piedition%5Bcountry%5D=25&tx_research_piedition%5Baction%5D=country&tx_research_piedition%5Bcontroller%5D=Edition&cHash=fd74dfc966e72d45ff2580813616e07a"}]},{"layout":"detailed","uid":28477,"publicationDate":"23 Sep 22","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183983.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJI3owJG455DyVznahqXk2sc=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - Eurozone PMIs: monetary policy trade-off keeps worsening","titleDe":"","titleIt":"","product":"Data Comment","synopsis":"<ul class=\"ucrBullets\"><li> Eurozone PMIs for September indicate a further weakening of growth momentum and rising likelihood of a recession at the turn of the year. The composite PMI dropped further into contraction territory, to 48.2 from 48.9, its lowest reading since early 2021 (UniCredit and consensus: 48.2). The manufacturing sector remains under pressure with no signs of a turnaround soon, while the deterioration in services activity gathers pace amid intensified erosion of purchasing power of households and the fading of the reopening effect. At a country level, France recorded a moderate acceleration in economic growth from a low level, while in Germany the downturn intensified. The press release signals that outside of these two countries, output contracted in September. Evidence that the latest surge in energy bills is already affecting firms\u00b4 input and output prices further worsens the trade-off faced by monetary policy. <\/li><li> The outlook for the manufacturing sector remains bleak, as both new orders and output indices declined further below the 50 threshold and the balance between new orders and inventories does not point to an improvement ahead. Ongoing weakness in demand, exacerbated by expenditure switching away from goods, continues to reduce stress on supply chains. In services, business expectations remain on a steep downward trajectory. <\/li><li> The PMIs indicate that the latest energy-price shock is already feeding through to pipeline price pressure. Input and output price indices inched higher both in manufacturing and in services, following some months of easing from the peaks. The labor market remains resilient, as firms\u00b4 hiring plans do not seem to be particularly affected by the deterioration in activity. The main uncertainty here is whether this simply reflects a lagged response of employment to output, or the frictions generated by the pandemic have led to a structurally tighter labor market. The jury is still out. <\/li><li> The ECB will take notice of the increased likelihood of recession (which, strangely, is not part of its baseline scenario), but PMI details regarding prices and employment will certainly not pass unnoticed in Frankfurt. The October rate decision remains a very close call between a hike of 50bp and 75bp. In greater detail: The composite PMI declined to 48.2 from 48.9, with the indices for the manufacturing and services sectors down to 48.5 and 48.9, respectively.CHART 1: RECESSION BECOMES INCREASINGLY LIKELY<\/li><\/ul>","synopsisDe":"","synopsisIt":"","analysts":[{"first":"Marco","last":"Valli","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=analyst&tx_research_piedition%5Banalyst%5D=37&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=dc3604fb61baa8c1a3f2aed1d2468de2"}],"countries":[{"name":"Euroland","ticker":"","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=country&tx_research_piedition%5Bcountry%5D=25&tx_research_piedition%5Baction%5D=country&tx_research_piedition%5Bcontroller%5D=Edition&cHash=fd74dfc966e72d45ff2580813616e07a"}]},{"layout":"detailed","uid":28367,"publicationDate":"23 Aug 22","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183845.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJAK3tdK5Bz78j8nG0V8pZ4Q=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - Eurozone PMIs signal contraction but no collapse","titleDe":"","titleIt":"","product":"Data Comment","synopsis":"<ul class=\"ucrBullets\"><li> Eurozone PMIs for August indicate rising likelihood of economic contraction in the third quarter but not a collapse. The composite PMI slipped further into contraction territory, to 49.2 from 49.9, its lowest reading since early 2021 (UniCredit and consensus: 49.0). The manufacturing sector remains a weak spot, although there are signs that the downturn in output and new orders might be approaching its trough. The index for services activity lost further momentum and now points to stagnation, with firms reporting that erosion of purchasing power caused the post-pandemic recovery in demand to stall. At a country level, France joined Germany in recording a composite PMI below 50. The press release signals that outside of these two countries, output increased marginally. <\/li><li> Pressure on the manufacturing sector remains intact, as both new orders and output indices remained well below the 50 threshold. Ongoing weakness in demand helped reduce stress on supply chains and led to the largest build-up of inventories of finished products since the survey began in 1997. However, after a big slide, the new orders-to-inventory ratio stopped declining. If confirmed, this would suggest that downward pressure on activity might start easing in the coming months. Yet, a recovery does not seem to be in the cards, given the intensifying squeeze of real incomes, expenditure switching from goods to services and lingering uncertainty with regard to energy supply. <\/li><li> Prices pressure moderated further, both in manufacturing and in services. However, the pace of reduction is still slow, as both input and output price indices remain high and significantly above pre-pandemic levels. <\/li><li> Employment growth softened further but confirmed its resilience amid a marked slowdown in economic activity. Together with indicators of vacancies and labor shortages, this points to a labor market that remains tight. This will be a key factor for the ECB to consider when it makes its September rate decision. A 50bp hike remains the most likely scenario. In greater detail: The composite PMI declined to 49.2 from 49.9, with the headlines for the manufacturing and services sectors down to 49.7 and 50.2 respectively.<\/li><\/ul>","synopsisDe":"","synopsisIt":"","analysts":[{"first":"Marco","last":"Valli","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=analyst&tx_research_piedition%5Banalyst%5D=37&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=dc3604fb61baa8c1a3f2aed1d2468de2"}],"countries":[{"name":"Euroland","ticker":"","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=country&tx_research_piedition%5Bcountry%5D=25&tx_research_piedition%5Baction%5D=country&tx_research_piedition%5Bcontroller%5D=Edition&cHash=fd74dfc966e72d45ff2580813616e07a"}]},{"layout":"detailed","uid":28225,"publicationDate":"01 Jul 22","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183667.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJPRjevfYGAe4akzYD491W6A=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Are durable goods foreshadowing future disinflation?","titleDe":"","titleIt":"","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> Released today, eurozone headline inflation for June accelerated to a fresh record high of 8.6% yoy (+0.5pp from May). Core inflation fell back slightly, easing by 0.1pp to 3.7% yoy, probably also reflecting temporary government measures in Germany to help households cope with surging transport costs. We expect eurozone core inflation to peak at above 4% yoy in the fall, before entering a clear downward trend next year. Our Chart of the Week shows that indicators of pipeline price pressure have started to signal a possible turning point (from extremely high levels), led by durable goods.<\/li><li> This might be an important indication, because prices of durable goods were the first to accelerate in early 2021, kickstarting the wave of price increases that eventually led to the strong and increasingly broad-based inflation surge we are currently witnessing. <\/li><li> There are good reasons why durable goods would be the first spending category for which price increases start to ease, both in the eurozone and globally. First, they are likely to be most vulnerable to households switching expenditure following the reopening of economies. Second, they are usually comparatively more sensitive to the interest-rate cycle. Third, they tend to suffer the most during times of uncertainty and low consumer confidence. <\/li><li> We expect that lower inflation for durable goods will eventually be followed by a deceleration in the other components of underlying inflation, with non-durable goods probably the next in line. The substantial easing of price increases of industrial raw materials is likely to support this process. However, the timing and the extent of future disinflation remains highly uncertain.<\/li><\/ul>","synopsisDe":"","synopsisIt":"","analysts":[{"first":"Marco","last":"Valli","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=analyst&tx_research_piedition%5Banalyst%5D=37&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=dc3604fb61baa8c1a3f2aed1d2468de2"}]}]

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Marco Valli
Global Head of Research
Chief European Economist
UniCredit Bank AG, Milan
Piazza Gae Aulenti, 4 - Tower C -
I-20154 Milan
Italy
+39 02 8862-0537

Marco Valli is Global Head of Research and Chief European Economist at UniCredit. Previously, he served as Chief Eurozone Economist and Chief Italian Economist. Before joining UniCredit in 200...

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