5d0302d96b8b4a3656ed2e2f0aca4e808841bf142ed4ad811f69c12521b99e8a;;[{"layout":"linklist","uid":26246,"publicationDate":"28 Sep 21","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2021_181231.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJONVgIeo7x-ZU6taDmKjrKk=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Economics Chartbook - Central banks head for exit (4Q21)","product":"The Unicredit Economics Chartbook","synopsis":"<ul class=\"ucrBullets\"><li><strong> Global: <\/strong> Growth has peaked, and we are fine-tuning our global GDP growth forecast for this year, to 5.8% from 6%, and for next year, to 4.6% from 4.7%. The spread of the Delta variant has weighed on demand over the summer, while shortages of materials and labor continue to constrain supply and will probably last into 2022. Growth is likely to remain robust next year, thanks to accumulated household savings, inventory restocking, and the declining economic effects of each new wave of COVID-19. However, growth rates will naturally ease as pent-up demand, fiscal support and spare capacity fade. Inflation will likely remain high through year-end before moderating as base effects turn negative and supply starts to adjust. Central banks will continue to chart a gradual exit from emergency measures.<\/li><li><strong> US: <\/strong> We now expect GDP growth of 5.8% this year (from 6.1%) while our forecast for next year is 3.9% (from 3.8%). This is the result of a downward revision to growth in 3Q21 and slightly stronger growth early next year. GDP is likely to reach its pre-pandemic trend line in 1Q22, a quarter later than previously expected. Inflation is close to peaking but will likely remain elevated well into next year as supply disruption looks set to last longer than anticipated. We continue to see inflation falling back towards 2% by end-2022. The Fed will likely start tapering its QE in November and cease net purchases around mid-2022. We expect the first rate hike in early 2023, followed by a second hike in 2H23.<\/li><li><strong> Eurozone: <\/strong> GDP is likely to expand by 5% this year and by 4.3% in 2022. Activity is set to increase strongly again in 3Q21, followed by slower growth at the turn of the year as the reopening boost fades and manufacturing output slows. GDP will probably recover to its pre-pandemic level by year-end. Prospects for 2022 remain positive, supported by deployment of NGEU funds, but activity is unlikely to return to its pre-crisis trend before 2023. Inflation will probably peak in November at close to 4%, before falling sharply over the course of next year. The ECB seems keen to close the PEPP in March. If so, maintaining easy financing conditions and a smooth transmission of monetary policy would require stepping up the pace of the APP and increasing its flexibility.<\/li><li><strong> CEE: <\/strong> We expect economies in EU-CEE and in the Western Balkans to grow by around 6% in 2021 and 4.6% in 2022. Turkey\u00b4s economy could expand by 9.7% in 2021 and 5.5% in 2022. In Russia, GDP growth could slow from 4% in 2021 to 2.4% in 2022. In 2021, the recovery has been driven by pent-up consumer demand\u00a0and exports. In 2022, investment could contribute more to growth, helped in EU-CEE by NGEU disbursements, in Russia by spending from the National Wealth Fund and in Turkey by easier financial conditions. Supply-chain bottlenecks, rising energy prices and buoyant consumer demand could keep inflation outside target ranges for longer than central banks currently expect. Further monetary tightening is needed to ensure price stability.<\/li><li><strong> UK: <\/strong> We are lowering our GDP growth forecasts to 6.4% for this year (from 6.7%) and 5.9% next year (from 6.1%), delaying the time when we expect GDP to surpass its pre-pandemic level by one quarter to 2Q22. Inflation is set to rise to almost 4% in 4Q21 and remain there through 2Q22, before falling back to close to 2% by end-2022. The MPC seems prepared to raise rates as soon as February, but we expect lower growth and higher unemployment to delay a hike until late 2022\/early 2023.<\/li><li><strong> China: <\/strong> We are reducing our GDP growth forecast for 2021 to 8.2% from 8.5%, and for 2022 to 5.0% from 5.7%. The summer turned out to be challenging due to a mix of natural disasters and the spread of the Delta variant. Looking beyond 3Q21, there are several headwinds that might dent the economic outlook, from abrupt state interventionism to rising vulnerabilities in the real estate sector and an economically-damaging 'zero tolerance' approach to COVID-19. Fiscal and monetary policy are likely to remain accommodative. <\/li><\/ul>","hash":"5d0302d96b8b4a3656ed2e2f0aca4e808841bf142ed4ad811f69c12521b99e8a","available":"47","settings":{"layout":"linklist","size":"default","showanalysts":"-1","showcompanies":"-1","showcountries":"-1","showcurrencies":"-1","nodate":"0","notitle":"0","noproduct":"0","noflags":"0","dateformat":"d M y","nolinktitle":"0","synopsislength":"-1","synopsisexpand":"0","shownav":"1","limit":"60"}},{"layout":"linklist","uid":26121,"publicationDate":"10 Sep 21","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2021_181081.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJEqTcTVirxadPgUmEhAJ06A=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Durable goods fuel price pressure in the eurozone","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> Our Chart of the Week shows that in the eurozone pipeline price pressure in consumer goods is largely driven by durable goods, and there are no signs of a turning point yet. <\/li><li> The European Commission gauge for selling price expectations as reported by producers of durable goods has skyrocketed to record-high levels during the summer, while upward pressure is less intense for non-durable goods. We expect that this evidence will increasingly be reflected in PPI numbers, which show a tight correlation with the survey. <\/li><li> Supply bottlenecks probably explain most of the strong price increases, given that Italy is the only country among the four largest eurozone member states in which demand for durable goods has exceeded pre-crisis levels. <\/li><li> Retail prices of durable goods have been accelerating, and further pressure in the coming months is baked in the cake. Yesterday, the ECB revised up its inflation forecasts, assuming that supply disruption will last into 1H22, longer than previously expected. However, durable goods account for only about a third of total core goods in the HICP basket. This should help mitigate the effect on core and headline inflation.<\/li><\/ul>"},{"layout":"linklist","uid":26056,"publicationDate":"02 Sep 21","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2021_181007.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJEqTcTVirxaddf1E3ZpA8eE=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Eurozone inflation will rise further, but monetary policy should look through this","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> The August flash estimate of eurozone inflation published on Tuesday surprised to the upside, showing a sizeable acceleration in the headline rate to 3.0% yoy from 2.2%. This is its highest level since late 2011. Core inflation rose strongly, to 1.6% yoy from 0.7%, explaining most of the jump in headline inflation. Our Chart of the Week breaks down core inflation into its two main components: services and core goods. It shows that the August acceleration was almost totally driven by a huge spike in the prices of goods. The gap between services and goods inflation, which had always been positive in the two and a half decades before the pandemic, has turned negative by an unprecedented 1.6pp (services: 1.1%, core goods: 2.7%). <\/li><li> Several temporary factors explain this unusual pattern. First, goods inflation was artificially inflated by the late start last year of summer sales on apparel in France and Italy, among other eurozone member states. This is a purely statistical effect, which reversed weakness recorded in the yearly change in apparel prices for July and which should fade over the next one or two months. Second, it is highly likely that manufacturers have continued to pass on some of the cost increases caused by supply bottlenecks and rising commodity prices. To the extent that higher production costs largely reflect the global ramifications of the pandemic, this should also be considered as a temporary factor, although available indicators suggest that its effects will last longer than expected, most probably into 2022. Third, services inflation was dampened during the summer months by lower weights (compared to 2020) for travel, leisure and hospitality expenses in the HICP basket. This explains why the reopening of several tertiary activities and a rebound in demand have been accompanied by weak services inflation until now. This effect will likely reverse in the fall, when these price categories typically record large seasonal price declines. We expect services inflation to rise more meaningfully over the coming months. <\/li><li> Overall, transient factors have played a key role in driving inflation in the euro area, and we expect they will continue to do so at least until the end of the year. These factors also include a 15.4% yoy increase in energy prices (which alone accounted for half of the headline inflation rate in August) and changes in Germany\u00b4s VAT rate. We expect that headline and core inflation will rise further in the coming months, before probably peaking in November. A clear slowdown is likely to start at the beginning of 2022, helped by the fading of the VAT effect in Germany, and to continue in subsequent months. This deceleration might push headline inflation back below 1.5% in about a year\u00b4s time, amid a strong base effect on energy prices. Monetary policy should remain patient and persistent. <\/li><\/ul>"},{"layout":"linklist","uid":25821,"publicationDate":"14 Jul 21","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2021_180711.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJHjzm7tW87YeLMLSmjPLpDw=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Owner-occupied housing in eurozone HICP: Implications and challenges","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> With its strategy review, the ECB confirmed that the Harmonized Index of Consumer Prices (HICP) remains the appropriate measure for assessing the achievement of the central bank\u00b4s new price-stability objective (a symmetric target of 2% inflation over the medium term). However, the Governing Council (GC) acknowledged that 'the inclusion of the costs related to owner-occupied housing in the HICP would better represent the inflation rate that is relevant for households'. Therefore, it recommended a roadmap to include owner-occupied housing (OOH) in the HICP. <\/li><li> Our Chart of the Week shows an attempt to quantify the effects of including OOH in the eurozone HICP. We make a (possibly conservative) assumption that the weight of OOH in the basket would be 10%. Over the last decade, the inclusion of OOH would have raised inflation by an average of 0.1pp per year, although the impact would have differed meaningfully over time. In 2011-13, amid weakness in the housing market, OOH subtracted from the inflation rate, while the opposite holds true in the following years, when inflation would have been 0.2pp higher, on average. This suggests two things. First, the slight increase in the target for inflation, under the new definition of price stability (to 2% from 'below, but close to 2%') changes very little in practice when OOH is taken into account. Second, inflation that includes OOH might become more pro-cyclical. Using a larger weight for OOH does not materially alter the average results, but obviously increases the cyclicality of inflation. <\/li><li> OOH is a tricky concept, as it reflects the costs of purchasing, maintaining and living in one\u00b4s own home. Currently, housing costs in the eurozone mainly enter the HICP through actual rents, with a weight of 6.5%, while the costs of OOH are not included. The perception by eurozone households, which we share, is that the weight of the cost of housing in the HICP basket is too low. Several advanced countries already include OOH in their inflation gauges. As a reference, in US CPI, the weight of actual rents is about 8%, while OOH accounts for most housing costs through the so-called owners\u00b4 equivalent rent, with a weight of about 24%. In the UK, the weight of costs of OOH in the CPI basket is about 16%. The main obstacle for OOH inclusion in the eurozone HICP is measurement issues, including differences in data availability and methodology in the way OOH is calculated by member states\u00b4 national statistics offices. Also, OOH data are currently published with a relatively long lag ' numbers for 1Q21 have only been recently published.<\/li><li> The ECB\u00b4s roadmap foresees four main stages for moving to an HICP including OOH costs as the main index for monetary policy purposes: 1. The construction of an analytical index for internal purposes, which includes OOH with approximated weights; 2 Eurostat to carry out further work on the statistical compilation of OOH weights, with the aim of publishing an experimental quarterly HICP including OOH costs in 2023; 3. An official quarterly index to be available by 2026; 4. OOH costs to be included in the HICP at a monthly frequency and in a timely manner (the ECB does not provide a timetable for this). During the transition period until stage 4 is accomplished, the main reference index for monetary policy will remain the current HICP, although 'the quarterly OOH index will play an important supplementary role in assessing the impact of housing costs on inflation and will thus inform the GC\u00b4s monetary policy assessments'.<\/li><\/ul>"},{"layout":"linklist","uid":25700,"publicationDate":"30 Jun 21","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2021_180565.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJELjWQr-cDcAAyiEAIaqX5Y=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Economics Chartbook - Recovery strengthens, price pressures won\u00b4t last (3Q21)","product":"The Unicredit Economics Chartbook","synopsis":"<ul class=\"ucrBullets\"><li><strong> Global: <\/strong> We are revising up our global GDP growth forecast for this year slightly to 6.1% (from 5.8%) while our estimate for next year is broadly unchanged at 4.6%. The upward revision reflects stronger near-term consumption growth in several advanced economies. In contrast, the recovery in several major emerging markets has slowed. Downside risks remain from new variants. Supply bottlenecks and strengthening demand as economies reopen have led to surging input prices and some pass-through to consumer prices, but will very likely be temporary. The major central banks are likely to look through it.<\/li><li><strong> US: <\/strong> The economy is expanding rapidly and GDP growth will likely be slightly stronger than previously expected, at 6.6% this year (from 6.4%) and 3.8% next year (from 3.7%). Output is set to exceed its pre-pandemic trend already in 4Q21. We are also raising our CPI inflation forecast for this year, to 3.9% from 3.3%, reflecting higher recent outturns and ongoing demand-supply imbalances into the autumn. However, inflation will likely return to just above 2% by end-2022. We expect Congress to pass a longer-term economic plan with additional spending worth USD 2-3tn over the next decade, partly financed by USD 1tn in higher taxes. The Fed will likely announce in December that tapering will start in January 2022 and last around a year. Fed rate hikes are likely to be gradual, beginning in late 2023, with risks skewed towards an earlier hike.<\/li><li><strong> Eurozone: <\/strong> We are increasing our GDP growth forecast for this year to 4.5% from 4.0%, leaving the estimate for 2022 at 4.3%. We now see GDP reaching its pre-pandemic level in 1Q22. The services sector is recovering, while manufacturing activity remains solid, despite supply shortages and surging production costs. We forecast average CPI inflation of 2% this year, with a peak at 2.5-3% in autumn, followed by a slowdown to 1.5% in 2022 amid muted core inflation and base effects. The future of the PEPP after March hangs in the balance. Its phasing-out would pose challenges to the ECB, given the need to preserve sizeable stimulus and a smooth transmission in all jurisdictions while underlying inflation remains well below target. This would require a substantial beefing-up of the standard QE program, an increase of its flexibility along the lines of the PEPP, and enhanced forward guidance for reinvestments.<\/li><li><strong> CEE: <\/strong> GDP in EU-CEE and in the Western Balkans will likely grow by about 5% in 2021 and 4.5% in 2022. Having avoided a recession in 2020, Turkey\u00b4s economy could expand by 7.5% in 2021 and slow to 3.5% in 2022 if financial conditions remain tight. Russia\u00b4s GDP is expected to grow by 3.4% this year and 2.6% next year. Hungary, Poland, Romania, Russia and Serbia could return to pre-pandemic levels of activity in 2021, with the other countries following in 2022. Pent-up demand, government transfers and lower savings rates are likely to drive the recovery. Pre-funding from NGEU might start arriving in 3Q21, further boosting investment. We expect additional rate hikes this year in Hungary, Czechia and Russia. The NBP might start raising rates in 4Q21 or 1Q22, followed by the NBR in 2022. The CBRT is likely to cut rates in 2021-22 and the CBR in 2022.<\/li><li><strong> UK: <\/strong> We are revising up our GDP growth forecast for this year to 6.9% (from 6.0%) due to faster near-term growth, while leaving our forecast for 2022 broadly unchanged at 6.2%. Daily new COVID-19 cases are rising again but the vaccine rollout appears to have broken the link between cases and hospitalizations. We expect the MPC to leave monetary policy unchanged through 2022, but risks are skewed towards action before the end of next year.<\/li><li><strong> China: <\/strong> We confirm our GDP growth forecast of 8.5% for 2021 and 5.7% for 2022. After the sharp rebound in activity between 2Q20 and 4Q20, which was supported by a combination of ultra-easy monetary and fiscal policies, the Chinese economy is losing some momentum as the stimulus is gradually being removed. Inflation pressures have probably peaked.<\/li><\/ul>"},{"layout":"linklist","uid":25249,"publicationDate":"07 May 21","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2021_180081.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJLvoB7Z-hhFGcjDRgbMZXGw=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Young workers bear the brunt of the crisis, again","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> Our Chart of the Week shows the impact of the pandemic on the eurozone labor market, looking at the employment performance by gender and by age over the course of 2020. The most interesting result is the disproportionally large hit suffered by young workers (here defined as workers aged 15-24), for which employment declined by more than 6%. Despite representing less than 10% of total employment, we estimate that these workers accounted for almost a third of the total job losses recorded last year. Resilience to the shock seems to increase with the age of workers. Workers aged 50-74 have been almost completely shielded from the effects of COVID-19. Moreover, and contrary to popular belief, the pandemic has not had a worse effect on female employment. Actually, the loss of jobs has been more severe for male workers.<\/li><li> The patterns highlighted in our chart are not new. In fact, the employment shock in the aftermath of the financial and sovereign debt crises caused similar, or even stronger, relative dynamics.<\/li><li> In the current recession, sizeable job losses among young workers mainly seem to reflect two factors: 1. a comparatively larger share of workers aged 15-24 in the economic sectors most damaged by COVID-19 (namely retail and wholesale trade, accommodation and food services, and transport services), and 2. young workers are more likely to be hired on temporary contracts, which tend to be shed earlier and more aggressively during downturns. The comparison with previous crises suggests that the latter factor is likely to have played the most important role. <\/li><li> We are confident that the pandemic will not lead to measurable lasting adverse effects on the eurozone labor market (the so-called scarring). Bold intervention from governments and the ECB has supported income and prevented a troublesome wave of corporate insolvencies, while generous furlough schemes have preserved links between workers and firms during the downturn. This should allow activity to rebound swiftly as restrictions are eased. Moreover, job losses have mainly occurred in low-productivity, low-skill service activities, where the scope for deterioration of physical and human capital is relatively contained. Once demand for badly hit services resumes, and there are signs that this recovery has already begun, firms will start hiring again and employment growth in these sectors is likely to outpace that of the broader economy, mainly benefitting young workers.<\/li><li> Still, not all lost jobs will be recovered, as the pandemic has structurally affected demand for certain categories of goods and services. Governments will have to implement the right policies to facilitate the reallocation of labor towards the most promising sectors.<\/li><\/ul>"},{"layout":"linklist","uid":24938,"publicationDate":"30 Mar 21","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2021_179702.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJB57xGVxqtJbiRfNezn8oyQ=&&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Economics Chartbook - The US leads the way to a brighter outlook (2Q21)","product":"The Unicredit Economics Chartbook","synopsis":"<ul class=\"ucrBullets\"><li><strong> Global: <\/strong> We have revised up our global GDP growth forecast for this year to 5.8% while leaving our forecast for next year unchanged at 4.5%. The change to our outlook mainly reflects additional fiscal support in the US, with some positive spillover effe<\/li><\/ul>"},{"layout":"linklist","uid":24767,"publicationDate":"07 Mar 21","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2021_179466.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJOl8JfCdSAaOeUkzs1pdPhw=&&T=1","protectedFileLinkDe":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2021_179466.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJOl8JfCdSAaOeUkzs1pdPhw=&&T=1","protectedFileLinkIt":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2021_179466.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJOl8JfCdSAaOeUkzs1pdPhw=&&T=1"},"title":"Chief Economist\u00b4s Comment - Sunday Wrap","product":"Chief Economist's Comment","synopsis":"<p><ul class=\"ucrBullets\"><li> I take the opportunity to elaborate on the contradictory policy signals from the ECB, and why this makes me nervous looking at the communication challenges the central bank will face in about six months\u2019 time. <\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li> But before I discuss eurozone monetary policy in greater details, let me briefly summarize my take on what is going on in the US.<\/p><\/li><\/ul>"},{"layout":"linklist","uid":24671,"publicationDate":"25 Feb 21","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2021_179366.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJOzmBJ0beaycvHZxZOjcnbk=&&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Learning to live with the virus","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> Our Chart of the Week suggests that firms and households globally have been increasingly adapting to the pandemic environment, managing to contain the economic damage that stems from reduced mobility. The reduction in mobility reflects both restriction<\/li><\/ul>"},{"layout":"linklist","uid":24529,"publicationDate":"10 Feb 21","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2021_179203.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJCC3OXQzGgAGssjxCuE8B4U=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - The mind-boggling difference in approach to the crisis","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> In our Chart of the Week we illustrate the vast difference between the planned 2021 fiscal response to the crisis in the US and the eurozone. In times of crisis, the private sector cuts their demand for consumption and investment, leaving an \u201coutput gap\u201d between aggregate demand and supply. In the present crisis, this has been witnessed to an extreme degree because of the mandated and voluntary social distancing, which impacts demand, particularly for services. Economics 101 tells you that it makes sense for the fiscal authorities to boost expenditures and defer or cut taxes with a view to filling-in this gap, both to protect the most vulnerable in society and to reduce the economic scarring effects (i.e. the destruction of productive capacity).<\/li><\/ul><ul class=\"ucrBullets\"><li> As illustrated, we estimate the 2021 output gap in the US to be around USD 900bn, while the eurozone gap is some EUR 1tn. These numbers reflect both the fact that the eurozone entered the crisis a year ago with an existing output gap, and the US did not, and the fact the eurozone economy took a bigger hit to demand in 2020 than the US. These are the holes policymakers should aim to fill. Given the severity of the crisis and the high uncertainty surrounding the economic outlook, including with respect to fiscal multipliers, we believe that doing too much would be better than doing too little.<\/li><\/ul><ul class=\"ucrBullets\"><li> The US administration has taken this view to heart, aiming for an eye-watering stimulus of USD 2.8tn, made up of USD 0.9tn signed into law at end-December and Biden\u2019s plan for another USD 1.9tn. We think the latter component will be scaled back to around USD 1.2tn, but that still leaves a fiscal injection of USD 2.1tn. To this you may add about USD 200bn in automatic stabilizers, giving a total boost to demand of 2.5 times the output gap, assuming a multiplier of about one.<\/li><\/ul><ul class=\"ucrBullets\"><li> In sharp contrast, the eurozone is planning just about EUR 420bn in national and EU fiscal injections this year. If you add the automatic stabilizers, which are larger in the eurozone than in the US for any given output gap, of about EUR 300bn then you\u2019ll get just over 70% of the output gap covered. <\/li><\/ul><ul class=\"ucrBullets\"><li><strong> Bottom line: <\/strong> The US will get a massive boost to growth and employment this year, which will push inflation somewhat higher, but \u2013 in our assessment \u2013 not dramatically so because of the fairly flat Phillips Curve. The eurozone will not close the output gap, which will leave 2021 GDP short of the pre-pandemic level - with no risk of pushing inflation sustainably back to the ECB target.<\/li><\/ul>"},{"layout":"linklist","uid":24346,"publicationDate":"21 Jan 21","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2021_179010.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJPKfsweEeqIJUzP8U9UcWY8=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"ECB Review - Sounding constructive, after all","product":"ECB Comment","synopsis":"<p class=\"MIBEditorial\"><ul class=\"ucrBullets\"><li> With monetary policy on autopilot after the December announcements, today\u2019s ECB meeting did not bring major news. The Governing Council (GC) thinks that their baseline scenario remains broadly on track and ECB President Christine Lagarde sounded cautious, but constructive, on the outlook, although confirming that risks remain tilted to the downside. The ECB continues to carefully monitor financial conditions to make sure they remain consistent with its inflation aim, and stands ready to adjust its policy when needed. FX rhetoric did not change, confirming that the euro has not yet approached the GC\u2019s pain threshold.<\/p><\/li><\/ul><p class=\"MIBEditorial\"><ul class=\"ucrBullets\"><li> Today\u2019s ECB meeting was fairly uneventful. Following the boost to the PEPP and TLTROs in December, the ECB is now in a wait-and-see mode. Ms. Lagarde regarded developments since the December meeting as broadly consistent with the ECB\u2019s latest macroeconomic projections, including the assumptions of restrictions to activity and mobility remaining in place throughout 1Q21, and only gradual vaccination progress. And while risks remain tilted to the downside \u2013 especially in the short term, with a high likelihood of a technical recession \u2013 today Ms. Lagarde sounded constructive overall, based on the beginning of the vaccination campaign, a Brexit deal (in its December forecasting exercise, the ECB had assumed no deal), legal certainty about the Recovery Fund, a manufacturing sector in good shape and recent political developments in the US. Also, Ms. Lagarde was less vocal than she had been just last week in regard to the risk of a premature withdrawal of fiscal and monetary stimulus. Overall, today Ms. Lagarde was slightly less dovish than we had expected. The next update of the ECB\u2019s macroeconomic forecasts in March will be the first important test to understand whether her tone will be vindicated.<\/p><\/li><\/ul>"},{"layout":"linklist","uid":24294,"publicationDate":"15 Jan 21","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2021_178951.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJLmrrwvNVFgwzJJ8yCNS1Do=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Spike in indebtedness overstates the vulnerability of eurozone firms ","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> Our Chart of the Week shows the evolution of two measures of indebtedness of eurozone non-financial corporations (NFCs). Gross debt includes loans and debt securities, while net debt subtracts from gross debt the liquid assets held by firms, namely currency and deposits. <\/li><\/ul><ul class=\"ucrBullets\"><li> The pandemic has pushed up both gauges. However, gross debt (as a share of gross value added) has increased significantly more and currently stands at its highest level on record, while net debt remains comfortably within the range prevailing since the credit crisis of 2008-09, and clearly below the peak reached in the aftermath of the sovereign-debt crisis. <\/li><\/ul><ul class=\"ucrBullets\"><li> Gross debt tends to be used more frequently in economic analysis, but we argue that at this juncture, net debt provides a more informative picture. As a matter of fact, the increase in net indebtedness since the outbreak of COVID-19 has been totally driven by a denominator effect (i.e. the contraction in gross value added), while the numerator \u2013 the level of net debt \u2013 has hardly changed. The reason is that eurozone firms have boosted their borrowing during the pandemic mainly to increase their liquidity buffers for precautionary motives amid the lack of visibility. Therefore, the spike in gross debt overstates the vulnerability of eurozone firms to increased leverage. <\/li><\/ul><ul class=\"ucrBullets\"><li> As a note of caution, one should consider that our chart provides an aggregate picture, while the pandemic has created unprecedented divergence among sectors. Those businesses most hit by COVID-19 (such as tourism and transport) are likely to have suffered a much more significant deterioration in their financial position than is suggested by our chart.<\/li><\/ul>"},{"layout":"linklist","uid":24131,"publicationDate":"11 Dec 20","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2020_178774.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJJw9kLstEFPEmJtxvgmnZpM=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - The ECB has done well, but should be more ambitious","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> The ECB feels good about current financial conditions in the euro area and wants to preserve them throughout next year. Therefore, the new easing measures that were announced yesterday are mainly intended to boost the duration, rather than the intensity, of the central bank\u2019s stimulus. <\/li><\/ul><ul class=\"ucrBullets\"><li> According to our Chart of the Week, the ECB is right, but should probably be more ambitious. The chart shows the UniCredit financial conditions index for the eurozone, which we construct aggregating equity prices, equity implied volatility, corporate spreads, sovereign yields and the trade-weighted euro. When the indicator rises, financial conditions tighten and economic growth tends to slow (and vice versa). Financial conditions have improved dramatically from March when market turmoil induced by COVID-19 reached its peak, and there is no doubt that the ECB deserves great credit for this turnaround. However, financial conditions still remain somewhat tighter than pre-crisis, while the output gap is certainly much larger; this is going to delay even more the recovery of inflation towards the central bank\u2019s target. The ECB\u2019s new forecasts show headline inflation averaging 1.4% in 2023, with core inflation at only 1.2%. Hence, yesterday the ECB should have probably been bolder.<\/li><\/ul><ul class=\"ucrBullets\"><li> We see at least three possible explanations for the ECB\u2019s reluctance to go all in. One possibility is that the ECB\u2019s preferred indicators of financial conditions depict a more-favorable picture than our own indicator. As already signaled yesterday by Christine Lagarde, financial conditions are a broad concept, they encompass several financial variables and they can be measured in many different ways. A second possible explanation is that the ECB sees limited scope for further improvement in those financial variables that are more directly affected by its intervention. For example, the GDP-weighted sovereign yield curve is already trading clearly below its pre-crisis level. Given that fiscal policy is widely regarded as being more effective than monetary policy in closing the output gap at this stage of the crisis, the ECB might see little merit in acting decisively and prefers, instead, to be a backstop that prevents an upward shift in yields while fiscal stimulus does the heavy lifting. Finally, the ECB might feel that the rollout of vaccines poses stronger upside risks to growth and inflation than publicly communicated. If so, the central bank might want to avoid blockbuster stimulus now in order to minimize the risk of an abrupt exit from crisis measures down the road. <\/li><\/ul>"},{"layout":"linklist","uid":23647,"publicationDate":"20 Oct 20","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2020_178235.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJBa9DS-RyP7K79gmH3Jawsg=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Europe\u00b4s second wave: Soaring new cases to raise pressure on health facilities","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> Our Chart of the Week shows that the second wave of the pandemic in Europe has been characterized by a surge in the number of new COVID-19 infections, while the number of patients in intensive care units (ICUs) has been rising only moderately so far. This stands in stark contrast to developments during the first wave, in March-April, when daily new cases were about one-third of today\u2019s level, but there were many more patients in need of intensive care. <\/li><\/ul><ul class=\"ucrBullets\"><li> Several factors explain the decoupling, which started over the summer, between daily new cases and the number of patients being admitted to ICUs: 1. Testing and tracking capacity has greatly increased in recent months, raising the number of asymptomatic cases that can be detected. Instead, during the first wave, only symptomatic individuals were tested, and some of these were already experiencing severe illness. 2. Progress has been made in the medical treatment of COVID-19, including with anti-viral and anti-inflammatory drugs. 3. The second wave mainly started with infections spreading among young people, which tend to be less vulnerable to the effects of the virus. However, following this initial phase, the average age of COVID-19 patients has been rising again. <\/li><\/ul><ul class=\"ucrBullets\"><li> The relatively shallow increase in the number of severely ill patients in this second wave of the pandemic is good news but should not be interpreted as ground for complacency. This time, we expect the number of patients in ICUs to lag behind the number of new cases, while, in the first wave, the two curves moved broadly in sync, largely due to the features of the testing activity mentioned above. Given that new COVID-19 cases started to accelerate markedly at the beginning of October, with no signs of a flattening-out apparent yet, and given that scientific studies put the median time to ICU admission at 10-12 days from the onset of illness or symptoms1), the ICU curve will very likely steepen over the next few weeks. This will raise pressure on health facilities, although probably not to the extent seen in March and April. If so, targeted restrictions and local lockdowns will likely remain the main tools used by governments to fight the pandemic while trying to minimize damage to economic activity. <\/li><\/ul>"},{"layout":"linklist","uid":23502,"publicationDate":"07 Oct 20","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2020_178106.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJC8J2iL5sf3nYPu_5GcU4Aw=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Central banks concerned about fiscal cliff effects","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> Yesterday, ECB President Christine Lagarde sounded concerned that the latest restrictions to contain the spread of COVID-19 might derail the eurozone recovery, calling for a continuation of fiscal support to avoid the risk of cliff effects. On the other side of the Atlantic, Fed Chair Jerome Powell has been arguing for some time that the US economy needs further fiscal aid and markets certainly did not like it when Donald Trump announced yesterday that he was ending negotiations with the Democrats in Congress on a fiscal package. Our Chart of the Week highlights the key role played by government measures in supporting the purchasing power of eurozone households during the first wave of the pandemic.<\/li><\/ul><ul class=\"ucrBullets\"><li> The chart shows that over the two decades until the pandemic hit, the disposable income of eurozone households, a proxy for their purchasing power in nominal terms, moved hand in hand with labor compensation (including mixed income, i.e. self-employment income). This tight correlation remained intact during the credit and sovereign debt crises, but has broken down in the wake of COVID-19. The reason seems to be that although labor income was hit massively when many workers were put on furlough schemes, the ensuing drag on disposable income was largely mitigated by a strong increase in fiscal transfers and benefits, as well as automatic stabilizers (i.e. lower taxes) and tax deferrals.<\/li><\/ul><ul class=\"ucrBullets\"><li> The resilience of disposable income together with the collapse in mobility and spending caused by the lockdown also explains why the savings rate of eurozone households surged to almost 25% in 2Q20, twice the pre-pandemic level. The speed at which the savings rate returns to normal will be one of the most important drivers of the future trajectory of GDP growth.<\/li><\/ul><ul class=\"ucrBullets\"><li> As governments worldwide face the choice of whether to extend, recalibrate or discontinue some of the stimulus measures activated at the peak of the pandemic, major central banks will continue to do their part by \u201ccontrolling\u201d yield curves and, thus, preserving favorable financing conditions for the public and private sectors. Ms. Lagarde\u2019s call to governments and ECB Chief Economist Philip Lane\u2019s latest explicit remarks (\u201cthe less costly and more prudent approach is to add sufficient extra monetary policy accommodation to boost inflation momentum\u201d) further increase the likelihood that the ECB will announce an expansion and extension of its pandemic emergency purchase program (PEPP) before the end of the year.<\/li><\/ul>"},{"layout":"linklist","uid":23416,"publicationDate":"29 Sep 20","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2020_178010.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJEPML-DprDjVn4QZx2WbT5A=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Economics Chartbook - Pace of growth levels off as technical rebound fades (4Q20)","product":"The Unicredit Economics Chartbook","synopsis":"<ul class=\"ucrBullets\"><li><strong> Global: <\/strong> The global economy will probably contract by about 3-4% in 2020, followed by growth of 5-6% in 2021. The rebound in activity in 3Q20 has been largely technical and driven by three major factors: the reopening of economies worldwide; the unfolding of pent-up demand that built up during the shutdowns; and the unprecedented assistance provided by many governments to support company activity and private household income. Strong momentum will not be sustained at the turn of 2020\/21. The outlook remains subject to substantial uncertainty, with COVID-19 likely remaining the key driver of global GDP growth until a vaccine and\/or an effective drug treatment is widely available. <\/li><\/ul><ul class=\"ucrBullets\"><li><strong> US: <\/strong> We forecast GDP shrinking 3.6% this year and rising 2.9% in 2021. Following a solid rebound in 3Q20, growth will likely level off as virus concerns and the expiry of key income-support mechanisms take their toll. More fiscal stimulus is needed to keep the recovery on track. After switching to flexible average-inflation targeting, the Fed will probably keep rates unchanged for several years to come. Ahead of the 3 November vote, Joe Biden leads in opinion polls. A Biden victory would likely see higher taxes and government spending, and a return to a more \u201cnormal\u201d foreign policy, while a Trump victory would likely bring more of the same. Controlling Congress will be key for effective program implementation. <\/li><\/ul><ul class=\"ucrBullets\"><li><strong> Eurozone: <\/strong> GDP is likely to contract by 8% this year, followed by an increase of 5% in 2021. Strong growth in 3Q20 is likely to be followed by materially slower expansion at the turn of the year as support from pent-up demand wanes and the pandemic resumes its spread. A dovish Fed and the high likelihood of further EUR appreciation will put additional pressure on the ECB to do more to preserve favorable financial conditions while fiscal policy remains loose. We forecast an expansion and extension of the PEPP in December, probably by EUR 500bn through the end of 2021.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> CEE: <\/strong> We expect EU-CEE economies to contract by 5.5% in 2020, with Russia, Serbia and Turkey shrinking by 2.5-4%. The recovery in 2021 could be incomplete, slowed by negative fiscal impulses, as well as economic and (geo)political risks. After a fast rebound in May-July, the recovery is slowing throughout CEE, despite direct and indirect support measures implemented by governments and ranging from 1.7% of GDP in Bulgaria to 10% of GDP in Turkey. Most central banks will remain inactive, with limited scope for rate cuts in Russia and Romania, and additional hikes likely in Turkey. We see risks of limited sanctions against Russia due to Belarus and the Navalny poisoning, and against Turkey from tensions in the Mediterranean. We also see low risk of Hungary and Poland vetoing the Next Generation EU (NGEU) framework and of Romania\u2019s public finance becoming unsustainable.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> UK: <\/strong> Economic activity will probably shrink 9.6% this year and rise by 6.3% in 2021. Virus resurgence, new restrictions and Brexit-related disruption will weigh on growth at the turn of the year, while the new wage-subsidy scheme is unlikely to prevent large job losses when the current, more generous Job Retention Scheme expires at the end of October. A basic UK-EU trade deal remains our baseline scenario, but the Internal Market Bill increases the risk of an accident. We expect the BoE to increase its target stock of asset purchases by GBP 100bn in November. Negatives rates are now part of the BoE\u2019s toolkit, but we do not expect it to use them anytime soon.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> China: <\/strong> GDP will likely expand by 2% in 2020 and by 9% in 2021. The economy rebounded sharply in 2Q20, moving roughly back to pre-crisis levels. At the moment, the health situation looks under control. However, the recovery continues to be uneven; the supply side is leading the way, while domestic demand is lagging behind. Chinese consumers continue to be reluctant to return to their old lifestyle, with retail sales still well below the pre-COVID-19 outbreak. On the monetary front, the PBoC is likely to keep the one-year-loan prime rate steady.<\/li><\/ul>"},{"layout":"linklist","uid":23267,"publicationDate":"11 Sep 20","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2020_177847.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJBWb-vzSjql6_MhlwhAf2Qg=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Eurozone sovereign yields back to pre-pandemic levels, but the ECB is not done","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> Our Chart of the Week shows that the GDP-weighted eurozone sovereign yield curve has fallen back to the level prevailing before the pandemic. The improvement has reflected declines in yields across all countries (although BTP yields are still some 10-15bp higher in most buckets). The GDP-weighted eurozone curve is closely monitored in Frankfurt because it provides important indications on both the degree of market fragmentation and the overall monetary stance. The decline to pre-COVID levels represents an important achievement for the ECB and confirms the effectiveness of its pandemic emergency purchase program (PEPP).<\/li><li> However, there are several reasons why the ECB is not anywhere close to finishing its job. First, while the curve is back to where it was before the shock, GDP is not. By the end of the projection horizon in 2022, the new ECB forecasts predict GDP about 3\u00bd% below the level expected in the December 2019 projections (i.e. the counterfactual in the absence of the pandemic). This leaves ample spare capacity, which requires further monetary stimulus to push inflation up towards its pre-COVID path. The slight upward revision to core inflation (now seen at 1.1% in 2022, from the previous forecast of 0.9%) still leaves underlying price pressure far below what\u00b4s needed for the ECB to sustainably lift inflation towards 2%. Second, as fiscal policy is set to remain firmly expansionary for a long time, the ECB will have to remain in the market with sizeable purchases to 'anchor' yield curves at around current levels while the fiscal boost makes its way through the economy ' effectively, yield-curve control in all but name. Third, the Fed\u00b4s recent policy shift raises the likelihood of further USD weakness down the road, which would endanger the already shallow upward trajectory in eurozone inflation expected by the ECB.<\/li><li> The Governing Council did not discuss new stimulus measures yesterday, but Philip Lane\u00b4s blog published today seems to support the view that monetary policy will be loosened further. Mr. Lane notes 'it should be abundantly clear that there is no room for complacency. Inflation remains far below the aim and there has been only partial progress in combating the negative impact of the pandemic on projected inflation dynamics.' We expect an expansion of the PEPP before the end of the year, probably by another EUR 500bn through the end of 2021. The announcement might come in December, unless a shock forces early action. <\/li><\/ul>"},{"layout":"linklist","uid":22892,"publicationDate":"14 Jul 20","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2020_177440.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJEIJVL9W1ecebpDCFf6MjQQ=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Credit demand from eurozone firms: The great divide","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> Our Chart of the Week shows an interesting development revealed by the ECB\u2019s Bank Lending Survey for the second quarter, which was published this morning. Banks reported a further massive increase in credit demand from firms, but there was a huge disconnection between surging financing needs for inventories and working capital, and a big drop in credit demand for fixed investment.<\/li><\/ul><ul class=\"ucrBullets\"><li> The net percentage of eurozone banks reporting higher demand for liquidity to finance inventories and working capital hit a new all-time high (black line); this was clearly driven by the liquidity squeeze caused by the COVID-19 crisis and was strongly supported by state guarantees. In contrast, the net percentage for financing needs for fixed investment (red line) tumbled, indicating a marked deterioration in the investment outlook. Consistent with this picture, loan demand was higher for SMEs than for large firms (smaller firms tend to have comparatively thinner cash buffers and less ability to raise funding in financial markets) and significantly higher for short-term loans than for long-term loans. Banks also indicated that their credit standards had eased for short-term loans but tightened for long-term loans.<\/li><\/ul><ul class=\"ucrBullets\"><li> At the national level, demand for corporate loans increased considerably in all the largest eurozone countries, although banks in Germany mentioned that demand for guaranteed loans overall was lower than expected.<\/li><\/ul><ul class=\"ucrBullets\"><li> Eurozone banks expect corporate credit demand to continue to grow in the current quarter, but at a significantly slower pace. They also expect a considerable net tightening of credit standards for loans to enterprises, which is reported to be related to the expected end of state loan-guarantee schemes in some large euro area countries. <\/li><\/ul>"},{"layout":"linklist","uid":22724,"publicationDate":"25 Jun 20","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2020_177256.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJOw0vlADQw2DTSVHmqOvrPE=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Economics Chartbook - The trough is behind us, but it is a long way back to normal (3Q20)","product":"The Unicredit Economics Chartbook","synopsis":"<ul class=\"ucrBullets\"><li> Dear reader, welcome to the latest issue of our Economics Chartbook where we have fine-tuned our growth forecasts. The contraction in 2Q20 seems to have been slightly less severe than we had expected, but the recovery that has just started is likely to be shallower. It will take a long time for output to climb back to pre-crisis levels. <\/li><\/ul><ul class=\"ucrBullets\"><li><strong> Global: <\/strong> An earlier end to the \u201cGreat Lockdown\u201d has led us to fine-tune our forecasts for several countries. Globally, we now see a somewhat less severe contraction of 5% this year (previously 6%) and a less pronounced recovery of 6-7% next year (previously 8-9%). The road to full recovery will likely be long. A relatively rapid \u201ctechnical\u201d rebound in 3Q20 might be followed by materially slower growth later this year as the long-term costs of the crisis become clear. Social distancing measures are likely to persist, whether state-mandated or otherwise, well into next year. We expect a significant rise in corporate defaults and long-term unemployment, and increased public and private debt to weigh on aggregate demand. Uncertainty remains extremely high, related to the path of COVID-19, the behavior of firms and households, and the timing of the withdrawal of fiscal support.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> US: <\/strong> The lockdown of the US economy was less-stringent and shorter than its peers and our expectations and, consequently, the hit to GDP in 2Q20 is likely to be smaller than expected. However, we now forecast a significantly weaker recovery amid growing numbers of new COVID-19 cases in southern and western states. We also have concerns that the fiscal response might not be well targeted and could be withdrawn prematurely. In yearly average terms, we see GDP contracting by 7.4% this year (previously 10.5%) and expanding by 6.3% in 2021 (previously 11.4%). By 4Q21 we expect GDP to be about 1.5% below its pre-crisis level, approximately one percentage point lower than we initially estimated. The Fed is likely to keep rates on hold through 2022. We expect it to formally adopt flexible average-inflation targeting, and yield-curve control up to 2-3 years maturity, later this year.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> Eurozone: <\/strong> The timing of the lifting of restrictions affects our short-term growth forecasts, but not our medium-term assessment. We have fine-tuned our GDP projections by raising the yearly average for 2020 to -11% from -13%, and reducing it for 2021 to +8% from +10%. This would still leave GDP some 3-4% below its pre-crisis level at the end of 2021, very much in line with our previous projections. The ECB is stepping up its action to preserve favorable financial conditions and safeguard the transmission of monetary policy as issuance of government debt intensifies. The European Commission\u2019s proposed recovery fund \u2013 named \u201cNext Generation EU\u201d \u2013 is a landmark initiative. It is the signaling effect, rather than its size, that makes this fund a potential game changer.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> CEE: <\/strong> Activity is gradually rebounding, helped by support packages ranging from 3.5% of GDP in Russia to 23.5% of GDP in Czechia. These packages also differ in scope, efficiency and speed of implementation. In EU-CEE, GDP is likely to fall by 8.3% in 2020 and to grow by 7.3% in 2021. Western Balkan economies could evolve similarly. Russia\u2019s economy may contract by 5.4% in 2020 and rebound by 3.8% next year. In Turkey, GDP could fall by 5.6% this year and grow by 6.6% in 2021. We expect additional rate cuts in Czechia, Romania, Russia, Serbia and Turkey. Only Czechia and Poland might consider raising rates in 2021.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> UK: <\/strong> The economy contracted by 20% in April after a drop of 5% in March, but with the economy reopening earlier than we had expected, 2Q20 might not be as bad as feared. GDP is likely to shrink 9% this year and rise 6.6% next year, the latter revised down in part due to the (premature) planned withdrawal of the Job Retention Scheme. A trade deal with the EU still seems likely, but the economic costs of not extending the transition period will be amplified by COVID-19. The BoE will likely keep rates on hold through 2021, while further increases in its stock of asset purchases hang in the balance.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> China: <\/strong> We expect GDP to stagnate in 2020, and to expand by 11.5% in 2021. Although the lockdown was removed in mid-March and mobility has picked up, consumers are still reluctant to spend and retail sales are struggling to recover. Factory activity, on the other hand, has improved strongly, with industrial value-added back to its pre-crisis level. Beijing has adopted a fiscal package equivalent to about 4% of GDP that we do not expect to be expanded, unless a second wave of contagion takes place at the national level. The PBoC stands ready to boost its lending facilities to support bank loans to micro and small firms.<\/li><\/ul>"},{"layout":"linklist","uid":17070,"publicationDate":"17 Jun 20","emaObject":{"protectedFileLink":"\/fileadmin\/Presentations_ex_Marketingpraesi\/Praesentation_Call_ReesForUBK_15Jun20.pdf","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Presentation - Coronavirus und seine volkswirtschaftlichen Auswirkungen","product":"Presentation","synopsis":""},{"layout":"linklist","uid":22619,"publicationDate":"14 Jun 20","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2020_177143.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGootK43tRB_4a2ygLAnulo=&T=1","protectedFileLinkDe":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2020_177143.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGootK43tRB_4a2ygLAnulo=&T=1","protectedFileLinkIt":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2020_177143.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGootK43tRB_4a2ygLAnulo=&T=1"},"title":"Chief Economist\u00b4s Comment - Sunday Wrap","product":"Chief Economist's Comment","synopsis":"<p class=\"ucrIndent\"><p>Happy Sunday,<\/p><\/p><p class=\"ucrIndent\"><p>this is Marco Valli from Milan, the UniCredit Chief European Economist. Volatility is back in financial markets as investors wake up to the risk of a second wave of infections in the US (but has the first wave ever ended there') and start pricing in a more realistic probability of a protracted recovery fraught with downside risk. In the US, the epidemic curve has never flattened to an extent comparable to that of most European countries, where lockdowns were generally orchestrated in a more timely and consistent fashion. There is no easy shortcut when it comes to fighting this pandemic.<\/p><\/p><p class=\"ucrIndent\"><p>Erik is off this weekend, so I take the opportunity to elaborate on the outlook for growth and monetary policy in the euro area. This is my agenda for today:<\/p><\/p><p><ul class=\"ucrBullets\"><li> Growth trajectories in France, Italy and Spain have shown remarkable similarities since the beginning of the pandemic and these three countries stand out as the most severely hit. The virus has produced less economic damage in most of the rest of the euro area.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li> My back-of-the-envelope calculations indicate that the ECB might need to buy EUR 4tn of assets (the equivalent of about three years of purchases at the current pace) if it were to be left alone in trying to push inflation back to its pre-crisis path. Luckily, fiscal policy will continue to lend them a helping hand and the central bank will probably not need to go this far.<\/p><\/li><\/ul><p class=\"ucrIndent\"><strong><p>France, Italy and Spain: <\/strong> the \u201cheavily hit cluster\u201d<\/p><\/p><p class=\"ucrIndent\"><p>This past week brought the confirmation of a big drop in eurozone GDP in the first quarter of the year (-3.6% qoq), as the beginning of lockdown measures took a heavy toll especially on private consumption (down almost 5%) and capex (down more than 10%). A significant deterioration in the second quarter is certain and the real question is how much further activity has collapsed due to the intensification of restrictions to personal mobility and forced business closures. Hard data are starting to shed some light on this.<\/p><\/p><p class=\"ucrIndent\"><p>The publication of industrial production data for the month of April this week complements data for retail sales and (still-partial) information on construction output for the same month, allowing one to draw some inferences in regard to the depth of the trough in activity across a number of countries. I take for granted that the trough happened in April, when measures to contain the spreading of the virus peaked. One should consider two important caveats when analyzing these data. First, they only cover a limited share of the overall economy, about 30%. In normal times, this 30% of the economy and the remaining 70% (mostly represented by services) move in a fairly synchronized fashion, but in this crisis the output of some services activities has collapsed to virtually zero (think of hotels, restaurants, some transportation business, etc,). Second, there is a higher probability than usual that these numbers will be revised at a later stage, even substantially; therefore, the picture might change when the various statistical offices will have more complete information.<\/p><\/p><p class=\"ucrIndent\"><p>With these caveats in mind, it emerges that France, Italy and Spain (which account for about 45% of eurozone GDP) have shown remarkable similarities in their growth trajectories since the beginning of the pandemic. They also stand out as the countries where the economic damage appears to have been most severe.<\/p><\/p><p class=\"ucrIndent\"><p>After experiencing a contraction of about 5% in 1Q20, activity in France, Italy and Spain might have bottomed out at approximately the same level at the beginning of the second quarter. In April, compared to the average for the first quarter, all three countries recorded a 30-35% drop in industrial production (excluding construction) and a 25-30% contraction in retail sales. Only in construction activity might there have been some meaningful divergence. France recorded a collapse of about 50% from the first quarter, Italy probably followed suit (here the April data are not yet available, but the 35-40% mom drop in March closely tracks the trajectory seen in France), while Spain showed more resilience, judging from the lack of clear deterioration in March (also here the April data are still missing). However, it is certainly possible that Spain\u2019s outperformance in construction might have been offset by the country\u2019s higher reliance on tourism-related businesses. Considering that the timing and pace of the lifting of restrictions in the three countries has not been too dissimilar \u2013 at least judging from a range of daily mobility indicators \u2013 it seems likely that GDP in France, Italy and Spain might have continued to move along broadly the same path also in the second quarter, after the strikingly similar contraction of the first quarter.<\/p><\/p><p class=\"ucrIndent\"><p>If this assumption is correct, the (very helpful) GDP-tracking activity the French INSEE performs for its domestic economy almost in real time might provide a fairly reliable growth signal also for Italy and Spain. As my colleague Tullia Bucco has shown, the steep decline in the INSEE\u2019s GDP proxy in April (by 35% compared to \u201cnormal\u201d conditions) and the subsequent recovery to -25% in May make it difficult for the French economy to avoid a contraction of about 20% qoq in the second quarter. If, as we expect, GDP numbers for Italy and Spain are broadly similar to those for France, this heavily hit cluster of countries alone might drag eurozone GDP down by about 10% in 2Q20.<\/p><\/p><p class=\"ucrIndent\"><p>Evidence for the remaining eurozone countries is more mixed, but generally points to a less brutal recession in countries with less acute health emergency, less severe restrictions and lower exposure to the most impacted sectors. In Germany, where GDP contracted by just above 2% qoq in 1Q20, the drop in industrial production in April (compared to the average of the first quarter) is broadly in line with that of the \u201cheavily hit cluster\u201d, while retail sales and especially construction activity have been much more resilient. In the Netherlands, the COVID-19 shock seems to have caused comparatively limited damage. Following a 1.7% GDP contraction in the first quarter, both industrial production and retail sales bottomed out with a single-digit decline, while construction output was basically unaffected until March (the latest available data). In Finland (where GDP was down only 0.9% qoq in 1Q20), hard data do not even show any meaningful deterioration in March and April.<\/p><\/p><p class=\"ucrIndent\"><strong><p>To make a long story short: <\/strong> as new data become available, the recession story for the second quarter seems to feature high heterogeneity across eurozone countries. France, Italy and Spain appear to be on track for a contraction of about 20% qoq, broadly in line with our forecasts. In Germany, we forecast a drop in the 15-20% range, but it could turn out to be milder; the truck-toll-mileage index is on a rising trajectory and is only about 3% below its pre-crisis level. In addition, some of the smaller economies north of the Alps could suffer less than we had originally thought. All in all, risks to our forecast for a contraction of eurozone GDP of about 20% qoq are tilted to the upside, but a possible miss is unlikely to be particularly large and most of the estimates that are being published by private sector forecasters and official institutions (including recently by the ECB) remain too optimistic, in my view.<\/p><\/p><p class=\"ucrIndent\"><p>Looking beyond the second quarter, it seems possible that the hardest hit countries might rebound more strongly than others in 3Q20. Also in this case, the INSEE lends us a helping hand, as simple simulations of possible trajectories of their GDP proxy indicate a good probability of a double-digit rebound in French growth in the summer quarter. And if the rebound is indeed frontloaded, at least in some countries, it is plausible that this might come at the expense of the growth rate of the final quarter of the year. But these remain random thoughts for now. More in general, the Chinese experience taught us that the post-lockdown rebound might see industrial activity recovering faster than consumer spending, as households remain reluctant to go out and shop while the risk of a second wave of inflection still looms.<\/p><\/p><p class=\"ucrIndent\"><p>In all this, I advise not to overestimate the importance of yearly GDP averages (for the eurozone, we currently have -13% for this year and +10% for 2021). At a time of exceptional uncertainty and huge volatility, the key metric for gauging the performance of the economy \u2013 and the appropriate policy response \u2013 is the time that will be needed for activity to at least regain its pre-crisis level. In our numbers for the eurozone, this will not happen for a long time, given that at the end of next year we forecast that GDP will still remain some 4% below its end-2019 level. Therefore, we might have to wait until 2023 or, more probably, 2024 before we get back to where we stood before the crisis, although with much higher indebtedness.<\/p><\/p><p class=\"ucrIndent\"><strong><p>ECB purchases: <\/strong> how much is needed to push inflation back to its pre-COVID path'<\/p><\/p><p class=\"ucrIndent\"><p>Keeping the focus on levels of economic activity also helps understand why the ECB is in for a prolonged period of substantial asset purchases. The key number in the ECB\u2019s projections published at their latest meeting is -4%, which is the GDP shortfall at the end of their forecast horizon in 2022 compared to the trajectory envisaged in their March projections (i.e. the central bank\u2019s pre-crisis scenario). This might not seem a big output loss now that we face a double-digit collapse in growth in the current quarter and, maybe, a double-digit rebound in 3Q20. However, in a medium-term perspective, 4% is indeed a big hit, the equivalent of about three years of average eurozone expansion under normal conditions (and the equivalent of 3.5-4mn jobs).<\/p><\/p><p class=\"ucrIndent\"><p>In the ECB\u2019s June forecasts, this 4% shortfall in output translates into a 0.6pp shortfall in core inflation in 2022 compared to their March projections. Now that the ECB is explicitly linking the trajectory of its pandemic purchase program (the PEPP) to the goal of taking the eurozone back towards its \u201cpre-COVID inflation path\u201d, the consequences for their monetary policy are likely to be important. I venture into some rough calculations to understand the implications for asset purchases going forward.<\/p><\/p><p class=\"ucrIndent\"><p>First, barring major adverse shocks to the supply side of the economy, putting the eurozone back on its pre-crisis inflation path over the medium term would more or less require pushing the level of activity back to the trajectory forecasted before the pandemic. On the ECB numbers, this implies boosting the level of GDP by 4% compared to the central bank\u2019s current baseline scenario. On our own numbers, which are a bit more pessimistic than those of the ECB, the required boost to bring GDP in line with the central bank\u2019s March projections would be 5-6%. I take the lower end of this range, to allow for the possibility that the crisis might reduce potential GDP somewhat and, therefore, the convergence towards the pre-crisis inflation path might not require filling up the whole GDP gap.<\/p><\/p><p class=\"ucrIndent\"><p>Second, I take as reference ECB estimates indicating that its package of non-conventional measures that included the asset purchase program (APP, or more simply QE), TLTROs, negative rates and forward guidance boosted GDP by a cumulative 2.5-3% over the time span 2015-2019, and inflation by about 0.4pp a year, with the APP playing the lion\u2019s share. Given that in those years (net) asset purchases under the APP amounted to about EUR 2.5tn, each EUR 1tn of asset purchases \u2013 within the broader package of measures with mutually reinforcing effects \u2013 allowed raising the level of eurozone GDP by about 1% (and the inflation rate by 0.1-0.2pp a year) compared to a counterfactual scenario of unchanged policies.<\/p><\/p><p class=\"ucrIndent\"><p>Finally, I take into account that the effect of PEPP on sovereign curves seems to be larger than that of the public sector purchase program (PSPP), which represents the backbone of the APP. Judging from the interesting charts presented by ECB\u2019s executive board member Isabel Schnabel this past week (https:\/\/www.ecb.europa.eu\/press\/key\/date\/2020\/html\/ecb.sp200610_slides.en~18f114536c.docx.pdf), one could assume that PEPP might be, over the life of the program, some 20-25% more effective than PSPP in compressing sovereign yield curves (the charts point to a stronger \u201coutperformance\u201d, but this was estimated over a very short time window right after the PEPP announcement). The PEPP\u2019s higher effectiveness mainly stems from two factors: a generally larger impact of central bank\u2019s asset purchases during market turmoil, and the flexibility of the program, which allows the ECB to (temporarily) channel more purchases towards those curves where market pressure is stronger.<\/p><\/p><p class=\"ucrIndent\"><p>All in all, accepting the high degree of simplification that comes with these rough assumptions, one reaches the conclusion that the ECB might have to buy about EUR 4tn of assets if it wants to raise the level of eurozone GDP by a cumulative 5% (and inflation by 0.6pp a year) without any other external support, namely from fiscal policy. At the current, sizeable, monthly pace of purchase of about EUR 100bn for the PEPP and EUR 20bn for the APP, such a program would have to last about three years (on top of which you need to add at least another year and a half of reinvestments, in line with the ECB\u2019s guidance).<\/p><\/p><p class=\"ucrIndent\"><p>Luckily enough, and differently from the past, in this crisis the ECB has not been the \u201conly game in town\u201d but has been supported by unprecedented fiscal activism. The ECB\u2019s June projections take into account the fiscal measures approved by governments before the cut-off date for the forecasting exercise, but they do not yet include the European Commission\u2019s recovery instrument (the so-called Next Generation EU), as well as the latest additional fiscal packages in Germany and France. Jointly, these plans might help close up to half of the estimated growth shortfall in the eurozone over the next three years or so.<\/p><\/p><p class=\"ucrIndent\"><p>This is good news, but it does not mean that the ECB will see its workload cut by half. The reason is that the central bank will have to avoid that the extra deficit created by the latest fiscal measures \u2013 and those that might follow \u2013 lead to an upward shift in the yield curves and a tightening of financial conditions. In other words, the additional fiscal stimulus will support growth, but will also raise the supply of government and supranational bonds. This would require ongoing ECB presence in the market to keep the term premium well behaved as fiscal policy plays its role. The PEPP will remain with us for a long time to come.<\/p><\/p><p class=\"ucrIndent\"><p>Best<\/p><\/p><p class=\"ucrIndent\"><p>Marco<\/p><\/p>"},{"layout":"linklist","uid":22490,"publicationDate":"29 May 20","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2020_177001.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJCc1A_K5r6eeezER_Ps2knE=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Next Generation EU: Which eurozone countries benefit more?","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> On Wednesday, the European Commission (EC) outlined its proposal for a recovery package that encompasses the new EU budget (the Multiannual Financial Framework, MFF) for 2021-27 and a recovery instrument labelled 'Next Generation EU'. This instrument, which is intended to be exceptional and temporary, would boost the MFF in 2021-24 and would be worth EUR 750bn (5.4% of EU27 2019 GDP). Our initial understanding was that two-thirds of Next Generation EU (i.e. EUR 500bn) would be distributed to member countries as grants, while the remaining one-third (EUR 250bn) would be loans. However, it is possible that grants handed out through Next Generation EU might be less than EUR 500bn, with the remaining funds to be allocated via the MFF. In any case, all grants would finance European-agreed policy priorities and, therefore, should not be seen as national budgetary support per se. The EC\u00b4s proposal would need to be approved unanimously by the EU Council; the more frugal countries are likely to push back, but we think that any significant watering down of the plan is unlikely.<\/li><li> Our Chart of the Week is an attempt to infer the size of the transfers within eurozone countries implied by Next Generation EU. Given that information available is incomplete, we have to make the following assumptions with regard to the distributions of grants by country, as well as the repayment of bonds that will finance Next Generation EU. <\/li><li> As far as we know, the EC has not published a full breakdown of grants by country. However, some numbers have circulated widely in the press and top EC officials have also mentioned them. Bloomberg has published a complete list of the by-country allocation of grants envisaged by the EC. We rely on the Bloomberg numbers and note that they do not sum up to EUR 500bn, but to slightly more than EUR 400bn. Bloomberg suggests that these numbers include all the separate programs of Next Generation EU, but not grants from the MFF, which are also subject to discussion.<\/li><li> Regarding the costs, we assume that each country will finance a share of Next Generation EU\u00b4s grant pool of about EUR\u00a0400bn based on the EC\u00b4s November 2019 proposal for national contributions and traditional own resources in the MFF 2021-27. We then compute the net balance as a percentage of each country\u00b4s 2019 GDP.<\/li><li> Unsurprisingly, the results indicate that resources will be transferred from the 'core' of the eurozone to southern and eastern eurozone countries. Proportionally, Greece stands to benefit the most, but Portugal and the Baltic countries also look set to do very well. Italy would get the largest amount of grants in absolute terms (EUR 82bn), although the net transfer does not appear huge in proportion to the size of the Italian economy (2% of GDP). <\/li><li> A similar exercise for other EU countries would show that the CEE region should remain very well supported. We estimate that Bulgaria and Croatia might even benefit proportionally more than Greece, with Romania receiving net transfers worth about 5.5% of GDP, Poland about 3.5-4% of GDP, Hungary about 2% of GDP, and Czechia about 1% of GDP.<\/li><\/ul>"},{"layout":"linklist","uid":22198,"publicationDate":"28 Apr 20","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2020_176682.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJAOJm8sn-0N2qQxKvlGMxGU=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Eurozone banks brace for higher loan demand from firms, weaker demand from households","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> Our Chart of the Week shows one of the most interesting developments revealed by the ECB\u2019s Bank Lending Survey for the first quarter. The survey, which was published today, was conducted between 19 March and 3 April 2020 and, therefore, provides a timely picture of eurozone banks\u2019 initial response to the COVID-19 crisis.<\/li><\/ul><ul class=\"ucrBullets\"><li> Banks reported a large increase in firms' loan demand in the first quarter, clearly driven by the liquidity squeeze caused by the economic shock. Our chart shows that banks expect a further significant rise in firms\u2019 loan demand in the current quarter (red line), to the highest net percentage since the beginning of the survey. The main factor underlying firms\u2019 loan demand in the first quarter was financing needs for inventories and working capital, while financing needs for fixed investment deteriorated significantly. This pattern is likely to strengthen in the second quarter as the GDP contraction intensifies.<\/li><\/ul><ul class=\"ucrBullets\"><li> In contrast, banks expect a strong deterioration in household demand for mortgages in the second quarter, to a net percentage comparable to that recorded in 2H08. The black line shows this. <\/li><\/ul><ul class=\"ucrBullets\"><li> The survey also provided valuable information on credit standards, and here the message is clearly positive. Despite the severity of the shock, the tightening of credit standards for corporate loans in the first quarter was contained, far milder than during the credit and sovereign debt crises. Moreover, the pace of increase of the rejection rate for loans to firms remained broadly similar to that of the previous quarter. This indicates that banks regard ECB and government support measures as effective backstops. Their strong capital position entering the crisis also helped. Banks even expect to ease considerably their credit standards for firms\u2019 financing in the second quarter, while they predict further tightening for household lending. <\/li><\/ul><ul class=\"ucrBullets\"><li> A final note of caution. The ECB reported a high dispersion of responses, which signals heightened uncertainty among banks as they are not yet able to fully evaluate the effects of the pandemic. Moreover, developments in loan demand for the first quarter were heterogeneous across the main eurozone countries. While firms\u2019 loan demand increased considerably in Germany and France, it declined in Spain and remained unchanged in Italy. For housing loans, demand continued to rise in Germany and France, while it decreased in Italy and Spain.<\/li><\/ul>"},{"layout":"linklist","uid":21985,"publicationDate":"02 Apr 20","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2020_176448.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJFQWHqiVh6iWv-rRmfm0wlw=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Economics Chartbook - The mother of all recessions has arrived (2Q20)","product":"The Unicredit Economics Chartbook","synopsis":"<p class=\"ucrIndent\">Dear reader, welcome to this new issue of our Economics Chartbook where we present updated forecasts that take into account the huge damage to growth caused by the spread of COVID-19. <\/p><ul class=\"ucrBullets\"><li><strong> Global: <\/strong> Measures deemed necessary to contain the spread of COVID-19 have paralyzed the global economy. While China has now started to lift restrictions, in the rest of the world a flattening of the epidemic curve is still some weeks away. We expect the bulk of containment measures in the US and Europe to last through June. In this environment, uncertainty surrounding forecasts is huge. Nevertheless, today, we present our best guesses. We think that global GDP will shrink by about 6% this year, with a huge fall in 1H20 followed by a rebound in 2H20 and annual average growth of 8-9% in 2021. Impressive fiscal and monetary stimulus will not be able to prevent activity from slumping in the next few months but will be key to supporting the recovery once restrictions are eased. We suspect that the trough is likely to be much deeper \u2013 and the recovery swifter \u2013 than in the 2008-09 financial crisis. Risks are skewed to the downside, particularly with respect to the strength of the recovery. There is a risk of a second wave of infection, while business failures and much-higher unemployment may cause long-term damage to productive potential. However, concerns regarding public-debt sustainability are overblown.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> US: <\/strong> The economy will likely shrink by 10-11% this year, with a 25% cumulated contraction in 1H20 as containment measures become more stringent in the coming weeks. The labor market is already under great pressure, and the unemployment rate will probably climb to more than 10% from its current 3.5%. We forecast a strong economic rebound in 2H20 and annual GDP growth of about 12% in 2021, supported by massive fiscal and monetary stimulus and high flexibility in the labor market. The projected recovery is likely to allow the US economy to reach its pre-crisis level of output by the end of 2021.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> Eurozone: <\/strong> GDP might contract by about 13% in 2020, dragged down by a 25% drop in 1H20 that reflects the intensification of lockdown measures. Here, we also forecast a rebound in 2H20 and we expect average growth for 2021 to be about 10%. The policy response has been multifaceted. The ECB has stepped up interventions to preserve the functioning of key markets and safeguard the transmission of monetary policy amid a quickly deteriorating fiscal outlook. With its pandemic emergency purchase program, it stands ready to act as a buyer of last resort in the government-bond market for as long as needed. This backstop has created much-needed fiscal headroom. However, member states\u2019 responses have been uncoordinated and have lacked a common approach. The eurozone\u2019s north-south split has re-emerged, and financial solidarity is still elusive. <\/li><\/ul><ul class=\"ucrBullets\"><li><strong> UK: <\/strong> GDP is likely to shrink by 10-11% this year, with a drop of more than 20% in 1H20 followed by a rebound in 2H20 and annual growth of about 10% in 2021. More uncertainty than usual surrounds our forecasts, and Brexit negotiations add to risks that loom over the expected recovery. However, we think that the UK will avoid a fallback to WTO rules.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> China: <\/strong> The economy will probably expand by less than 1% in 2020, with a sharp contraction in 1Q20 (by 7-8% qoq, or an annualized 30%) followed by rapid recovery in 2Q20 and 3Q20. Activity was extremely weak in February, and while some improvement has materialized since then, the economy still seems to be running at 85-90% capacity. In 2021, GDP growth is likely to rebound to about 10%. Additional cuts to both the reserve requirement ratio and the loan prime rate are in the cards, as is the injection of more liquidity for SMEs, with a focus on export-oriented firms. On the investment front, digital-infrastructure projects are likely to take priority over traditional ones.<\/li><\/ul>"},{"layout":"linklist","uid":21540,"publicationDate":"13 Feb 20","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2020_175958.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJFOjRUQqnvF1IZ7qbkJM5KE=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Mapping the global spillover of coronavirus","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> Our Chart of the Week aims to identify the exposure of selected countries to the economic shock in China caused by the new coronavirus. We look at two transmission channels: lower Chinese demand for goods and services, and potential supply-chain disruption. We measure exposure to China\u2019s demand shock as the value added of each country that is embodied in Chinese domestic demand, in proportion to the total value added created by each country. In order to capture the supply-chain effect, we use each country\u2019s gross imports of intermediate products from China in proportion to total imports of intermediate products. All data are from the OECD\u2019s Trade in Value Added (TiVA) database and refer to 2015.<\/li><\/ul><ul class=\"ucrBullets\"><li> According to both our metrics, the Asia-Pacific region appears most vulnerable, with South Korea being particularly exposed. About 8% of South Korea\u2019s value added is embodied in Chinese domestic demand and 23% of all its imports of intermediate products come from China. Germany is about twice as vulnerable to a Chinese demand shock as other European countries in our sample, while the exposure to supply-chain disruption is fairly contained across Europe. The US economy appears to be well shielded from demand effects, but it is more exposed to potential damage through supply-chains. <\/li><\/ul><ul class=\"ucrBullets\"><li> Clearly, our chart provides a simplified reading of a very complex reality in which several other transmission channels are at play, including confidence effects and second-round effects (here we only focus on direct effects). The flash PMIs for February, which are due for publication next Friday in a number of countries, will be closely scrutinized to get a first sense of the damage coronavirus might have inflicted on the global economy. <\/li><\/ul>"},{"layout":"linklist","uid":21407,"publicationDate":"31 Jan 20","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2020_175810.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJP4UL0HhmADqZ_AK3EWv3yM=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Eurozone inflation would be closer to the ECB goal if it included owner-occupied housing","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> The definition of price stability will be at the core of the ECB\u2019s policy review that just started. Currently, the ECB defines price stability as \u201ca year-on-year increase in the Harmonized Index of Consumer Prices (HICP) below, but close to, 2% over the medium term\u201d. However, some members of the ECB\u2019s Governing Council (GC) have hinted that HICP may no longer adequately reflect the inflation rate as it is perceived by households due to the low weight of the cost of housing in the basket. At present, housing costs mainly enter the HICP through actual rents, with a weight of 6.5%, while the costs of owner-occupied housing (OOH) are not included. OOH is a tricky concept: it reflects the costs of purchasing, maintaining and living in one\u2019s own home. OOH costs tend to be positively correlated with house prices, but measuring them is a complex task. Several advanced countries include OOH in their inflation gauges, the US being one of them. In US CPI, the weight of actual rents is 8%, while OOH accounts for most housing costs through the so-called owners\u2019 equivalent rent, with a weight of 23%. <\/li><\/ul><ul class=\"ucrBullets\"><li> Our Chart of the Week shows the yearly price change in eurozone OOH costs, actual core inflation and two hypothetical core inflation measures that assume that the core HICP basket also includes OOH, with weights of about 15% and 30% respectively. The former weight is derived from an estimate provided by ECB researchers, while the latter is broadly in line with that of US CPI (where core items account for 80% of the overall basket). Even though the ECB targets headline, not core, inflation, we focus on the latter because this is a key metric the central bank considers when assessing underlying price pressure and, hence, the direction of monetary policy. <\/li><\/ul><ul class=\"ucrBullets\"><li> The chart shows that the growth rate of OOH costs has exceeded that of core HICP in the last few years, contributing to pushing core inflation measures that include OOH above actual core inflation. Depending on the weight of OOH, the gap between hypothetical core inflation rates and actual core inflation has amounted to an average of 0.2-0.5pp per year since 2015. At this stage, the inclusion of OOH costs in the HICP basket would leave the ECB closer to meeting its definition of price stability. Therefore, the discussion of a possible revamping of the HICP to include OOH will be closely monitored by financial markets. <\/li><\/ul><ul class=\"ucrBullets\"><li> Such discussion is likely to prove complex because it involves both conceptual and practical issues. At the end of 2018, the European Commission submitted a report to the European Parliament and the European Council arguing against integrating OOH indices into the HICP mainly for two reasons. First, it is unclear whether the cost of acquiring a dwelling should be considered as a consumption expenditure that can be covered in a consumer price index or should instead be regarded as an investment (and thus not suitable for inclusion in the HICP). Second, OOH price indices are currently compiled quarterly and released 100 days after the end of the reference quarter, while the HICP is published monthly, with a flash estimate already at the end of the reference month. Up to now, the ECB has been sharing the European Commission\u2019s concerns, claiming that integrating OOH into the HICP would deteriorate the frequency and timeliness of HICP and introduce an asset element. The ECB\u2019s policy review will look again at both of these topics; frequency and timeliness of data appear to be the main hurdles facing the GC members that advocate expanding coverage of housing costs in the consumer price index. <\/li><\/ul>"},{"layout":"linklist","uid":21333,"publicationDate":"23 Jan 20","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2020_175730.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJDh-ZeSL9Lkmojg0hw79ySg=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Eurozone: Weakening loan demand suggests investment is slowing","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> On Tuesday, the ECB published its Bank Lending Survey (BLS) for 4Q19. The BLS provides valuable and timely information in regard to developments in supply and demand of bank credit in the euro area. Amid broadly stable lending standards, headlines have mainly focused on the first decline in net demand for loans to firms since the end of 2013. At that time, declining loan demand came with a contraction in fixed investment. <\/li><\/ul><ul class=\"ucrBullets\"><li> Our Chart of the Week shows that firms\u2019 loan demand as reported in the BLS (red line) tracks investment spending reasonably well, with a lead of one quarter. However, firms\u2019 total loan demand is explained not only by financing needs for fixed investment, but also by factors such as availability of alternative sources of financing, or financing needs for inventories and working capital. Loan demand for fixed investment (black line), which is a sub-component of firms\u2019 total loan demand, tends to display a tighter correlation with investment spending and is, therefore, more useful for tracking the eurozone investment cycle in a timely fashion. <\/li><\/ul><ul class=\"ucrBullets\"><li> Loan demand for fixed investment is on a downward trajectory, although somewhat less steep than that of total loan demand. This is consistent with slowing investment activity at the turn of the year but does not indicate a collapse. We do not predict any improvement soon. The squeeze in firms\u2019 profitability is likely to drag on investment plans, the construction cycle has probably peaked, and the US-China trade deal does not represent a breakthrough that can finally lift uncertainty and improve business visibility. In this context, loose monetary policy will remain the most important support factor. <\/li><\/ul>"},{"layout":"linklist","uid":21291,"publicationDate":"19 Jan 20","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2020_175684.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGZYqCCGXa3yNx7E5FIOgWY=&T=1","protectedFileLinkDe":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2020_175684.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGZYqCCGXa3yNx7E5FIOgWY=&T=1","protectedFileLinkIt":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2020_175684.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGZYqCCGXa3yNx7E5FIOgWY=&T=1"},"title":"Chief Economist\u00b4s Comment - Sunday Wrap","product":"Chief Economist's Comment","synopsis":"<ul class=\"ucrBullets\"><li> EM investors in Vienna predict stronger growth for the CEE region than we do, largely reflecting more positive assumptions about the global business cycle.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> The ECB policy review is about to start: <\/strong> the risk that it might signal higher tolerance for suboptimally low inflation should not be underestimated.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> US-China trade deal: <\/strong> temporary truce, but no breakthrough.<\/li><\/ul>"},{"layout":"linklist","uid":21077,"publicationDate":"08 Dec 19","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2019_175442.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJBCfutLg1Nco8ywI8Fm3sVI=&T=1","protectedFileLinkDe":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2019_175442.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJBCfutLg1Nco8ywI8Fm3sVI=&T=1","protectedFileLinkIt":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2019_175442.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJBCfutLg1Nco8ywI8Fm3sVI=&T=1"},"title":"Chief Economist\u00b4s Comment - Sunday Wrap","product":"Chief Economist's Comment","synopsis":"<ul class=\"ucrBullets\"><li> Key features of ESM reform<\/li><\/ul><ul class=\"ucrBullets\"><li> Why the political debate in Italy misses the point<\/li><\/ul><ul class=\"ucrBullets\"><li> What I regard as the real trade-off implied by the reform <\/li><\/ul>"},{"layout":"linklist","uid":20657,"publicationDate":"23 Oct 19","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2019_174981.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJMG5uKLhIhz_NEOZWYGKxZk=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Eurozone non-financial firms: Worsening profitability, resilient investment (for now)","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> Our Chart of the Week shows that investment spending by non-financial corporations (NFCs) in the eurozone has remained resilient despite a material worsening of these firms\u2019 profitability. In the chart, our gauge of profitability is gross operating surplus, which is the national-account equivalent of EBITDA.<\/li><\/ul><ul class=\"ucrBullets\"><li> With profitability weakening on the back of the slowdown in economic activity and rising unit labor costs, the composition of the financing of fixed investment has progressively changed: less funds are generated internally by firms, while recourse to external sources of funding has increased. This pattern has been mirrored in the evolution of the financing gap, which measures the excess of firms\u2019 internal funds over their capital expenditure. Since 2018, the (positive) financing gap has been shrinking rapidly and has now almost disappeared.<\/li><\/ul><ul class=\"ucrBullets\"><li> The chart has two main implications. First, unless profitability of NFCs turns around fairly quickly, investment growth in the eurozone is likely to lose momentum going forward, because fixed investment and gross operating surplus cannot decouple on a sustainable basis. Second, and more positively, debt financing flows to NFCs have remained resilient despite the deterioration of the business cycle. This is especially true for debt securities, net issuance of which remains robust. However, the supply of bank credit also remains in good shape. The results of the ECB\u2019s bank lending survey for 3Q19, published yesterday, revealed an easing of the credit standards applied to loans to NFCs, from already-accommodative levels. Most likely, the ECB\u2019s loose monetary policy is playing a very important role in preserving favorable financing conditions. <\/li><\/ul>"},{"layout":"linklist","uid":20371,"publicationDate":"25 Sep 19","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2019_174676.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJBppC0EhhLq_Ukq2irItXpY=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"The UniCredit Economics Chartbook - Global slowdown under way \u2013 and still downside risk (4Q19)","product":"The Unicredit Economics Chartbook","synopsis":"<ul class=\"ucrBullets\"><li> Dear Reader, welcome to the latest issue of our Economics Chartbook, in which we are fine-tuning some of our growth forecasts to take into account a weaker global economy. Major central banks have been supportive, especially the ECB, but this can only mitigate the downside risks.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> Global: <\/strong> We are revising slightly downward our global GDP growth forecast for this year by 0.1pp to 3.0% while maintaining our 2020 growth forecast of 2.7% (2018: 3.6%). Weakness is currently concentrated in the euro area, the UK and China, although we continue to expect the main drag on growth over the forecast period to come from the US as its economy slows. Our downward revision reflects two major developments: 1. trade tensions have intensified; and 2. the near-term outlook is slightly weaker than we had anticipated. Market expectations of monetary policy have eased in response, but broad financial conditions are similar to what they were three months ago. Risks are skewed towards a more-frontloaded and sharper downturn. <\/li><\/ul><ul class=\"ucrBullets\"><li><strong> US: <\/strong> We confirm our GDP growth forecasts of 2.2% in 2019 and of 0.7% in 2020, with quarterly growth projected to slow to below potential during the second half of the year and to be followed by a mild recession in 2020. Currently, the major drivers of growth are private and public consumption, but the fiscal stimulus will progressively fade. Manufacturing, business investment and exports are weak, reflecting the intensification of trade tensions and slower global growth. Payroll gains have eased. An expected squeeze in profit margins will likely stretch weak corporate balance sheets. Headline and core PCE inflation remain well below 2%, likely due in part to temporary factors. We expect the Fed to cut rates by 25bp in December, 1Q20 and 2Q20 (i.e. well below the present \u201cdots\u201d), reflecting our forecast that US growth will be slower than the Fed expects.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> Eurozone: <\/strong> The economy remains weak, pulled down primarily by Germany and Italy, with GDP growth set to average 1.2% this year and 0.9% in 2020. The latest indicators signal rising risk that the manufacturing recession might start spilling over into the services and construction sectors, which have shown resilience so far. The ECB\u2019s package of stimulus measures will provide long-lasting accommodation via compression of the term premium, while tiering and more-appealing conditions of TLTRO-III should bring relief to banks and contribute to preserving a smooth transmission of monetary policy. The ECB is now likely to remain on hold well into Christine Lagarde\u2019s term, which begins on 1 November. <\/li><\/ul><ul class=\"ucrBullets\"><li><strong> CEE: <\/strong> Economic growth is likely to hover at 1.7% in 2019 and 2020. Excluding Turkey, which is expected to exit recession next year, and Russia, where growth could stay below 1.5%, GDP growth in CEE may decline to around 2.8% in 2020 \u00a0and thus fall below potential for the first time since the global financial crisis. External risks are expected to drive the slowdown, which should gradually affect employment, wage growth and consumer spending. Credit and fiscal impulses, as well as large inflows of EU funds, will not be sufficient to reverse the downturn. Central European central banks will likely have to remain on hold due to inflation being above-target for most of 2020. The central banks of Russia and Turkey are expected to cut interest rates further, to 5.75-6% and 13.5% respectively.\u00a0<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> UK: <\/strong> We expect either a Brexit deal or an extension to be agreed by 31 October, although uncertainty surrounding the Brexit process will last for years and will inevitably flare up during an early election, which is likely to be held in November or early December of this year. The underlying pace of UK growth has slowed. Even assuming an orderly Brexit, we project below-trend growth of 1.1% in 2019 and of 0.8% in 2020. A no-deal Brexit would likely lead to a significant fall in UK output. We expect the BoE\u2019s MPC to cut the bank rate to zero in 2020 amid a slowdown in global growth. In the event of a no-deal Brexit, the MPC would likely cut rates to zero much more swiftly.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> China: <\/strong> We are sticking with our GDP growth forecasts of 6.2% in 2019 and 5.9% in 2020. High-frequency indicators still point to sluggish domestic and external demand as renewed trade tensions continue to weigh on business and market sentiment. Beijing is expected to continue to use a mix of monetary and fiscal policies to maintain reasonably high GDP growth, while triggering the depreciation of the CNY will likely remain an option of last resort in a scenario of heightened trade tension with the US.<\/li><\/ul>"},{"layout":"linklist","uid":20323,"publicationDate":"22 Sep 19","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2019_174626.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJBppC0EhhLq_qtxIgm7fakQ=&T=1","protectedFileLinkDe":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2019_174626.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJBppC0EhhLq_qtxIgm7fakQ=&T=1","protectedFileLinkIt":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2019_174626.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJBppC0EhhLq_qtxIgm7fakQ=&T=1"},"title":"Chief Economist\u00b4s Comment - Sunday Wrap","product":"Chief Economist's Comment","synopsis":"<ul class=\"ucrBullets\"><li> Oil prices on a roller coaster as investors assess the impact of geopolitical tensions in an oversupplied market.<\/li><\/ul><ul class=\"ucrBullets\"><li> The Italian budget process enters a crucial stage and investors are relaxed \u2013 rightly so. We expect a constructive dialogue with the EU, while Renzi\u2019s breakaway from the PD is not a threat to government stability in the near term.<\/li><\/ul>"},{"layout":"linklist","uid":19503,"publicationDate":"27 Jun 19","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2019_172722.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJLL98Ie3blyNLxuuYk4AXBQ=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"The UniCredit Economics Chartbook - Monetary easing in the pipeline (3Q19)","product":"The Unicredit Economics Chartbook","synopsis":"<ul class=\"ucrBullets\"><li><strong> Global: <\/strong> We are slightly lowering our global growth forecast for this year to 3.1% from 3.2% while maintaining our estimate of 2.7% growth in 2020. The downward revision reflects higher macroeconomic uncertainty in the form of renewed trade tensions between the US and China. In our baseline scenario, we assume there will be another round of trade talks; this might reduce tensions, although uncertainty will continue to linger. The risks to our global growth forecasts are now more skewed to the downside. <\/li><\/ul><ul class=\"ucrBullets\"><li><strong> US: <\/strong> Economic growth has peaked, and the descent towards a recession in 2020 has begun. Following a solid start to the year, momentum slowed in the spring and is likely to continue to do so in the coming quarters. Renewed trade tensions have increased the risk that a recession will begin even earlier than we have projected. Heightened uncertainty surrounding the economic outlook in the US, coupled with lower inflation rates and volatile financial markets, has caused a dramatic shift in the US monetary-policy outlook. We are bringing forward our forecast for the first 25bp rate cut to September 2019 and now expect a total of four 25bp cuts in the cycle, instead of three. <\/li><\/ul><ul class=\"ucrBullets\"><li><strong> EMU: <\/strong> We confirm our GDP growth estimates of 1.0% for both 2019 and 2020, amid ongoing decoupling of a struggling manufacturing sector and more-resilient services activity. ECB President Mario Draghi\u2019s rhetoric has turned very dovish in response to \u201cpervasive\u201d uncertainty, which has amplified downside risks to the eurozone\u2019s economic outlook, and the rising likelihood of front-loaded Fed easing. We now expect the ECB to cut the deposit rate by 10bp in September and to implement mitigating measures to support the profitability of banks. Additional easing is likely to occur sometime around the turn of the year, probably via a reactivation of quantitative easing.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> CEE: <\/strong> Following a strong 1Q19, GDP growth is likely to slow gradually amid weaker credit and fiscal impulses and looser labor market conditions. We expect EU-CEE1 to grow by 3.6% in 2019 and below potential (2.8%) in 2020, while the western Balkan economies will likely expand by around 3% in 2019 and by 2.5% in 2020. Turkey\u2019s economy has probably shrunk again in 2Q19 but could exit recession if it secures financial support later this year. In Russia, a likely technical recession in 1H19 may be followed by muted recovery in 2H19 and 2020. Inflation could miss targets this year in Hungary, Romania, Turkey and Russia and could return to target range in 2020 in all countries but Turkey if oil prices fall and the EUR appreciates. EU-CEE central banks are expected to remain on hold in 2019-20 due to the dovish turn by the ECB and the Fed, weak growth prospects and a lack of time to avoid inflation peaks. We expect the CBR to reduce its policy rate to 6.5% by mid-2020, and the CBRT to cut to 16.5% this year and 13% next year if external support is secured.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> UK: <\/strong> Underlying economic activity is likely to remain subdued, and we are lowering our forecast for annual GDP growth this year by 0.1pp to 1.3%, while keeping our 2020 forecast unchanged at 0.9%. Stockpiling ahead of the original Brexit date has generated substantial quarterly volatility and will likely cause growth to flat-line in 2Q19. While Brexit uncertainties have increased, we still expect the UK to leave the EU with a deal, possibly requiring another extension. The next BoE move will likely be a cut in 1Q20, followed by two more later that year.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> China: <\/strong> We are sticking with our GDP growth forecasts of 6.2% in 2019 and of 5.9% in 2020. The multifaceted policy stimulus adopted by Beijing at the turn of 2018 has fed through to the economy and should stabilize growth for the rest of the year, particularly if Beijing and Washington decide to return to the negotiating table. Should trade tensions with the US\u00a0escalate instead, we expect the Chinese government to respond by easing credit further and depreciating the currency.<\/li><\/ul><p class=\"ucrIndent\">1EU-CEE includes all CEE countries that are members of the EU: Bulgaria, Croatia, Czechia, Hungary, Poland, Romania, Slovakia and Slovenia.<\/p>"},{"layout":"linklist","uid":19419,"publicationDate":"18 Jun 19","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2019_172634.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJAStOO_T4lIk1AtmBnwmLVA=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Inflation expectations in the eurozone: Markets and the real economy disagree","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> Market-based measures of inflation expectations in the euro area are in free fall. The 5Y5Y inflation swap, which measures inflation expectations over the five-year period starting five years from now, entered a steep declining trend at the end of 2018 and recently fell to an all-time low below 1.15%. Together with rising downside risks to the growth outlook, this has put pressure on the ECB.<\/li><\/ul><ul class=\"ucrBullets\"><li> However, the real economy does not seem to share the concern of financial markets \u2013 and, probably, of the ECB \u2013 when it comes to future price trends. Our chart shows output prices and selling-price expectations as recorded by the PMI (Purchasing Managers\u2019 Index) and ESI (Economic Sentiment Indicator) surveys across businesses in the manufacturing, industrial, services (ex-retail) and retail sectors, as well as inflation expectations among consumers. We compare the latest available data with that just before key ECB policy easing announcements that took place in January 2015 (beginning of QE), and March 2016 (cut in the deposit rate to -0.40%, expansion of monthly asset purchases to EUR 80bn and new TLTROs). The message from the chart is clear; price gauges from the real economy are currently in line with or above their long-term averages, which stands in stark contrast to the situation at the end of 2014 and in early 2016.<\/li><\/ul><ul class=\"ucrBullets\"><li> When gauging risks to price stability, information from the real economy and financial markets should be considered complementary. On the one hand, price-setting behavior is influenced by firms and households, not by financial market participants, and a five-year assessment five years from now is too far out to have an effect on actual price setting. On the other hand, the 5Y5Y measure signals that market participants do not believe the ECB has the tools to return inflation sustainably to target, especially if downside risks to economic activity materialize. The ECB faces a tricky balancing act.<\/li><\/ul>"},{"layout":"linklist","uid":19163,"publicationDate":"23 May 19","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2019_172352.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJAfHjEd6bvBLtDIBjnLB-O8=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Financial conditions in the spotlight as market mood sours","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> Financial market developments play an important role in influencing the economic outlook, mainly through four channels: interest rates (both at short and longer maturities), the exchange rate, credit spreads and equity prices. In normal times, short-term rates are the main policy tool through which central banks can affect financial market conditions more broadly and, in turn, the real economy.<\/li><\/ul><ul class=\"ucrBullets\"><li> Our chart shows the relationship between our Financial Conditions Index (FCI) for the eurozone and economic growth. Our FCI is a summary gauge that encompasses the four financial market channels mentioned above, augmented by implied volatility for the equity market. The FCI leads eurozone GDP growth by two quarters.<\/li><\/ul><ul class=\"ucrBullets\"><li> Since the end of 2018 and until US President Trump\u2019s tweets on 5 May reignited the US-China trade dispute, the FCI had signaled a material easing in financial conditions. The improvement was mainly triggered by the Fed\u2019s U-turn on monetary policy and was also supported by rising expectations for a trade deal as well as early signs of stabilization in economic activity in China. These factors have been key for the recent green shoots in the eurozone (and global) economy, fueling expectations of somewhat better growth in 2H19. Today\u2019s eurozone PMIs show that progress remains tentative at this stage. In manufacturing, a less bleak outlook for orders and production was offset by weaker labor-market conditions; in services, the pace of expansion remains moderate. <\/li><\/ul><ul class=\"ucrBullets\"><li> The recent escalation of the trade war has led to renewed tightening of financial conditions, mainly driven by lower equities prices, wider credit spreads and higher volatility. For the time being, the damage appears to have been contained, given that only about 25-30% of the improvement since end-2018 has been reversed. While the spillover effects of heightened uncertainty can go beyond those captured by financial conditions, the impact on growth via financial markets should prove manageable for now. <\/li><\/ul>"},{"layout":"linklist","uid":19114,"publicationDate":"19 May 19","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2019_171303.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJPPcipp5LWAaimcuI5zFehU=&T=1","protectedFileLinkDe":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2019_171303.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJPPcipp5LWAaimcuI5zFehU=&T=1","protectedFileLinkIt":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2019_171303.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJPPcipp5LWAaimcuI5zFehU=&T=1"},"title":"Chief Economist\u00b4s Comment - Sunday Wrap","product":"Chief Economist's Comment","synopsis":"<ul class=\"ucrBullets\"><li> Uncertainty rises as the trade war broadens to the tech sector. Financial conditions should be monitored carefully to gauge where growth is heading. <\/li><\/ul><ul class=\"ucrBullets\"><li> The Fed is firmly in wait-and-see mode, while the ECB faces trade-offs when deciding on the pricing of TLTRO III.<\/li><\/ul><ul class=\"ucrBullets\"><li> The importance of mutual trust for the next leg of eurozone integration. <\/li><\/ul>"},{"layout":"linklist","uid":19073,"publicationDate":"14 May 19","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2019_171260.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJIA8vfFYsRuv7xVfHyrulUs=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Economics Thinking - 'Winners' and 'losers' in the eurozone's low interest rate environment","product":"Economics Thinking","synopsis":"<ul class=\"ucrBullets\"><li> In this note, we shed light on the effects of the decline in interest rates since 2008 in the four largest eurozone countries and in the eurozone as a whole.<\/li><\/ul><ul class=\"ucrBullets\"><li> We focus on the interest-payments\/earnings channel. This is the most direct mechanism through which monetary policy affects the real economy, although this is not the only transmission channel and possibly not even the most important.<\/li><\/ul><ul class=\"ucrBullets\"><li> When looking at the whole economy, we find that Germany, Italy, Spain and the eurozone experienced an improvement in their net interest-rate positions, while France recorded a moderate deterioration. However, these results mask large differences across sectors and jurisdictions and can also be explained by heterogeneous trends in balance sheets.<\/li><\/ul><ul class=\"ucrBullets\"><li> Our analysis shows that the government sector benefitted the most in Germany, while non-financial corporations (NFCs) and households enjoyed the most relief in Spain, where they were also aided by significant deleveraging. In contrast, households in Italy were penalized. Financial corporations (FCs) were the main \u201closers\u201d, especially in France, with those in Italy being the only exception.<\/li><\/ul>"},{"layout":"linklist","uid":18563,"publicationDate":"26 Mar 19","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2019_170169.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJO9CpigeANRPhf0C3SI4aH0=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"The UniCredit Economics Chartbook - Major central banks turn cautious (2Q19)","product":"The Unicredit Economics Chartbook","synopsis":"<ul class=\"ucrBullets\"><li><strong> Global: <\/strong> We reduce our estimate for global growth this year to 3.2% (previously 3.4%) while maintaining our forecast for 2.7% growth in 2020. The downward revision reflects significantly reduced momentum around the turn of the year, which has persisted, particularly in global trade. The current weakness is likely driven by policy uncertainty, notably US trade tensions and Brexit-related uncertainty, as well as a sharp tightening of financial conditions at the end of last year. We expect a modest recovery in global trade in 2H19, thanks to some resolution of trade policy uncertainty and the easing of financial conditions as major central banks have taken a more cautious approach. In 2020, we continue to expect a renewed cyclical slowdown, driven mainly by the US. <\/li><\/ul><ul class=\"ucrBullets\"><li><strong> US: <\/strong> Growth momentum peaked last year, when the US economy expanded a solid 2.9%. Following a string of disappointing data over the last few months, we lower our growth forecast for this year to 2.2% from 2.4%. The slowdown in the quarterly path will be even more pronounced, as we continue to expect GDP growth to slow below 1.5% in 2H19 and even further in 2020, when we forecast the economy will fall into a mild recession. While the labor market has continued to tighten, inflation rates have remained muted. This, in combination with growing concern about the economic outlook and financial market developments, means that the Fed is unlikely to raise rates again this year. For next year, we expect a series of rate cuts in response to the weakening economy.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> EMU: <\/strong> We lower our growth forecast for this year to 1.0% from 1.4%, while leaving the projection for 2020 broadly unchanged at 1.0% (from 1.1%). The main culprit is the severe deterioration in global trade at the turn of the year. The trough of the growth slowdown for 2019 is likely to be recorded in the first quarter. On 7 March, the ECB announced a package of policies designed to preserve very accommodative financial conditions. We stick to our forecast for unchanged policy rates throughout 2020. European Parliament elections will take place on 23-26 May. An alliance between the European People\u2019s Party and the Socialists and Democrats would likely fall short of an absolute majority, implying that coalition talks will have to involve the liberals and\/or the Greens. The heterogeneous nature of populist parties is likely to constrain their influence on EU political debate.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> CEE: <\/strong> We expect GDP growth to slow in CEE countries belonging to the EU (EU-CEE) to 3.2% in 2019 and 2.5% in 2020. Weak global trade, lower growth in the eurozone, a cyclical slowdown in domestic demand, and limited scope for monetary and fiscal stimulus are the main reasons growth may fall below potential by next year. Turkey could come out of recession later this year if it asks for financial support, and grow below potential in 2020. In Russia, growth may fall close to potential in 2019-20, estimated at around 1%, unless the authorities shift to policies conducive to growth. After peaking in 2019, inflation is likely to fall throughout CEE, allowing central banks in EU-CEE to remain on hold, while the CBR and the CBRT are expected to cut rates. <\/li><\/ul><ul class=\"ucrBullets\"><li><strong> UK: <\/strong> We revise down slightly our forecast for GDP growth this year to 1.2% (previously 1.4%) reflecting an intensification and prolongation of Brexit-related uncertainty as well as softer external demand. We expect the UK to exit the EU with a deal, but the timing is extremely uncertain and the risk of a general election is high. The BoE will probably remain on hold throughout 2019.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> China: <\/strong> Our GDP growth forecasts of 6.2% in 2019 and 5.9% in 2020 remain on track. After a difficult 2H18 and a challenging start to 2019, Beijing is in the process of loosening fiscal and monetary policy, while pushing for the construction of new infrastructure across the country. The rise in aggregate credit in the first two months of the year follows on from a tightening trend that has been in place since 3Q17. Given leads and lags with activity, if credit growth continues to improve, GDP growth could stabilize somewhat in 2H19.<\/li><\/ul>"},{"layout":"linklist","uid":17816,"publicationDate":"17 Jan 19","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2019_168768.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJPesiQBTIkZmQgz1hXLdDiU=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Economics Thinking - Dissecting the slowdown in eurozone exports","product":"Economics Thinking","synopsis":"<ul class=\"ucrBullets\"><li> We dig deeper into the slowdown in eurozone exports to better understand its main drivers and features, as well as the broader implications for the euro area growth outlook.<\/li><\/ul><ul class=\"ucrBullets\"><li> Subdued exports in 2018 mainly reflected weaker demand from outside the euro area, while intra-euro area exports slowed less. Our estimates suggest that temporary factors might have amplified the weakness.<\/li><\/ul><ul class=\"ucrBullets\"><li> Turkey and the UK contributed the most to the worsening in extra-euro area exports, while China was not a key source of weakness. The export deterioration affected all sectors, with Germany, France and Italy recording similar swings in their export performance in 2017-18.<\/li><\/ul><ul class=\"ucrBullets\"><li> In 2019-20, global growth is unlikely to come to the rescue. We forecast some growth \u201crotation\u201d as intensifying headwinds for the US more than offset the easing of the drag from Brexit uncertainty and from the downturn in some EM countries. China is and will remain a wild card.<\/li><\/ul>"},{"layout":"linklist","uid":16654,"publicationDate":"27 Sep 18","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2018_167290.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJAcuzoIDdrU0AFKSw2eXLu4=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"The UniCredit Economics Chartbook - September 2018","product":"The Unicredit Economics Chartbook","synopsis":"<ul class=\"ucrBullets\"><li><strong> Global: <\/strong> The global business cycle has lost impetus as the geographical growth pattern has become more uneven, with the US outperforming most other developed countries and some emerging markets (EM) experiencing turbulence. After having declined earlier in the year, our proprietary Global Leading Indicator now suggests stabilization in the growth rate of global trade at a level just below trend. However, manufacturing PMIs in most countries are still drifting lower and trade tensions between the US and China have intensified recently, posing downside risks to the global economy. Since the US and China account for about 40% of global economic activity, an escalation could not only weigh on growth in these two countries but is likely to spill over to the rest of the world. As of today, about 2% of global trade has been affected by higher tariffs. Tensions in EM have so far remained contained to countries with weak fundamentals and we do not expect full-blown contagion. <\/li><\/ul><ul class=\"ucrBullets\"><li><strong> US: <\/strong> Boosted by the fiscal stimulus, the economy continued to power ahead during the summer months, with growth even exceeding our already sanguine forecasts. As a result, we moved our GDP projections for 2018 and 2019 up to 2.9% (from 2.7%) and 2.4% (from 2.3%), respectively. The main, and growing, downside risk to the outlook is posed by global trade tensions. Thus far, however, the domestic dynamic has remained strong across sectors and sentiment indicators have been hovering at multi-year highs. Amid a tightening labor market and gradually rising wage gains and inflation numbers, the Fed raised its target rate again in September and is likely to deliver one more hike this year.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> EMU: <\/strong> We confirm our GDP growth forecasts of 2.2% for 2018 and 1.9% for 2019, with risks tilted to the downside and mainly coming from external factors. So far, the export slowdown has been mitigated by healthy domestic demand and the resilience of the services and construction sectors. The tightening of the labor market is finally showing up in a clear strengthening of wage formation, which makes the ECB more confident about meeting its price mandate. Barring a major shock, the ECB\u2019s monthly net asset purchases will slow from EUR 30bn currently to EUR 15bn in October and terminate at the end of December. We still expect the first 20bp increase in the deposit rate in September 2019. <\/li><\/ul><ul class=\"ucrBullets\"><li><strong> UK: <\/strong> The economy has continued to grow at a modest rate, but high political and economic uncertainty related to Brexit is likely to start weighing on activity more heavily in the coming months. We still expect an agreement with the EU, but there will probably not be any until the last minute and the risk of \u201cno deal\u201d has increased over the last three months. The BoE is likely to err on the side of caution until Brexit-related uncertainty clears. <\/li><\/ul><ul class=\"ucrBullets\"><li><strong> CEE: <\/strong> As in Western Europe, with global trade slowing, economic growth in CEE will rely more on domestic demand. The recent capital outflows from EM are likely to further strengthen this trend. Growth is likely to be more differentiated, although capital scarcity could stoke up contagion risks and affect financial stability across EM. EU-CEE is likely to grow at around 4% in 2018 and 3.6% in 2019, supported by loose real monetary conditions and, in some cases, by fiscal easing. Central banks \u2013 with the exception of the CNB \u2013 will probably remain on hold throughout next year. The Russian economy could expand by less than 2% this year and next amid low potential growth and the threat of additional sanctions; the CBR is expected to hike to 7.75%. Turkey faces a sharp recession next year, with GDP likely to fall by approximately 6.8%. An IMF agreement would help end the recession in mid-2019 and usher in a fast recovery. If Turkey decides to weather the crisis on its own, the recession could be deeper and end only in 2020. <\/li><\/ul><ul class=\"ucrBullets\"><li><strong> China: <\/strong> Economic activity is slowing as a result of moderating credit growth and less supportive state investment. However, the main concern remains the trade war with the US. Beijing has declared its unwillingness to start any negotiations with Washington before the US midterm elections in November. We do not expect the PBoC to use the FX weapon to stimulate growth amid escalating trade tensions with the US.<\/li><\/ul>"},{"layout":"linklist","uid":16009,"publicationDate":"19 Jul 18","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2018_165532.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJMoqhcyuzuF_84-M0LoaJK0=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Economics Thinking - Eurozone firms are more resilient to a tightening of financial conditions","product":"Economics Thinking","synopsis":"<p class=\"ucrIndent\">Since the crisis, eurozone non-financial firms have started to reduce their leverage, moved to a position of net lending, and changed the structure of their liabilities, which are now more diversified, of longer maturity and backed by higher cash buffers.<\/p><p class=\"ucrIndent\">On an aggregate basis, this balance-sheet restructuring makes the eurozone corporate sector more resilient. However, the aggregate improvement masks a high degree of heterogeneity across member states, with the periphery having adjusted more than core countries. <\/p><p class=\"ucrIndent\">Improved balance sheets are likely to put eurozone firms in a better position to cope with any adverse shocks that lead to a tightening of financial conditions.<\/p>"},{"layout":"linklist","uid":15764,"publicationDate":"27 Jun 18","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2018_165248.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJJE_3wHl1JiwRB5bGOknmBc=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"The UniCredit Economics Chartbook - June 2018","product":"The Unicredit Economics Chartbook","synopsis":"<ul class=\"ucrBullets\"><li><strong> Global: <\/strong> After losing substantial momentum, the global economy has shown signs of stabilization of late. Our proprietary global leading indicator signals a bottoming out in global trade growth at the start of 2H18. The protectionist measures announced so far are unlikely in themselves to have a strong negative impact on growth, but we are deeply concerned about a possible escalation of the trade conflict. After the implementation of US tariffs on steel and aluminum was followed by EU retaliation, US President Donald Trump threatened to impose tariffs on EU car imports and another USD 200bn of Chinese goods. The balance of risks for the global economy is therefore now shifting significantly to the downside. <\/li><\/ul><ul class=\"ucrBullets\"><li><strong> US: <\/strong> The economy continues to expand strongly thanks to solid domestic demand that is increasingly being fueled by sizeable fiscal stimulus programs. Therefore, we confirm our 2.7% GDP estimate for this year. The most recent indicators even suggest upside risks to our growth forecast for 2Q18 \u2013 although this is offset by rising downside risks from trade tensions that could affect the outlook further out. As the slack in the economy diminishes, wages and inflation rates are grinding higher. Against this backdrop, the Federal Reserve has been getting more confident in the economic outlook and its ability to hit or even slightly exceed its inflation target before long. The FOMC now projects a total of four rate hikes for 2018, which is in line with our own policy outlook.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> EMU: <\/strong> We confirm our growth outlook for the remainder of 2018 and 2019. 1Q18 turned out to be weaker than expected, but soft indicators have since stabilized around levels broadly in line with our quarterly forecasts. Because of the slower start to the year, we slightly lower our forecast for 2018 average GDP growth from 2.3% to 2.2%, while the projection for 2019 remains at 1.9%. Risks to the GDP trajectory for 2H18 are now tilted to the downside, mainly as a result of protectionism, although the weaker euro is acting as a mitigating factor. The jump in oil prices pushed headline inflation towards 2% and wage formation has started to strengthen. This has allowed the ECB to announce a plan to taper QE in 4Q18, although the new rate guidance reveals more caution than we had expected, leading us to delay the timing of the first hike in the deposit rate from June to September 2019.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> CEE: <\/strong> An upbeat growth picture in 1Q18 does not change our overall assessment of future growth in CEE. We believe that most economies face weaker growth in the coming quarters and especially in 2019 due to a cyclical slowdown, growth moderation in the eurozone, higher commodity \u2013 and especially oil \u2013 prices, the threat of trade barriers turning CEE manufacturers more bearish and politics blurring the outlook for domestic policies. That said, we expect EU-CEE to grow at above 4% in 2018, roughly 1pp above potential. Economic growth could remain close to 1.5% in Russia and slow to around 4% in Turkey.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> UK: <\/strong> Growth remains subdued and will likely continue to underperform its G7 peers. Tailwinds from global growth appear to have eased since the turn of the year, while domestic (Brexit-related) headwinds are likely to persist. A deal with the EU for an orderly withdrawal remains likely \u2013 if only because the alternative would be chaos \u2013 but it is unlikely to be agreed until the last minute. Our forecasts for annual GDP growth are unchanged at 1.1% in 2018 and 1.3% in 2019. We continue to expect the BoE to remain on hold this year.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> China: <\/strong> GDP growth is expected to gradually decelerate in the coming quarters, averaging 6.5% in 2018. A reiterated commitment to reducing excess capacity in upstream industries and biting macroprudential regulation in the housing sector will take their toll on economic activity. Trade tension with the US represents the main source of downside risk to China\u2019s macroeconomic outlook. The trade dispute has shifted to a new level, from trade-deficit reduction to openly preventing China from technologically upgrading its industrial system. While a truce between the two parties remains our baseline scenario, reaching a compromise has now become more difficult. In response to this situation, the PBoC looks ready to loosen monetary policy further, increasing downside risks to the CNY. <\/li><\/ul>"},{"layout":"linklist","uid":15490,"publicationDate":"03 Jun 18","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2018_164940.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGqXtzXPMz2C-Xa4Quox5gI=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chief Economist\u00b4s Comment: Sunday Wrap","product":"Chief Economist's Comment","synopsis":"<p class=\"ucrIndent\">The new Italian government takes its oath of office. The stalemate has ended, but volatility is here to stay \u2013 both in statements and in markets \u2013 as untested political leaders start taking action. The budget law will be crucial to understand where we are heading. <\/p><p class=\"ucrIndent\">Implications for ECB policy of political events in Rome. The lack of financial contagion to the rest of the euro area suggests that the central bank is unlikely to be diverted from its path towards halting QE at year-end. Signs of a slowdown in global trade, protectionism and the dampening effect on growth of rising oil prices rank at least as high as Italian politics in the ECB\u2019s list of downside risks.<\/p>"},{"layout":"linklist","uid":14791,"publicationDate":"27 Mar 18","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2018_164162.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJBXm_y7e2VyRxgv1x-UPRH4=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"The UniCredit Economics Chartbook - March 2018","product":"The Unicredit Economics Chartbook","synopsis":"<p class=\"ucrIndent\"><strong>Global: <\/strong> After a long series of positive surprises, the recovery in the global economy has started to lose some shine. Even before the tariff announcements by US President Donald Trump, our proprietary leading indicator for global trade had shifted gears and signaled less strong dynamics ahead. This loss of momentum comes from high levels, and therefore seems to suggest moderation, rather than a severe deterioration. However, in light of the tensions between the US and the EU\/China and the rising risk of a trade war, business sentiment in industrialized countries and emerging markets needs to be monitored carefully in the coming months. Any further significant deterioration in confidence indicators would probably signal that the balance of risks has started shifting to the downside. <\/p><p class=\"ucrIndent\"><strong>US: <\/strong> Activity should continue to expand at a solid pace in the next quarters. An additional fiscal spending package even prompted us to revise our growth projections for late 2018 and early 2019 further upwards. We forecast GDP growth of 2.7% for 2018 and raise the number for 2019 to 2.3% from 2.0%. Higher growth, however, comes at a steep price, as the budget deficit is likely to exceed 5% of GDP in both 2018 and 2019. As the additional spending package delays the anticipated growth slowdown further into 2019, we now expect the Fed to raise its target rate four times in 2018, followed by one final hike in 2019. <\/p><p class=\"ucrIndent\"><strong>EMU: <\/strong> We confirm our GDP forecasts of 2.3% for 2018 and 1.9% for 2019. The growth impulse is moderating from the cyclical highs reached at the turn of the year. However, the very high starting point provides a good buffer and, for the time being, weakening leading indicators mainly neutralize upside risks to our baseline scenario, rather than indicating the build-up of serious downside risks. Therefore, the ECB remains on track to terminate net asset purchases by the end of the year and start raising the deposit rate in mid-2019.<\/p><p class=\"ucrIndent\"><strong>CEE: <\/strong> Growth is expected to moderate in the coming quarters due primarily to less robust demand from abroad. While most CEE countries have moved beyond the cyclical peak, they are likely to avoid a downturn, unless a global trade war escalates. In EU-CEE, domestic demand will continue to rise at a brisk pace, helped by fast wage growth, private-sector releveraging, stronger private sector investment and rising EU fund inflows. In Turkey, the government is likely to boost fiscal spending in the run-up to elections scheduled for 2019, but at risk of being brought forward to this year. If the fiscal impulse is insufficient, the government may attempt to increase loan growth. In Russia, the mild growth deceleration from 1.5% in 2017 to 1.3% this year marks a gradual return towards a low potential growth rate of around 1% per year. With the presidential election behind us and an ambitious reform program unlikely, the Russian economy may continue to crawl at a slow pace in the coming years. Trade war and geopolitics add to economic risks. <\/p><p class=\"ucrIndent\"><strong>UK: <\/strong> The economy will likely continue to grow modestly over the next year or so, as still healthy global growth offsets the drag from ongoing Brexit-related uncertainty. The weakness of domestic demand has left the UK vulnerable to any disappointing news globally. An orderly exit from the EU remains likely. The BoE will probably raise rates by 25bp in May but then remain on hold through 1Q19 as inflation falls faster than it expects.<\/p><p class=\"ucrIndent\"><strong>China: <\/strong> We confirm our GDP forecast of 6.5% in 2018 and 6.0% in 2019, assuming trade tensions with the US will not escalate. Tighter housing regulation in tier-1 and tier-2 cities, combined with a reiterated commitment to reducing excess capacity, is decreasing the risk of further debt accumulation, although December\u2019s Central Economic Work Conference indicates lack of a clear strategy to tackle excessive indebtedness. Yi Gang\u2019s appointment as governor of the PBoC represents a choice that favors continuity in monetary policy.<\/p>"},{"layout":"linklist","uid":4288,"publicationDate":"18 Jan 18","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2018_163258.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJG-D9wm-MrSqtnEAut6U82w=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Economics Thinking - Eurozone consumers: bullish, but reluctant to dissave","product":"Economics Thinking","synopsis":"<p class=\"ucrIndent\">Eurozone consumer confidence has surged to its highest level since 2000, yet households have been fairly reluctant to dissave. The low savings rate at the beginning of this recovery is a possible explanation for this.<\/p><p class=\"ucrIndent\">Limited dissaving in the eurozone follows a heterogeneous country pattern that seems to lack common determinants. In general, the role of employment gains and falling interest rates has either been small or their impulse has largely been offset by other factors.<\/p><p class=\"ucrIndent\">Spain and Portugal have been exceptions, having recorded large declines in household savings rates. This increases the probability of a moderate growth slowdown from high levels, but we have not detected relevant risks to financial stability.<\/p>"},{"layout":"linklist","uid":8228,"publicationDate":"22 Sep 16","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2016_156445.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJO-KGLhXyIb6UeGsYwcDMVo=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Economics Thinking - Exploring ECB options for QE extension","product":"Economics Thinking","synopsis":"<p class=\"ucrIndent\">Despite ECB inaction in September, we see a strong case for a six-to-nine-month extension of quantitative easing beyond March 2017. This is warranted to prevent tighter financial conditions once the current program expires.<\/p><p class=\"ucrIndent\">Extending purchases requires changing some of the rules of the game. Action could be taken with respect to technical limits, capital keys and eligible assets. <\/p><p class=\"ucrIndent\">In December, we expect the ECB to raise the ISIN limit and apply the deposit-rate constraint to a portfolio rather than to each purchased bond. The risk\/reward balance of bank bond purchases does not seem appealing for now.<\/p><p class=\"ucrIndent\">A recalibration of capital keys is unlikely to be part of the December package but would be needed if another program extension is required down the road.<\/p>"},{"layout":"linklist","uid":23614,"publicationDate":"12 Sep 13","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2013_136137.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJIRnoCx0aes6Wj5rA1ADVaQ=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"The UniCredit Economic Chartbook \u2013 12 September 2013","product":"The Unicredit Economics Chartbook","synopsis":"<p class=\"ucrIndent\">Welcome back to the UniCredit Economic Chartbook. We have made only relatively small adjustments to our forecasts, mostly reflecting the overall better-than-expected 2Q numbers. <\/p><p class=\"ucrIndent\">Monthly recap<\/p><p class=\"ucrIndent\"><strong>EMU: <\/strong> We revise up our 2013 GDP forecast to -0.3% from -0.6%, to take into account stronger-than-expected growth in 2Q13 and upward revisions to GDP data referring to late 2012\/early 2013. We maintain our quarterly trajectory going forward and hence the full-year GDP forecast for 2014 at +1.0%, but we acknowledge that downside risks to this estimate have started to fade as peripheral countries are already stabilizing. The brightening of the growth picture in the eurozone reflects the first signs of improvement in domestic demand at a time when exports are regaining traction. This bodes well for the sustainability of the upswing. Despite recent good growth news, the ECB remains cautious, trying to prevent market-imposed monetary tightening by employing 'forward guidance'. Yet, they stand 'ready to act' on liquidity, which we read as a sign that the central bank\u2019s preferred option to counter a possible tightening of money market conditions may be another LTRO, rather than a rate cut.<\/p><p class=\"ucrIndent\"><strong>US: <\/strong> 2Q13 GDP growth was revised up to an annualized 2.5% from the initially reported 1.7%. The bulk of the revision came from foreign trade. Private inventories also rose faster than initially reported, while consumer spending expanded solidly. For the second half of this year, we continue to expect GDP growth to accelerate to 2.8%, as the drag from fiscal tightening fades. In line with this view, many sentiment indicators rose to multi-year highs in August. At its upcoming FOMC meeting, the Federal Reserve will likely announce its decision to moderate the pace of its asset purchases.<\/p><p class=\"ucrIndent\"><strong>UK: <\/strong> We have also revised up our GDP forecasts for the UK, reflecting both the better-than-expected start to the year and a somewhat stronger recovery going forward, as indicated by survey data. Like the ECB, the BoE is more cautious on the recovery and is fighting the market-imposed monetary tightening with 'forward guidance', in the case of the UK even by articulating a threshold for unemployment. While the UK recovery is likely to be strong enough to continue even as yields move higher, we worry that it is excessively skewed towards real estate and consumer loans.<\/p><p class=\"ucrIndent\"><strong>CEE: <\/strong> The ability of economies to take advantage of the recovery in EMU, while managing the risks emanating from Fed tapering and persistent outflows of portfolio capital from emerging markets, will be central to country-specific growth performance across CEE over the coming twelve months. We expect the newer EU states to enjoy faster growth rates, as already reflected in stronger industry performance, which should, in turn, feed through to domestic demand. However, Russia's failure to diversify its economy away from energy means that we have reduced our growth expectations there. Turkey will continue to be forced towards a narrower C\/A deficit, given the absence of sufficient external funding, which will push growth lower.<\/p><p class=\"ucrIndent\"><strong>China: <\/strong> Recent data indicate that the protracted growth slowdown came to an end this summer. Business sentiment as well as activity data stabilized or gained some traction. The shift in Chinese economic policy and improving global demand seem to have lent a helping hand. While better monthly numbers imply upside risks to our forecast that GDP will stabilize this quarter and settle between the 7\u00bd% growth target and the 7% pain threshold thereafter, it would still be premature at this stage to say that the Chinese economy is set to face a sustainable acceleration in growth. <\/p>"}]