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78f6c72b509229f3ef77a71224b9fc6b147da4ee04fe56b12377231eaa21e01d;;[{"layout":"detailed","uid":28673,"publicationDate":"11 Nov 22","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_184231.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJMFJK6gFt5IcT-lUQpxjC7o=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Eurozone: lower vulnerability to higher rates this time, but...","titleDe":"","titleIt":"","product":"Chart of the Week","synopsis":"<p><ul class=\"ucrBullets\"><li>Our Chart of the Week compares net interest payments (defined as interest payments minus interest earnings) for the government, non-financial corporations (NFCs) and the household sector in the four largest eurozone countries, before both the ECB\u00b4s current hiking cycle and that of 2005-2008. Net interest payment reflects both the level of interest rates and the stock of interest-bearing assets and liabilities1. For the sake of comparability, we express net payments as a percentage of GDP.<\/li><li>The chart shows that, in general, eurozone countries are comparatively well positioned to face the current rate shock. In greater detail, net interest payments faced by governments is below that of 2005, thanks to a lower level of interest rates. Spain is the exception here, given that public debt as a share of GDP is now almost 120%, as opposed to 40-45% in 2005. The picture looks uniformly more favorable for the corporate sector, where net interest payments are much lower now than in 2005 (except in Germany, where there is little change). In the household sector, where interest-bearing assets typically exceed liabilities, the situation looks similar to that of 2005 with the exception of Italy. Here, reduced interest income reflects to a large extent the lower share of interest-bearing assets being held as Italian households\u00b4 portfolios have increasingly moved towards (typically more risky) non-interest-bearing assets.<\/li><li>While our chart suggests that rate hikes are likely to be manageable, we point out that cumulative monetary tightening this time around is very likely to end up being larger than that of 2005-2008, when the ECB increased its policy rate by a total of 225bp. Moreover, households are under huge pressure due to surging inflation and falling real income, which is especially affecting the most vulnerable part of the population. This will compound the impact on growth from higher rates.Notes:<\/li><li>We assume that the following financial instruments generate interest: deposits, debt securities and loans. In our analysis, we only consider households\u00b4 direct holdings of interest-bearing assets, while we do not take into account holdings through investment funds, pension funds and life-insurance schemes.<\/p><\/li><\/ul>","synopsisDe":"","synopsisIt":"","analysts":[{"first":"Marco","last":"Valli","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=analyst&tx_research_piedition%5Banalyst%5D=37&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=dc3604fb61baa8c1a3f2aed1d2468de2"}],"countries":[{"name":"Euroland","ticker":"","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=country&tx_research_piedition%5Bcountry%5D=25&tx_research_piedition%5Baction%5D=country&tx_research_piedition%5Bcontroller%5D=Edition&cHash=fd74dfc966e72d45ff2580813616e07a"}],"hash":"78f6c72b509229f3ef77a71224b9fc6b147da4ee04fe56b12377231eaa21e01d","available":"0","settings":{"layout":"detailed","size":"default","showanalysts":"2","showcompanies":"2","showcountries":"2","showcurrencies":"2","nodate":"0","notitle":"0","noproduct":"0","noflags":"0","dateformat":"d M y","nolinktitle":"0","synopsislength":"300","synopsisexpand":"1","shownav":"0","oldestedition":"","limit":"5"}},{"layout":"detailed","uid":28593,"publicationDate":"24 Oct 22","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_184129.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJPO7NAp4CXSyQbIoU9oIvPM=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Resilient hiring gives the ECB room to hike by another 75bp","titleDe":"","titleIt":"","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> The eurozone PMIs for October, which were published today, sent three messages. First, the eurozone economy is very likely to face a recession at the turn of the year, as suggested by the decline in the composite PMI deeper into contraction territory (to 47.1 from 48.1). Second, pipeline price pressure remains intense, with both input and output price indices remaining at historically elevated levels. Third, the labor market continues to show very good resilience.<\/li><li> Our Chart of the Week looks at firms\u00b4 hiring plans in the manufacturing sector, as reported in the PMI survey. Labor hoarding is getting very sizeable, as a collapse in new orders comes along with still-robust employment numbers ' the employment index remains comfortably above 50. The ratio of employment to new orders has reached one of its highest levels in history, comparable to that recorded in the aftermath of the Lehman crisis (when the decline in the two indices was fairly synchronized) but well below an exceptional spike caused by the first wave of the pandemic (reflecting unprecedented fiscal support to preserve employment while activity collapsed).<\/li><li> Ongoing hiring probably reflects the fact that the downturn in manufacturing activity started when firms were still reporting widespread labor shortages. Therefore, manufacturers might still be keen on expanding their payrolls at this stage, although with backlog orders on a steeply downward trajectory, we suspect that this trend will not last. In the meantime, the ECB will be comfortable hiking by another 75bp this week despite the looming recession. <\/li><\/ul>","synopsisDe":"","synopsisIt":"","analysts":[{"first":"Marco","last":"Valli","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=analyst&tx_research_piedition%5Banalyst%5D=37&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=dc3604fb61baa8c1a3f2aed1d2468de2"}]},{"layout":"detailed","uid":28500,"publicationDate":"28 Sep 22","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_184012.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJKZXH2GAVJvL78LWAPe4_o0=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Economics Chartbook - Central banks\u00b4 inflation fight raises recession odds (4Q22)","titleDe":"","titleIt":"","product":"The Unicredit Economics Chartbook","synopsis":"<p><ul class=\"ucrBullets\"><li><strong>Global: <\/strong> The growth outlook is deteriorating. After likely subdued growth of 2.7% this year, we forecast global GDP rising by only 1.9% next year. The weakening reflects tighter financial conditions, surging energy bills in Europe and reduced economic momentum across the US, Europe, and China. The manufacturing sector is under pressure, the boost to services from the reopening of the economy is fading, and consumer confidence is low. Supply constraints have eased but remain elevated compared to before the pandemic. High excess savings and the tight labor market should mean any recession is mild. We expect global inflation to ease next year amid negative base effects, lower demand, a further easing of supply constraints and lower commodities prices. The risks to growth are to the downside as central banks prioritize fighting inflation.<\/li><li><strong>US: <\/strong> We forecast GDP growth of 1.5% this year and -0.1% next year (previously +0.1%), with the economy teetering on the edge of recession. The weakness is concentrated in interest-rate-sensitive sectors, notably housing and durable goods. Monthly headline inflation will likely ease sustainably to levels consistent with the 2% target from the spring, while core inflation is likely to take longer to do so. The midterm elections seem likely to result in political gridlock. We now see the Fed raising interest rates to a peak of 4.50-4.75% (previously 3.75-4.00%) by early next year, followed by a first rate cut in late 2023.<\/li><li><strong>Eurozone: <\/strong> GDP growth is likely to average 3.1% this year and come to a standstill in 2023 (0.2%). The latest survey indicators point to a recession at the turn of the year, in line with our baseline scenario. Inflation is likely to hover at around 10% for the remainder of the year, before entering a downward trajectory that would take it towards 2.5% by the end of 2023. We are raising our forecast for the peak level of the deposit rate by 25bp to 2.25%, to be reached in 1Q23. As policy rates rise towards, or above, the upper end of the neutrality range, the ECB is likely to start looking at quantitative tightening (QT) as its next policy step.<\/li><li><strong>CEE: <\/strong> We forecast GDP growth to slow from 4.3% in 2022 to 0.8% in 2023 in EU-CEE and from 5.5% in 2022 to 3.2% in 2023 in Turkey. In Russia, we expect the economy to shrink by around 5% this year and 4% in 2023. We believe that CEE can avoid an energy crisis, but not a technical recession in 4Q22-1Q23 due to high energy prices, circumspect consumers, negative credit and fiscal impulses, destocking, imports outpacing exports, low EU fund inflows and falling public investment. A gradual recovery is possible in 2H23. Inflation is likely to peak this winter in all CEE countries and to remain well above target in 2023. We expect tightening cycles to end at 13% in Hungary, 7% in Czechia and Poland, 6% in Romania and 5% in Serbia. The CBRT is likely to cut its policy rate to single digits and the CBR to 7%. FX interventions will likely continue in Czechia, Poland, Romania, Serbia and Turkey.<\/li><li><strong>UK: <\/strong> We are revising our GDP growth forecasts down slightly to 3.3% for this year (previously 3.5%), and to -0.3% for next year (previously -0.1%). The economy is likely already in recession. The energy price cap means inflation will probably peak at just under 11% in October. Large and poorly targeted fiscal easing at a time of constrained supply will likely force the BoE to hike the bank rate sharply to 4.50% (previously 2.50%).<\/li><li><strong>China: <\/strong> We are reducing our GDP growth forecast for 2022 to 2.0% from 2.4%, and for 2023 to 3.4% from 4.0%. The combination of power shortages, sporadic lockdowns and a real estate sector in disarray is weighing on economic activity. However, contained inflationary pressure, both on the producer and consumer front, is allowing the government to use its monetary and fiscal policy levers to support the economy ahead of the party congress that will likely elevate Xi Jinping to a third term as president of the country. After hitting new lows since 2008, the CNY is set to remain weak against the USD, beyond 7.20.<\/p><\/li><\/ul>","synopsisDe":"","synopsisIt":""},{"layout":"detailed","uid":28481,"publicationDate":"23 Sep 22","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183987.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJI3owJG455DyBOr9iK-WXoA=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Household squeeze intensifies","titleDe":"","titleIt":"","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> The squeeze on real disposable income caused by surging inflation has taken a heavy toll on consumer sentiment globally, and the eurozone is no exception. The preliminary estimate for consumer confidence for September, published yesterday, recorded a drop to a new all-time low. <\/li><li> Our Chart of the Week shows the unprecedentedly large gap that has opened up between sentiment among households and retailers, with the latter displaying very good resilience so far. The main reason is probably the high pricing power of retailers as the economy rebounded from the slump caused by the pandemic. This has allowed them to pass on to consumers a meaningful share of their higher input costs, thus safeguarding profit margins. <\/li><li> We suspect that this trend will not prove sustainable as the economic outlook darkens and households become progressively less keen on spending the large savings accumulated during the pandemic. Despite a resilient labor market, in the eurozone this is likely to translate into a consumer-driven recession at the turn of the year and reduced profitability for retailers.<\/li><\/ul>","synopsisDe":"","synopsisIt":"","analysts":[{"first":"Marco","last":"Valli","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=analyst&tx_research_piedition%5Banalyst%5D=37&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=dc3604fb61baa8c1a3f2aed1d2468de2"}],"countries":[{"name":"Euroland","ticker":"","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=country&tx_research_piedition%5Bcountry%5D=25&tx_research_piedition%5Baction%5D=country&tx_research_piedition%5Bcontroller%5D=Edition&cHash=fd74dfc966e72d45ff2580813616e07a"}]},{"layout":"detailed","uid":28477,"publicationDate":"23 Sep 22","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_183983.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJI3owJG455DyVznahqXk2sc=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - Eurozone PMIs: monetary policy trade-off keeps worsening","titleDe":"","titleIt":"","product":"Data Comment","synopsis":"<ul class=\"ucrBullets\"><li> Eurozone PMIs for September indicate a further weakening of growth momentum and rising likelihood of a recession at the turn of the year. The composite PMI dropped further into contraction territory, to 48.2 from 48.9, its lowest reading since early 2021 (UniCredit and consensus: 48.2). The manufacturing sector remains under pressure with no signs of a turnaround soon, while the deterioration in services activity gathers pace amid intensified erosion of purchasing power of households and the fading of the reopening effect. At a country level, France recorded a moderate acceleration in economic growth from a low level, while in Germany the downturn intensified. The press release signals that outside of these two countries, output contracted in September. Evidence that the latest surge in energy bills is already affecting firms\u00b4 input and output prices further worsens the trade-off faced by monetary policy. <\/li><li> The outlook for the manufacturing sector remains bleak, as both new orders and output indices declined further below the 50 threshold and the balance between new orders and inventories does not point to an improvement ahead. Ongoing weakness in demand, exacerbated by expenditure switching away from goods, continues to reduce stress on supply chains. In services, business expectations remain on a steep downward trajectory. <\/li><li> The PMIs indicate that the latest energy-price shock is already feeding through to pipeline price pressure. Input and output price indices inched higher both in manufacturing and in services, following some months of easing from the peaks. The labor market remains resilient, as firms\u00b4 hiring plans do not seem to be particularly affected by the deterioration in activity. The main uncertainty here is whether this simply reflects a lagged response of employment to output, or the frictions generated by the pandemic have led to a structurally tighter labor market. The jury is still out. <\/li><li> The ECB will take notice of the increased likelihood of recession (which, strangely, is not part of its baseline scenario), but PMI details regarding prices and employment will certainly not pass unnoticed in Frankfurt. The October rate decision remains a very close call between a hike of 50bp and 75bp. In greater detail: The composite PMI declined to 48.2 from 48.9, with the indices for the manufacturing and services sectors down to 48.5 and 48.9, respectively.CHART 1: RECESSION BECOMES INCREASINGLY LIKELY<\/li><\/ul>","synopsisDe":"","synopsisIt":"","analysts":[{"first":"Marco","last":"Valli","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=analyst&tx_research_piedition%5Banalyst%5D=37&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=dc3604fb61baa8c1a3f2aed1d2468de2"}],"countries":[{"name":"Euroland","ticker":"","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=country&tx_research_piedition%5Bcountry%5D=25&tx_research_piedition%5Baction%5D=country&tx_research_piedition%5Bcontroller%5D=Edition&cHash=fd74dfc966e72d45ff2580813616e07a"}]}]

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

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

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