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3493e6abb17b2484f7bdd3db4bb4501720ff1f7d250821ec5777108678842e35;;[{"layout":"detailed","uid":29063,"publicationDate":"15 Mar 23","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184768.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGlpiFwyM1XCPSuco2MtZUs=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Eurozone: profit margins have been at least as important as wages in driving inflation","titleDe":"","titleIt":"","product":"Chart of the Week","synopsis":"<p><ul class=\"ucrBullets\"><li>Our Chart of the Week illustrates how the growth of the GDP deflator ' which measures the 'price' of gross domestic product per unit of output and is a gauge of domestic price pressure ' accelerated last year at the eurozone level and across the largest economies of the bloc. We break down the deflator into its main determinants ' namely labor costs; firms\u00b4 profitability, as measured by the gross operating surplus (the national-account equivalent of EBITDA); and taxes on production and imports, less subsidies ' all divided by real GDP. In the eurozone, the contribution of unit profits (a proxy for profit margins) to the growth rate of the GDP deflator slightly exceeded that of unit labor costs and was higher than its average over the last two decades. Quarterly data indicate that its contribution significantly increased in the second half of last year.<\/li><li>Our chart also shows that the contribution of unit profits to the growth of the GDP deflator varied significantly from country to country, with Spain and France representing extreme situations in this regard. In Spain, unit profits accounted for almost all the growth of the GDP deflator as solid labor productivity growth largely offset upward pressure from labor costs. In contrast, France experienced a contraction in unit-profit growth, which dampened the increase in the growth rate of the GDP deflator, partly offsetting a strong pick-up in the growth of unit labor costs. The situation was more balanced in Germany and Italy. In Italy, the solid contribution of unit profits largely reflects a significant acceleration in their growth in 4Q22. Of course, our analysis is based on aggregate data, which disguises a lot of variation at the sector level.<\/li><li>This evidence suggests that the ECB should broaden its inflation narrative from its recent focus on labor costs to include the drivers of corporate profitability, which has been surprisingly strong in the last couple of years despite a massive increase in the price of imported inputs. This would provide a more comprehensive picture of the current drivers of underlying price pressure in the eurozone, although this is unlikely to have any meaningful implications for monetary policy (See our Sunday Wrap, 5 March). Going forward, profit margins are likely to ease as demand growth slows, while unit labor cost growth may remain high for longer as wages rise to partly compensate workers for past and current high inflation.<\/p><\/li><\/ul>","synopsisDe":"","synopsisIt":"","analysts":[{"first":"Tullia","last":"Bucco","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=analyst&tx_research_piedition%5Banalyst%5D=41&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=4f70091ea90c58d6e88dbb4690d183e2"}],"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":"3493e6abb17b2484f7bdd3db4bb4501720ff1f7d250821ec5777108678842e35","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":28980,"publicationDate":"21 Feb 23","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184665.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJKqnvtMyyPsZ8wf6MkBWnnw=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - Eurozone PMIs: activity strengthens amid sector divergence in price trends ","titleDe":"","titleIt":"","product":"Data Comment","synopsis":"<ul class=\"ucrBullets\"><li> The eurozone composite PMI for February rose from 50.3 to 52.3, the highest level since September, beating expectations for a mild increase. This confirms that downside risks to the growth outlook are receding, at least in the near term, although the press release indicates that economic conditions remain uneven across sub-sectors. The improvement in the composite index was driven by a significant acceleration in services activity, more than offsetting persistent weakness in manufacturing. However, the latter can be partly explained by a statistical factor as a further strong improvement in suppliers\u00b4 delivery times ' the index rose to the highest level since May 2009 ' weighed on the headline index. At country level, both France and Germany returned to expansion territory for the first time since October and June, respectively. However, the press release notes that it was the rest of the eurozone that recorded the strongest performance.<\/li><li> In manufacturing, the brightest spot was the return to growth of output for the first time since May as backlogs orders continued to spill over to production and the pace of contraction in new orders was the shallowest in nine months. Surveyed firms often linked the increase in production to the significant alleviation of supply bottlenecks. In services, demand increased at the fastest pace since May, further supporting business expectations. <\/li><li> On the price front, in manufacturing, the significant easing of supply constraints translated in a sharp decline in the input price index, to the lowest level since September 2020, providing businesses with room to partly pass lower costs on to final customers. In contrast, price pressure remained quite sticky in the services sector, with selling prices showing little change from recent highs as wage costs continued to fuel input price inflation. <\/li><li> The labor market continued to show resilience. The employment subcomponent of the composite PMI slightly declined but remained comfortably above 50. <\/li><li> Today\u00b4s report leaves the ECB on track for further meaningful tightening. Doves within the Governing Council will take notice of the disinflationary trend in industry, while hawks will focus on reaccelerating activity and stickiness in services inflation at high levels amid a persistently tight labor market. We continue to expect the deposit rate to peak at 3.50% in June.In greater detail:The composite PMI increased from 50.3 to 52.3. The index for manufacturing declined from 48.8 to 48.5 while that for services rose from 50.8 to 53.0. However, the decline in the manufacturing index largely reflects the shortening of suppliers\u00b4 delivery times.CHART 1: THE COMPOSITE PMI IMPROVES FURTHER, DRIVEN BY SERVICES<\/li><\/ul>","synopsisDe":"","synopsisIt":"","analysts":[{"first":"Tullia","last":"Bucco","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=analyst&tx_research_piedition%5Banalyst%5D=41&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=4f70091ea90c58d6e88dbb4690d183e2"}]},{"layout":"detailed","uid":28970,"publicationDate":"17 Feb 23","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184648.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJKqnvtMyyPsZTk2HycGAql8=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Eurozone: Tourism approaches pre-COVID19 level","titleDe":"","titleIt":"","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> Our Chart of the Week shows developments in tourism as illustrated by data on nights spent in tourist accommodation and turnover in accommodation and food services. Data on overall nights spent indicate that last year the sector recovered most of the ground lost during the pandemic, as lingering restrictions on hospitality and travel were largely removed and life returned to normal. The recovery has been stronger in France and Portugal, where losses were almost entirely reabsorbed, while in Germany, Italy, Spain, Austria, and Greece, total nights spent remained 5-10% below their pre-COVID19 levels.<\/li><li> The breakdown of the data on nights spent by origin of guest shows that domestic demand was the backbone of the bounce-back in tourism in France, Spain, and Portugal, while in Greece, the recovery in domestic demand lagged behind that of foreign tourists. This occurred despite government vacation-subsidy programs for lower-income households.<\/li><li> The recovery in the tourism sector appears stronger when turnover is considered (here we look at turnover on accommodation and food services). Turnover came close to or exceeded (notably in France) the pre-COVID19 level in all countries in our sample, as price increases largely offset the decline in business volumes.<\/li><\/ul>","synopsisDe":"","synopsisIt":"","analysts":[{"first":"Tullia","last":"Bucco","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=analyst&tx_research_piedition%5Banalyst%5D=41&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=4f70091ea90c58d6e88dbb4690d183e2"}]},{"layout":"detailed","uid":28897,"publicationDate":"31 Jan 23","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184543.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJPTZqM8tbM-R9L3VvFkFg2c=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - French GDP growth holds up","titleDe":"","titleIt":"","product":"Data Comment","synopsis":"<ul class=\"ucrBullets\"><li> France is among the eurozone countries that avoided a contraction in GDP growth at the end of last year. GDP rose 0.1% qoq in 4Q22 (after rising 0.2% qoq in 3Q22), coming in broadly in line with expectations (UniCredit: 0.0%; consensus: 0.0%). The outcome brings 2022 average annual GDP growth to 2.6%, after 6.8% in 2021. The quarterly deceleration in GDP growth mainly reflects a further slowdown in commercial services, largely due to a decline in retail trade, as the boost from reopening faded and cost-of-living concerns weighed on demand. The contribution from industrial activity was marginally positive as a rebound in energy production offset a contraction in manufacturing, driven by a sharp drop in refinery output because of the October strikes, but also a decline in the production of transport equipment.<\/li><li> On the demand side, domestic demand, which is usually the main growth engine, cut 0.2pp from GDP growth, due to a decline in final consumption. Households sharply reduced spending on goods while slightly increasing spending on services, with spending on transportation largely offsetting a cut in retail trade. Gross fixed investment growth slowed, although the expected partial correction in spending by non-financial corporates was milder than expected, pointing to resilience despite an increase in energy and borrowing costs. In contrast, households continued to cut housing investment for the third consecutive quarter, possibly reflecting concerns about an increase in financing conditions. Net export added 0.5pp to GDP growth as the decline in import growth outpaced the decline in exports, which was mitigated by a rebound in energy exports and an increase in spending by non-resident tourists. Inventories cut 0.2pp from GDP growth.<\/li><li> Today\u00b4s reading brings encouraging news as it confirms the economy\u00b4s resilience against the headwinds weighing on the outlook. Looking ahead, while weakness in economic activity remained largely widespread, the latest PMI data for January indicated that the economy continued to hold up at the beginning of the year, with businesses viewing the current soft patch as short-lived and expecting demand conditions to recover. In greater detail: A positive contribution from net exports (adding 0.5pp to GDP growth), gross fixed investment (+0.2pp) and, to a lesser extent, public consumption (+0.1pp) more than offset a drag from private consumption (-0.5pp) and inventories (-0.2pp). <\/li><\/ul>","synopsisDe":"","synopsisIt":"","analysts":[{"first":"Tullia","last":"Bucco","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=analyst&tx_research_piedition%5Banalyst%5D=41&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=4f70091ea90c58d6e88dbb4690d183e2"}],"countries":[{"name":"France","ticker":"FR","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=country&tx_research_piedition%5Bcountry%5D=7&tx_research_piedition%5Baction%5D=country&tx_research_piedition%5Bcontroller%5D=Edition&cHash=e6a2e89fd8e2fc9b0aecc636b7a1cd3c"}]},{"layout":"detailed","uid":28869,"publicationDate":"24 Jan 23","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184504.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJPTZqM8tbM-Rig4yOotGh5Y=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - Eurozone PMIs exit contraction territory ","titleDe":"","titleIt":"","product":"Data Comment","synopsis":"<ul class=\"ucrBullets\"><li> The eurozone composite PMI exited contraction territory in January, rising from 49.3 to 50.2, beating expectations for a more moderate improvement (UniCredit: 49.3; consensus: 49.8). This is the highest reading since June and suggests that downside risks are receding. Therefore, any contraction in activity at the turn of the year is likely to prove shallow. The improvement in the composite PMI was explained by an increase of the services sector back to growth (led by Germany) and, to a lesser extent, a further easing in the pace of contraction in the manufacturing sector (led by France). The rest of the eurozone performed well, especially in services.<\/li><li> In manufacturing, demand conditions remained weak, although new orders and export orders figures point to a trend of improvement. The pace of contraction in output continued to ease ' output fell at the softest pace since June - most likely reflecting backlog orders spilling over to production. Importantly, the ratio of new orders to inventories ' which usually leads developments in the headline PMI ' improved for the third time in a row, signaling that the downturn is moderating. Surveyed firms cited the normalization of supply chains and reduced energy security concerns as the main factors supporting the outlook. The improved availability of intermediate inputs led businesses to reduce the pace at which they had so far accumulated inventories of raw materials and finished products, with the corresponding indexes dropping below 50 for the first time in sixteen and eight months respectively. In services, expectations continued to be revised up (to an eight-month high) indicating that businesses consider ongoing demand weakness as short-lived. This was also reflected in hiring plans steadily supporting employment growth.<\/li><li> Today\u00b4s report contains important news in regard to price developments. In an environment of still-weak demand and easing input prices, indices for selling prices rose both in manufacturing and services for the first time since September as businesses try to pass on higher costs to customers. The press release cites wage costs as one of the most pressing concern for businesses. The labor market continued to show resilience across sectors. The employment subcomponent of the composite index further increased, reaching a three-month high<\/li><li> Fading recession fears, firms\u00b4 strong pricing power and a tight labor market will the keep the ECB on a steep tightening path. Next week, we expect another 50bp hike and hawkish rhetoric consistent with a peak deposit rate in the 3.50% area. In greater detail:The composite PMI increased from 49.3 to 50.2. The index for manufacturing increased from 47.8 to 48.8 while that for services rose from 49.8 to 50.7.<\/li><\/ul>","synopsisDe":"","synopsisIt":"","analysts":[{"first":"Tullia","last":"Bucco","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=analyst&tx_research_piedition%5Banalyst%5D=41&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=4f70091ea90c58d6e88dbb4690d183e2"}],"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"}]}]


Tullia Bucco
UniCredit Bank AG, Milan
Piazza Gae Aulenti, 4 - Tower C
I-20154 Milan
+39 02 8862-0532

Tullia Bucco covers France and eurozone peripheral countries, namely Spain, Greece and Portugal. She has been working for UniCredit since 2002 and was based in Paris until March 2006. Tullia has a ...

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