a2873dd348b6497a8d8f56a5911240c8067ac562fd69a3cb5cfcff1456c6e285;;[{"layout":"linklist","uid":2759,"publicationDate":"17 Apr 15:10","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186400.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJMfHK85BPUzZsvDXz5EXu6Y=&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Oil Update - Oil prices are likely to gradually decline","product":"Oil Update","synopsis":"<ul class=\"ucrBullets\"><li> So far, the reaction of oil prices to Iran's attack on Israel has been contained. Given the diplomatic pressure by Western powers, investors expect Israel to adopt a restrained response against Iran. <\/li><\/ul><ul class=\"ucrBullets\"><li> We agree with the market and we continue to expect tensions in the Middle East to remain mostly limited to the Gaza Strip, with limited regional fallout. For this reason, and given market fundamentals, we expect Brent prices to move back towards USD 85\/bbl soon. <\/li><\/ul><ul class=\"ucrBullets\"><li> An escalation of tensions, instead, involving an unrestrained retaliation by Israel, a blockade of the Strait of Hormuz, or attacks on oil facilities in Saudi Arabia, would likely push Brent prices above USD 100\/bbl. <\/li><\/ul><p class=\"ucrIndent\">So far, the reaction of oil prices to Iran's attack on Israel has been contained. After crossing USD 92\/bbl last Friday, Brent is now trading below USD 90\/bbl. The market already priced in a major attack on Israel since Teheran preannounced it but has found comfort in the limited damages and in the diplomatic efforts by Western and regional powers in avoiding an escalation of tensions. There is still a lot of uncertainty about how tensions in the region will unfold, but we continue to see a regional conflict involving direct conflict between Israel and Iran as unlikely -- which explains the muted reaction of oil prices. <\/p><p class=\"ucrIndent\">The different fronts<\/p><p class=\"ucrIndent\">Teheran\u2019s preannounced attack on Israel over the weekend, which involved hundreds of missiles and drones, was likely an isolated response to the suspected Israeli strike in Syria at the beginning of the month that killed Iranian military officers in the Iranian embassy in Damascus. It seems it was not intended to mark the beginning of a broader regional conflict at a time when the Iranian regime is already busy keeping order at home. On Sunday, Iran\u2019s permanent mission to the UN, tweeted: \u201cThe matter can be deemed concluded\u201d. <\/p><p class=\"ucrIndent\">Furthermore, no major regional actor wants an escalation in tensions.. In an official statement that was released today, Saudi Arabia and the United Arab Emirates (UAE) called for maximum \u201cself-restraint\u201d in the Middle East to avoid \u201cthe dangers of war and its dire consequences\u201d. The UAE has formal diplomatic ties with Israel, while relations with Saudi Arabia have been improving in recent years. Similarly, Western powers are calling for restraint on Israel\u2019s side. The G7 officially condemned Iran\u2019s attack, and while the US reiterated its commitment to Israel\u2019s defense, it warned that it will not participate in any offensive action against Iran.<\/p><p class=\"ucrIndent\">The Israeli government is clearly split on how to react. The hawks are pushing for a military response for fear of looking weak and encouraging further attacks from Iran. Options range from strikes on Iran\u2019s nuclear facilities or military bases within the country to cyberattacks or attacks on Iran\u2019s proxies in Lebanon or Yemen. The doves call for a tough diplomatic response from the West in order to focus all military efforts on the war in Gaza. Initially, the doves seemed to have prevailed. In an official statement that was released on Sunday, the government led by President Benjamin Netanyahu asked for: 1. The immediate recognition of the Iranian Revolutionary Guards Corps as a terrorist organization and 2. The imposition of tougher sanctions against Iran. The statement referred directly to sanctions on missiles. But then the hawks took over. On Monday night, Military Chief of Staff Herzi Halevi declared that Israel would respond militarily to Iran\u2019s attack, without providing any detail on the possible options. <\/p><p class=\"ucrIndent\">Now, doves and hawks are battling again on what comes next. A meeting of Israel\u2019s war cabinet set for yesterday was put off until today, as Western allies are putting in place a package of sanctions against Tehran to dissuade Israel from a major escalation. In general, Israel feels constrained not just diplomatically, but also militarily. The weekend events highlighted that, without US support, its defense capabilities are limited. Moreover, Israel benefited from the support of the Middle East Air Defense Alliance, which involves the US, Israel and some allied Arab countries (along with the UK and France). Without the support of its Western allies to undertake a bolder response against Teheran, Israel has little incentive to go on the offensive. It can actually claim victory that it was able to intercept the Iranian missiles and defend its territory, particularly after the Hamas-led 7 October attacks had put this into question. And it can concentrate its military efforts in the war against Hamas in the Gaze Strip. <\/p><p class=\"ucrIndent\">A drop in oil prices is our baseline<\/p><p class=\"ucrIndent\">Even if the situation is extremely fluid and the degree of uncertainty extremely elevated, our baseline scenario assumes that Israel will likely opt for a restrained response, relying more on diplomatic than military action. There might be a military response, but that would probably be largely symbolic and not trigger an Iranian retaliation. When it comes to sanctions and the oil market, it is possible that the US will choose to better enforce existing sanctions on Iranian oil, without fully removing the around 1.5mb\/d that Tehran is smuggling into the global market. Since the beginning of the war in Ukraine, Western powers have not fully enforced sanctions on Iranian oil exports to contain upward price pressures, given the market distortions created by sanctions on Russian oil. With the presidential elections approaching, US President Biden is likely to act cautiously on tightening Iranian oil sanctions, because tighter oil supply would risk fueling inflationary pressure domestically at a time when inflation is weighing on his popularity despite a solid economy, adding to risks that the Fed might have to delay rate cuts.<\/p><p class=\"ucrIndent\">Given all these considerations, our baseline scenario is that the conflict in the Gaza Strip does not further escalate into a clash between regional powers but will have only limited fallout in the region. This implies that no major oil facilities or trading routes (the Strait of Hormuz, in particular) will be affected, while Iranian oil exports will be only partly curtailed. At the same time, according to the latest update of the International Energy Agency, global oil demand is losing momentum now that the post-Covid rebound is largely complete, an expanding EV fleet acts as a further drag and China\u2019s economic performance disappoints (Chart 1). <\/p><p class=\"ucrIndent\">CHART 1. DEMAND IS LOSING MOMENTUM<\/p>","hash":"a2873dd348b6497a8d8f56a5911240c8067ac562fd69a3cb5cfcff1456c6e285","available":"0","settings":{"layout":"linklist","size":"default","showanalysts":"-1","showcompanies":"-1","showcountries":"-1","showcurrencies":"-1","nodate":"0","notitle":"0","noproduct":"0","noflags":"0","dateformat":"d M G:i","nolinktitle":"0","synopsislength":"-1","synopsisexpand":"0","shownav":"0","oldestedition":"","limit":"12"}},{"layout":"linklist","uid":2744,"publicationDate":"14 Apr 11:59","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186385.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJACkeUMzD3sVemA1nxpvuc0=&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Sunday Wrap","product":"Sunday Wrap","synopsis":"<ul class=\"ucrBullets\"><li> The US is countering China on at least three fronts ...<\/li><\/ul><ul class=\"ucrBullets\"><li> The changed relationship between the US and China will ...<\/li><\/ul>"},{"layout":"linklist","uid":2743,"publicationDate":"12 Apr 14:05","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2024_186384.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRobEKVsp7ObefiamXYmcmx7Q==&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"CEE Data Watch","product":"EEMEA Macro Note","synopsis":"<p class=\"ucrIndent\">Next week\u2019s highlight will be the general elections in Croatia. <\/p>"},{"layout":"linklist","uid":2726,"publicationDate":"09 Apr 15:16","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186366.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJACkeUMzD3sVU_uBRzW76pk=&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Two months to go before the European election","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> The upcoming European Parliament (EP) election is due to take place on 6-9 June 2024. Our Chart of the Week provides an update of indications from opinion polls, in terms of the number of seats political groups are expected to win compared to six months ago and compared to the number of outgoing MPs elected in 2019. <\/li><\/ul><ul class=\"ucrBullets\"><li> Compared to six months ago, the main trends appear to be the following. There has been an increase in the number of seats projected to be won by the center-right European People\u2019s Party (EPP), and, according to national polls conducted in the main EU countries, this looks to mirror an improvement in the prospects of the Italy\u2019s Forza Italia, the Spanish Partido Popular and the German CDU-CSU. In March, the EPP formally nominated President of the European Commission Ursula von der Leyen as its Spitzenkandidat. <\/li><\/ul><ul class=\"ucrBullets\"><li> In contrast, polls suggest there has been a decline in the number of seats likely to be won by the center-left Socialists and Democrats Group (S&D). Moreover, Renew Europe has continued to lose ground over the last six months, as the French Renew coalition has suffered a further decline in popularity, especially compared to the French Rassemblement National, which belongs to the Identity and Democracy Group (ID). In Germany, Italy and Spain, the popularity of parties affiliated with Renew Europe does not seem to be taking off. While seat polls had shown gains by the ID compared to six months ago, those gains have partly faded in the latest polls. Lastly, progress by the European Conservatives and Reformists Group (ECR) has slowed to a halt recently. <\/li><\/ul><ul class=\"ucrBullets\"><li> When recent polling is compared with the composition of the outgoing European Parliament, it seems to confirm a decline in support for the liberal-centrist grand coalition formed by the EPP, the S&D and Renew, mainly in favor of the ECR and ID groups. Still, the grand coalition is likely to hold, albeit with a contained margin compared to the 361 seats needed for a parliamentary majority. The Greens\/European Free Alliance (Green\/EFA) is also set to lose seats in the new parliament. At the same time, and despite their ideological differences, the EPP and ECR are unlikely to be able to win enough votes to form a majority coalition. Even when one considers that the ID group might do well, a potential coalition composed of the EPP, ECR and ID might not gather enough votes to win a majority and, above all, continues to appear unlikely, in our view. It remains that, even if the right-wing groups (ECR and ID) are not part of the governing coalition despite an increase in their representation, they might play a key role in shaping alliances in the new parliament on issues where there is dissent within the ranks of EPP, S&D and Renew, potentially affecting future EU policy, particularly on immigration and the EU\u2019s green transition.<\/li><\/ul>"},{"layout":"linklist","uid":2719,"publicationDate":"08 Apr 15:17","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2024_186359.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRo0vkDVpTDJx1MxThkzF3htw==&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"EEMEA Macro Flash - Slovakia: presidential election consolidates government power","product":"EEMEA Macro Note","synopsis":"<ul class=\"ucrBullets\"><li> Peter Pellegrini, chairman of Slovakia\u2019s parliament and candidate of the country\u2019s governing alliance, was elected as the president of Slovakia on Saturday.<\/li><\/ul><ul class=\"ucrBullets\"><li> Mr. Pellegrini\u2019s main impact as president will be felt when he appoints a new head of the intelligence agency, three members of the Judicial Council and two judges at the Constitutional Court. <\/li><\/ul><ul class=\"ucrBullets\"><li> The government\u2019s stronger hold on power bodes ill for democracy and the rule of law in Slovakia, given recent attempts to weaken the fight against corruption. Because of this, Slovakia risks losing access to EU transfers.<\/li><\/ul><ul class=\"ucrBullets\"><li> The budget deficit is likely to exceed 6% of GDP in 2024, similarly to 2023, thus spending limits are likely to be breached.<\/li><\/ul><ul class=\"ucrBullets\"><li> We expect SLOVGBs to underperform their peers, despite that Slovakia\u2019s Debt and Liquidity Management Agency (ARDAL) has covered approximately 70% of Slovakia\u2019s funding needs this year. <\/li><\/ul><p class=\"ucrIndent\">The presidential election held in Slovakia on Saturday was won, with 53% of the vote, by Mr. Pellegrini, who is the current leader of Hlas-SD. In the second round of voting, he defeated the independent candidate and former minister of foreign affairs, Ivan Kor'ok, who won the first round of voting with the support of the pro-European opposition. Mr. Pellegrini managed to mobilize voters at the last moment, especially many supporters of the strongly Eurosceptic and pro-Russian candidate, \u0160tefan Harabin, who received almost 12% of the vote and came third in the first round, and from the Hungarian minority. Mr. Pellegrini received significant support from Hungarian media during the election moratorium period. The turnout reached 61% in the second round, the highest turnout for a presidential election in Slovakia since 1999. It increased by almost ten percentage points compared to the first round (52%).<\/p><p class=\"ucrIndent\">The powers of the president are predominantly representative and appointive. The president also has significant powers pertaining to foreign policy, although most of them have been transferred to the government by past presidents. The president still participates in NATO meetings, while competencies regarding the EU have been formally transferred to the government. A pro-government president will help strengthen the government's internal power in the country. The new president will first appoint a new head of the intelligence agency, which outgoing President Zuzana 'aputov\u00e1 has temporarily blocked. From the perspective of consolidating power, appointive powers in the judiciary seem crucial. The president appoints 3 out of 18 members of the Judicial Council (the judicial oversight body), with 3 members being appointed by the government and parliament and 9 elected by judges. The president also appoints judges at the Constitutional Court, choosing from candidates proposed by parliament (there are twice as many candidates as judges). <\/p><p class=\"ucrIndent\">After the current government tried repeatedly to water down anti-corruption legislation, the last major domestic barrier protecting democracy and the rule of law in Slovakia remains the Constitutional Court. Most constitutional judges were elected in 2019 for a term of 12 years. Only one constitutional judge\u2019s term ends during this parliamentary term (in 2026), while another position became vacant in the fall, after the resignation of one judge. The parliament has not yet selected candidates from whom the president can choose. The government coalition has already considered taking control of the Constitutional Court by expanding the number of judges. However, the government lacks the parliamentary constitutional majority to implement this plan. An external constraint to such changes is the threat that Slovakia\u2019s access to EU funds could be suspended. This prospect has already forced the current government coalition to partially adjust proposed changes several times.<\/p><p class=\"ucrIndent\">The government coalition says it is committed to consolidating public finances. However, this year's consolidation is, in our view, an accounting exercise, relying mostly on reallocating EU-funded energy aid from 2023 to this year. Eurostat is unlikely to accept this, in our view. Therefore, we assume that the budget deficit will increase from 6.3% of GDP this year from 6.1% of GDP in 2023 (more details can be found on pages 65-66 of our 2Q24 CEE Quarterly). The approved budget does not meet local spending limits to which the government committed in its bid for funds from the Recovery and Resilience Facility. Therefore, a penalty of up to EUR 200mn is expected. In the coming years, instead of tightening spending limits, the government intends to follow new EU rules (and spending limits). The contours of consolidation are currently unclear. The budget deficit is expected to decrease by 0.7-1.0pp per year in the near future. Concerns about losing access to financial markets or increasing risk premiums have led ARDAL to accelerate the issuance of new debt. So far this year, ARDAL has issued EUR 7.123bn of bonds, out of an estimated need amounting to EUR 10-11bn, i.e. approximately 70% of the annual planned issuance.<\/p><p class=\"ucrIndent\">Despite good issuance, we expect SLOVGBs to underperform their peers. Their yield spread to SLOREP bonds has widened to 45-50bp this year at the 10Y maturity, and further widening could be in the cards if EU transfers are frozen and the budget deficit fails to be adjusted. <\/p>"},{"layout":"linklist","uid":2713,"publicationDate":"07 Apr 13:23","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186353.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJACkeUMzD3sVKttnV97OPnk=&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Sunday Wrap","product":"Sunday Wrap","synopsis":"<ul class=\"ucrBullets\"><li> I\u2019ll discuss the underlying difference between the US and European inflation pictures as it now reveals itself, the difference focus of Fed vs ECB communication - and the key issues it raises for policies going forward.<\/li><\/ul><ul class=\"ucrBullets\"><li> I\u2019ll then briefly review the biggest geopolitical risks during 1Q, arguing that some have intensified while others have eased \u2013 and what they tell us about the year ahead.<\/li><\/ul>"},{"layout":"linklist","uid":2712,"publicationDate":"05 Apr 17:15","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186352.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJACkeUMzD3sV8HYd1mrXYmo=&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - US: Strong payrolls won\u00b4t preclude rate cuts, but increase the risk of delay","product":"Data Comment","synopsis":"<p><ul class=\"ucrBullets\"><li>The US economy added an impressive 303k payrolls in March as the economy continues to outperform expectations and its peers. Revisions to the prior two months saw a net rise of 22k. More than half of the job gains in March came from the government and education & health sectors, which tend to be acyclical. It has been mentioned by several Fed officials in recent weeks that strong payrolls are not necessarily inflationary and do not preclude rate cuts, to the extent that it reflects rising labor supply. In a recent paper (see New immigration estimates help make sense of the pace of employment | Brookings), the authors estimate that based on much higher estimates of immigration from the Congressional Budget Office (CBO), the sustainable level of job gains (i.e. that needed to absorb population growth and not apply upward pressure on the unemployment rate) have risen from previous estimates of around 100k to about 180k per month this year. Payroll growth is running above this level, with the three-month average payroll gain rising to 276k and the six-month average increasing to 244k.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Still, rising immigration is not the only way the labor force can rise, and the participation rate is also on the increase. Indeed, the labor force participation rate rose to 62.7% from 62.5%, which together with the rise in the population saw a large 469k increase in the labor force. Unemployment fell just 29k, and the unemployment rate fell very slightly (to 3.83% from 3.86%, to two decimal places). Household employment (an alternative measure of employment to payrolls, derived from the household survey) showed a rebound of 498k after three months of falls. It still leaves household employment 400k lower than four months ago, which is difficult to reconcile with the recent strength of payrolls (even if the CBO is right that immigration has been much higher than that estimated by the Bureau of Labor Statistics, which would explain some of the gap between the two measures of employment, it cannot explain why household employment has fallen outright). The household survey is a smaller sample than the payroll survey and tends to be more volatile, so we tend to put more weight on payrolls, but it adds to uncertainty regarding the true health of the labor market. It\u2019s also worth noting that the jump in household employment was entirely driven by part-time workers, while full-time workers fell.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>If strong payroll gains reflect improved labor supply, then it should not be putting upward pressure on wage growth. The wage data is generally consistent with this. Average hourly earnings rose 0.3% mom, in line with expectations, after a modest (upward-revised) 0.2% mom rise in February. It took the year-on-year rate down to 4.1% from 4.3% in the prior month. This is not far from the 3-3.5% range that would be broadly consistent with 2% inflation over time assuming 1-1.5% labor productivity growth (the pre-pandemic trend). Recently, labor productivity growth has been materially stronger than this, although it seems likely to be temporary.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>The Fed will likely see strong payrolls as further evidence that there is no great urgency to cut rates, in contrast to historical rate cutting cycles when the economy showed signs of a material slowdown. That means the risks to our forecast for the first rate cut in June, and 125bp of rate cuts in total this year, are skewed towards a later start and fewer cuts. But we are not changing our baseline forecast. As mentioned, several Fed officials, including Chair Powell, have indicated that strong payroll gains do not preclude the labor market coming into better balance, and rate cuts, if these strong payroll gains reflect improved labor supply. Moreover, leading indicators of the labor market point to a softening in labor demand ahead (including both the decline in small businesses\u2019 hiring intentions and the quits rate, and the rise in job cut announcements). The next key release is the March CPI report on Wednesday.<\/p><\/li><\/ul><p class=\"ucrIndent\"><p>Chart 1 shows that nonfarm payrolls rose a strong 303k in March after a rise of 270k in February. The three-month average payroll gain rose to 276k in March from 272k in February, and the six-month average increased to 244k from 235k.<\/p><\/p>"},{"layout":"linklist","uid":2711,"publicationDate":"05 Apr 15:14","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2024_186351.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRoqRVjBRLflPdvPSC5EiiVDA==&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"CEE Data Watch","product":"EEMEA Macro Note","synopsis":"<p class=\"ucrIndent\">The highlights next week are March CPI figures for Czechia, Hungary, Romania, Serbia and Russia, and the central bank meeting in Serbia. The sovereign rating for Slovenia will be reviewed by Fitch and Moody\u2019s and we expect no changes. S&P will review the sovereign rating for Czechia and Romania, and we also expect no changes. Before that, on Saturday, there will be the second round of presidential elections in Slovakia.<\/p>"},{"layout":"linklist","uid":2709,"publicationDate":"05 Apr 12:03","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186349.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJACkeUMzD3sVdnhMslUc8ZE=&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - US: The labor market is key for services inflation","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> The labor market is key for services inflation and the timing and pace of Fed rate cuts. The labor market is half of the central bank\u2019s dual mandate (of maximum employment and stable prices) and, as our Chart of the Week shows, wages are closely associated with the stickier component of inflation, namely non-housing core services (or \u201csupercore\u201d) inflation. This is because the wage bill is by far the largest input cost for services-providing firms.<\/li><\/ul><ul class=\"ucrBullets\"><li> Most indicators still point to a modestly tight, but softening labor market. The number of job openings to unemployed persons fell to 1.36 in February, down from its peak of 2.0 in March 2022, but above its pre-pandemic level of around 1.2. The quits rate is below its pre-pandemic level and tends to lead the aforementioned job-openings-to-unemployed ratio. The unemployment rate rose to 3.9% in February, up from 3.4% in January 2023. Reflecting this, measures of wage growth continue to ease, although they remain modestly above the 3-3.5% range that most Fed officials deem to be consistent with meeting the 2% inflation target over time. The March employment report due to be released later today will provide additional information on recent dynamics regarding labor market tightness.<\/li><\/ul><ul class=\"ucrBullets\"><li> The spike in monthly core inflation in January has raised fears that resilient economic activity and employment growth could see inflation pick up again or stabilize somewhat above the 2% target. But unless and until measures of labor market tightness either stop or reverse easing, which seems unlikely, the main story of underlying disinflation remains on track.<\/li><\/ul>"},{"layout":"linklist","uid":2701,"publicationDate":"02 Apr 18:16","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2024_186339.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRottMB8jnlkvsF1hypPytAQQ==&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"EEMEA Macro Flash - Turkey: the first AKP defeat in national elections in 22 years","product":"EEMEA Macro Note","synopsis":"<p><ul class=\"ucrBullets\"><li>In Sunday\u2019s local elections, the main opposition party, the Republican People\u2019s Party (CHP) managed to hand the ruling Justice and Development Party (AKP) its worst (and first) national election defeat in 22 years.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>The CHP won 35 provincial municipalities, out of 81 in total, including 14 of 30 metropolitan cities, while the AKP and its coalition partner, the Nationalist Movement Party (MHP), claimed 32 provinces, a significant drop from the 50 it won in 2019.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>While, large victory margins, especially in the country\u2019s biggest cities, decreases the probability of reruns significantly, the results in cities where the race was tight could still be contested. This currently seems to be the case for Hatay.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>The CHP will control local authorities presiding over 61% of the Turkish population, compared to 25% for the AKP; 7% for the pro-Kurdish Peoples' Equality and Democracy Party (DEM), formerly the Peoples\u2019 Democratic Party (HDP), and 7% for other nationalist and religious parties.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>The CHP received 37.8% of the vote nationwide, while the AKP received 35.5%. The AKP failed to take the largest share of the vote for the first time in its existence.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>We think the primary reason for the considerable decline in the popularity of the AKP was rising cost of living. In this respect, the election results highlight a need to bring inflation down.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>In his post-election speech, President Recep Tayyip Erdogan reiterated his support for the country\u2019s current economic policies. This supports our view that economic policy will tighten going forward.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>With local-election uncertainty out of the way, we might see a recovery in capital inflows, helping TRY appreciate in real terms and the CBRT to restock its FX reserves.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>The election result reduces the probability of early elections and constitutional changes before inflation decreases significantly.<\/p><\/li><\/ul><p class=\"ucrIndent\"><p>The preliminary results of the local elections held on Sunday showed that the ruling AKP lost ground significantly, while the CHP performed better than expected. The CHP won 35 provincial municipalities out of 81, including 14 metropolitan cities out of 30 (Chart 1). This marked a significant increase from the 21 provinces (including 11 cities) the CHP won in 2019\u2019s local elections. While the CHP held onto all metropolitan areas from 2019 but Hatay, it also took over four metropolitan areas (Bursa, Balikesir, Denizli and Manisa) from the AKP-MHP alliance. The AKP won 24 provinces, including 12 metropolitan cities, while MHP won eight provinces. This marked a significant drop from the 50 provinces the AKP-MHP alliance had won in previous local elections. The Islamist New Welfare Party (YRP), which had supported Mr. Erdogan in presidential elections last year but fielded its own candidates in the local elections, won two provinces. The DEM increased the number of provincial municipalities it administers from eight to ten although the local election board in the city of Van announced earlier today that it denied the mayorship to the elected DEM candidate.<\/p><\/p><p class=\"ucrIndent\"><p>The CHP won in the three biggest cities by a landslide. Incumbent Mayor Mansur Yavas took more than 60% of the vote in Ankara, almost double the vote won by the AKP candidate, the mayor of Ankara\u2019s Ke\u00e7i\u00f6ren district, Turgut Altinok. In Istanbul, incumbent Mayor Ekrem Imamoglu won by more than 10pp (and more than a million votes), ahead of his rival, AKP MP and former minister of urbanization, Murat Kurum. Polls had favored Mr. Imamoglu over Mr. Kurum, although most of them hinted at a closer race until the final week. Although DEM and the Good Party (IYIP) ran their own candidates in Istanbul (as they did in other cities), in contrast to previous local elections, Mr. Imamoglu seems to have attracted significant support from these parties\u2019 voters. The large voting margins, especially in the biggest cities, diminish the probability of reruns significantly. Indeed, Mr. Erdogan already conceded defeat on Sunday night, stating that his party would not act against the \u201cnation\u2019s will\u201d. That said, the results in cities where the race was tight, such as Hatay, could still be contested.<\/p><\/p><p class=\"ucrIndent\"><p>The CHP\u2019s dominance in large urban areas means that approximately 61% of the Turkish population will reside in CHP-led local administrations, compared to just 25% of the population for the AKP, 7% for the DEM and 7% for other nationalist and religious parties.<\/p><\/p>"},{"layout":"linklist","uid":2700,"publicationDate":"02 Apr 18:01","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2024_186338.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRoWGjaoiAkBv7CFJawljUxyw==&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"EEMEA Macro Flash - 1Q24 manufacturing PMIs: CEE recovery stifled by weak foreign demand","product":"EEMEA Macro Note","synopsis":"<p><ul class=\"ucrBullets\"><li>CEE manufacturing PMIs rebounded less than expected in 1Q24. The main reason was weak demand from abroad, especially from Germany.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>While output expectations remain high, domestic order books seem to have been aligned with the weaker export order books. On a positive note, inventories fell more than orders, suggesting that activity could rebound quickly if demand recovers.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Delivery times rose in all CEE countries but Czechia, probably due to bottlenecks in the Red Sea.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Employment fell in 1Q24 throughout CEE. The exception was Russia, where the war effort is drawing in capital, financial and human resources from other sectors.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>The recent drop in input prices is over, according to purchasing managers from CEE, although hard data have yet to reflect this. Companies were unable to grow margins in 1Q24, probably due to weak demand.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>For CE4 central banks, signals for three to six months ahead are dovish, suggesting there is scope for more rate cuts. In 4Q24 and 2025, the scope for rate cuts is likely to narrow significantly. PMIs suggest that the CBR and CBRT are right to remain hawkish and postpone monetary easing.<\/p><\/li><\/ul><p class=\"ucrIndent\"><p>Manufacturing PMIs for 1Q24 failed to show the rebound expected in late 2023. While purchasing managers say that activity has fallen less in the first quarter of the year than in the second half of 2023, the recovery was stifled by weak demand from the eurozone, especially from Germany (Table 1). Activity in manufacturing contracted further in Czechia, Poland and Romania (with a gradual improvement in February and March) but grew in Hungary, where the manufacturing PMI is calculated with a different methodology by the Hungarian Association of Logistics, Purchasing, and Inventory Management (HALPIM); Russia, where the economy remains fully mobilized to support war in Ukraine, and Turkey.<\/p><\/p><p class=\"ucrIndent\"><p>Similarly to the overall assessment of activity, output continued to fall in 1Q24 in Czechia, Poland, Romania and grew in Hungary, Russia and Turkey. Output expectations are uniformly more optimistic than the current assessment, but order numbers do not back this optimism. Total orders fell less in 1Q24 than in 4Q23 in Czechia, Romania and Turkey but rose strongly in Hungary (without backing from actual industrial-production data or other surveys) and Russia. In Poland, total orders fell more than in the last quarter of 2023. Low orders can be explained by weak foreign demand. In 2023, overall orders were stronger than export orders, implying robust domestic demand. This gap was closed in most countries, following weak export demand globally (Chart 1). For CE4 (Czechia, Hungary, Poland and Romania), weak output and orders in Germany acted as the biggest brake on growth in industry and economic activity in general.<\/p><\/p><p class=\"ucrIndent\"><p>There were also positive signs in 1Q24. The ratio between orders and inventories rose further in Czechia, Poland, Romania and Turkey (Chart 2), with inventories declining sharply only in Romania. However, the Romanian time series is short, with the new BCR Romania Manufacturing PMI going back to July 2023.<\/p><\/p><p class=\"ucrIndent\"><p>Concern over supplier delivery times has increased gradually since Houthi attacks on cargo ships in the Gulf of Aden and the Red Sea. Anecdotal evidence suggests an increase in delivery costs of 10-15% due to ships being rerouted around Africa, while delivery times increased by 10-20 days. Czech manufacturers seem to be better-cushioned than their peers, probably due to their lower reliance on this transport route (Chart 3).<\/p><\/p><p class=\"ucrIndent\"><p>In 1Q24, employment continued to fall in CEE manufacturing, given demand and supply constrains (Chart 4). The downtrend was more pronounced in Hungary, where labor hoarding has been stronger, according to the European Commission. The only CEE country in which labor demand has continued to rise is Russia, where economic mobilization for the war effort has sucked capital, financial and human resources out of other economic sectors, leading to the lowest unemployment rate and the highest vacancy rate on record.<\/p><\/p><p class=\"ucrIndent\"><p>Lower demand seems to have weighed on the ratio of output to input prices (Chart 5). This happened despite CEE companies signaling that input prices stopped falling in 1Q24, with the fastest growth registered in Turkey, Russia and Romania. This uptick in input prices perceived by supply managers is not evident in producer prices, which have continued to fall due to low import prices, or in energy prices, which remain much lower than they were last year. With wages also rising above inflation, it looks like margins were again under pressure in 1Q24. We do not expect this squeeze to last. Stronger consumer demand, helped by rising household income, should allow companies to increase prices on domestic and foreign markets before the end of the year. However, companies in sectors that face global oversupply (such as metals) might struggle to raise selling prices this year.<\/p><\/p><p class=\"ucrIndent\"><p>For CEE central banks, 1Q24 manufacturing PMIs contain a few interesting signals:<\/p><\/p><p><ul class=\"ucrBullets\"><li>Domestic demand is rebounding slower than expected due to weak foreign demand. With 2023 economic growth below potential in most CEE countries, this means that output gaps could put less pressure on prices in the next three to six months. This is backed by input and output price dynamics suggesting a squeeze in margins. Even if domestic demand rebounds faster, base effects will drive disinflation in CE4 for at least another quarter. Thus, we see scope for rate cuts in 2Q24 and 3Q24 in CE4, with central banks now firmly focused on short-term data.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Companies report that input prices have bottomed out. If consumer (and export) demand improves, price pressure might increase in 4Q24 and 2025. This means that rate-cut expectations for 4Q24 and 2025 are probably overstated for CE4.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>In Russia and Turkey, signals are different. Positive output gaps amid loose fiscal policy and high inflation expectations due to supply shocks will force both the CBR and the CBRT to remain hawkish if they want to stabilize inflation. We see scope for rate cuts in Russia only from 2H24 onwards and in Turkey only next year.<\/p><\/li><\/ul>"},{"layout":"linklist","uid":2695,"publicationDate":"28 Mar 15:09","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2024_186333.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRoD7ZpwRFBhydWwCzE7TVIvw==&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"CEE Data Watch","product":"EEMEA Macro Note","synopsis":"<p class=\"ucrIndent\">Next week\u2019s highlights will be the monetary-policy decisions in Romania and Poland, the release of March PMI data for CEE and March inflation data for Turkey. Additionally, S&P will review Serbia\u2019s credit rating, while Moody\u2019s will review its credit ratings of Croatia and North Macedonia. We expect an outlook upgrade in Serbia\u2019s case but no changes for Croatia (due to political turmoil) and North Macedonia. Before these, Turkey will hold local elections on Sunday. <\/p>"}]