a2873dd348b6497a8d8f56a5911240c8067ac562fd69a3cb5cfcff1456c6e285;;[{"layout":"linklist","uid":2871,"publicationDate":"17 May 15:58","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186533.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJJKdVS3cWHP6tdFt-MOfFU4=&T=1&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Good news for Italy\u00b4s public finances from the cost of ageing","product":"Chart of the Week","synopsis":"<p class=\"ucrIndent\"><\/p><\/p><p><ul class=\"ucrBullets\"><li>At the end of April, the EU\u2019s new economic-governance framework entered into force. One of the first steps in its implementation is to frame the dialogue between the European Commission (EC) and member states with high public debt or a government deficit exceeding the 3% of GDP. This dialogue is intended to lead to the submission, by 20 September, of national medium-term fiscal-structural plans, which are to detail member states\u2019 fiscal adjustment, reforms and investment to put their public-debt\/GDP ratios on a sustainably downward path, even in adverse scenarios. <\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>The process will rely on the EC\u2019s comprehensive debt-sustainability-analysis (DSA) framework, which will also take into account the spring 2024 economic forecasts published by the EC this week, and the latest update of ageing-related budgetary projections (ageing costs). Our Chart of the Week presents the most recent outcome of ageing cost by comparing new cost-of-ageing projections by EC with its estimates published last year. A significant projected increase in ageing costs tends, per se, to put upward pressure on a country\u2019s public-debt\/GDP ratio by negatively affecting estimates of its structural primary balance (SPB).<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Our chart shows that, compared to the estimate published one year ago, an improvement in ageing cost is now projected for Greece, Italy, Belgium and France over the current decade. For Greece and Italy, the difference is equal to -1.1pp of GDP over the decade, albeit with a more gradual revision occurring in Italy than in Greece. At the same time, Spain will have to manage an upward revision to its cost-of-ageing projections. The overall increase, projected to occur between 2024 and 2033, is expected to be equal to +1.4pp of GDP, compared to a decrease equal to 0.3pp of GDP reported in 2023. Thus, the revision in the cost-of-ageing projections amounts to +1.7pp of GDP over a decade. <\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Total age-related expenditure is still high in Italy and compares unfavorably to its eurozone peers. It amounted to 27.3% of GDP in 2022 compared to 23.9% in Spain and 23.4% in Greece, for example. However, the downward revision in ageing-related budgetary impact by the EC for the current decade should be seen as very good news, particularly for Italy. In fact, this revision helps to improve the dynamic of the public-debt\/GDP ratio projected in a no-policy-change (or baseline) scenario, on the basis of which member states\u2019 fiscal adjustment over a four- or seven-year period is calculated. In the case of Italy, lower cost-of-ageing projections will allow, for example, the worsening of the estimate of the 2024 SPB to be more than offset, supporting, therefore, the country\u2019s primary balance and public-debt projections by 2033 in a baseline scenario.<\/li><\/ul>","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":2870,"publicationDate":"17 May 14:38","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2024_186532.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRoDXSl937vwXy9QVkVJ9Jbkw==&T=1&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"CEE Data Watch","product":"EEMEA Macro Note","synopsis":"<p class=\"ucrIndent\">The highlights next week are the central bank meetings in Hungary and Turkey. S&P will review Bulgaria\u2019s sovereign rating and we expect no changes.<\/p>"},{"layout":"linklist","uid":2861,"publicationDate":"15 May 17:09","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186521.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJJKdVS3cWHP6jtTp8qlYtqk=&T=1&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - US: April CPI report brings relief for the Fed, but not yet enough confidence","product":"Data Comment","synopsis":"<p class=\"ucrIndent\"><p><\/p><\/p><p> <ul class=\"ucrBullets\"><li>The US CPI report for April brought some relief for the Fed. Headline consumer inflation decelerated to 0.3% mom from 0.4% mom, with the yoy rate coming down by 0.1pp to 3.4%. Looking at the non-core components, the food index was unchanged in April after increasing 0.1% mom in the previous month. Interestingly, prices for limited-service meals (i.e. fast food) were up 0.4% mom, a slightly faster pace than the 0.3% mom rise in March. This acceleration, which was more contained than some had expected, is likely related to the more than 20% hike in the minimum wage for fast-food workers in California in April. This is important (and reassuring) for the core PCE reading (the Fed\u2019s preferred measure of inflation) because, unlike in the CPI, this price category (which belongs to \u201cfood away from home\u201d) is part of the core reading. The CPI energy index rose 1.1% mom for a second consecutive month in April, with gasoline prices moving up 2.8% (adding 0.1pp to headline monthly inflation). Gasoline prices are set to provide a downward contribution to headline inflation in May.<\/p><\/li><\/ul><p> <ul class=\"ucrBullets\"><li>Core inflation also decelerated to 0.3% mom from 0.4% mom, with the yearly rate dropping to 3.6% from 3.8%. Annualized figures over different time horizons were mixed, with the one-month rate down to 3.6% from 4.4%, the three-month down to 4.1% from 4.5% and the six-month up to 4.0% from 3.9% (reflecting strong monthly outturns in 1Q). Fed Governor Christopher Waller and other Fed officials have stated that they look closely at the six-month and three-month rates. While the disinflationary process on the core front regained momentum in April, core CPI inflation is still too high for the Fed\u2019s liking. Taking the April CPI and PPI reports together, it points to core PCE inflation (due to be released later this month) of 2.5-3.0% mom at an annualized rate in April.<\/p><\/li><\/ul><p> <ul class=\"ucrBullets\"><li>Looking at the breakdown for core inflation, there were some positive developments. Core goods prices contracted 0.1% mom, remaining in negative territory for a second consecutive month, driven by lower prices for used cars and trucks, household furnishings and operations, and new vehicles. On the housing prices front, there were signs of slow improvement, with growth in primary rent inflation easing to 0.35% from 0.41%, while owner equivalent rent rose 0.42% after 0.44% in the prior month. This stickiness remains a source of concern for the Fed, even if market rents firmly point to further disinflation later this year, and the weight of housing in the PCE basket is lower. Finally, supercore inflation (i.e. core services inflation excluding housing) decelerated to 0.4% mom from 0.7%, driven by car insurance (that still rose at a rapid 1.8% mom in April after a 2.6% rise in March), other transport services, medical care services, and personal care.<\/p><\/li><\/ul><p> <ul class=\"ucrBullets\"><li>After three consecutive months of upward surprises, the disinflationary process regained some momentum in April. Clearly, the Fed will need to see more than one month of better data (and likely more than two months) before being confident that the 2% target is in sight and considering cutting rates. In a separate release today, retail sales were flat in April, pointing to further softening in economic activity. We still expect the first Fed rate cut in September and a total of 75bp of rate cuts this year.<\/p><\/li><\/ul><p class=\"ucrIndent\"><p> In more detail, Both headline and core CPI inflation eased in April but they remain above levels consistent with the 2% target for PCE inflation, even when looking at smoother measures (Chart 1).<\/p><\/p>"},{"layout":"linklist","uid":2855,"publicationDate":"13 May 15:47","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2024_186510.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRoNgIWLQ_SS_hWKsyvibd5bw==&T=1&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"EEMEA Macro Flash - Serbia: inflation getting close to the target range","product":"EEMEA Macro Note","synopsis":"<p class=\"ucrIndent\"><\/p><\/p><p><ul class=\"ucrBullets\"><li>Headline inflation remained at 5.0% yoy in April (our forecast: 4.7% yoy) as a decline in the contribution from core inflation and prices for alcohol and tobacco was offset by a higher contribution from energy and food inflation.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>The inflation momentum edged up but remained in the 3.0-4.5% range it has been in since September 2023, with some monthly volatility, indicating moderate but sticky price pressure. Momentum for core prices remained sticky, with the contribution of core services increasing and that of goods declining.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>We expect inflation to fall inside the target range (1.5-4.5%) in May and to slow further towards 3.0% by the end of the year. In 2025, it will likely hover at around 3.0%.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Risks to the inflation outlook relate to geopolitical tensions, which could trigger shocks in commodity prices, and the possibility of a more moderate reduction in core inflation on the back of strong wage growth and pension increases.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>We expect the National Bank of Serbia (NBS) to start reducing interest rates in June, at the same time as the ECB. We assume the NBS will cut rates from 6.50% to 5.50% in 2024 and further to 4.50% in 2025. Headline inflation remained at 5.0% yoy in April (our forecast: 4.7% yoy) after declining for twelve consecutive months. A decline in the contribution from core inflation (-0.13pp from the annual rate) and prices for alcohol and tobacco (-0.07pp) was offset by a higher contribution from energy (+0.17pp) due to fuel prices, and food inflation (+0.06pp), almost entirely driven by prices for fresh fruit due to an unseasonal monthly decrease last year. We estimate that core inflation fell for the thirteenth consecutive month, from 5.0% yoy to 4.7% yoy, with the decline driven by a drop in annual terms for prices in over half of the categories. The surprise vs. our forecast was the increase in prices for fresh fruit, and we had expected a lower increase in fuel prices.<\/p><\/li><\/ul><p class=\"ucrIndent\"><p>Inflation momentum (3M inflation, annualized and seasonally adjusted) edged up, driven by all components (Chart 1), but we would not put too much weight on the monthly move as it has been volatile. When looking at a longer time span, momentum remained in the 3.0-4.5% range it has been in since September 2023, indicating moderate but somewhat sticky inflation pressure. The momentum for core prices, after dropping in May and June 2023, has remained broadly stable since then (with a slight uptick recently), with the contribution of core services increasing and that of goods declining (Chart 2).We forecast headline inflation to fall inside the target rage (1.5- 4.5%) in May, driven by lower food and energy inflation. We then see it slowing further towards 3.0% yoy by the end of the year, due to base effects in food prices (June) and energy prices (June to November), and gradually slowing core inflation (Chart 3). We assume no further hikes in gas or electricity tariffs in 2024. In 2025, we expect inflation to hover at around 3%. The main risks to the inflation outlook are renewed supply shocks affecting energy and food prices in connection with the war in Ukraine and the situation in the Middle East and stickier-than-expected core inflation due to wages and pension increases. Regarding the latter, real income growth is picking up, reflecting disinflation and strong nominal wage growth due to the minimum wage increase of 17.8% in January, the public-sector wage increase of 10% and solid wage growth in the private sector. This is contributing to keeping the momentum in core services inflation elevated (Chart 4). As mentioned in our latest CEE Quarterly, we expect the NBS to start reducing interest rates in June, at the same time as the ECB. We assume the NBS will cut rates from 6.50% to 5.50% in 2024 and further to 4.50% in 2025, broadly mirroring the ECB\u2019s easing path. However, inflation will be around target at year-end and the continued appreciation pressure due to strong FDI inflows would allow for a faster pace of rate cuts, especially if the NBS wants to increase dinarization.<\/p><\/p><p class=\"ucrIndent\"><p>The NBS\u2019s new inflation report will be released on Wednesday, and we expect the central bank to confirm that inflation will enter the target range in May and slow to 3% by mid-year. In terms of growth outlook, the NBS will also probably confirm the forecast of 3-4% for 2024.<\/p><\/p><p class=\"ucrIndent\"><p><\/p>"},{"layout":"linklist","uid":2854,"publicationDate":"13 May 15:44","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2024_186509.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRoavRfQlouBfnttOcdBEgRxA==&T=1&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"EEMEA Macro Flash - Romania: the NBR postpones the first cut, probably to 5 July","product":"EEMEA Macro Note","synopsis":"<p class=\"ucrIndent\"><\/p><\/p><p><ul class=\"ucrBullets\"><li>Today, the NBR decided to keep monetary-policy rates unchanged, despite the market penciling in a 25bp cut. <\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>We had expected rate cuts to begin this month, locking in some of the 1pp in easing delivered through excess interbank liquidity, which stood at close to RON 50bn (2.8% of GDP) in April. <\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>We believe that the NBR will start cutting on 5 July, lowering the policy rate to 6% before year-end. <\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>We assume that interbank and market rates will remain close to the deposit rate in the coming months, moving closer to the policy rate before year-end in the event of FX interventions and\/or short-term borrowing by the government and mounting public arrears. <\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>We expect rate cuts to 4.5% in 2025 even if tax hikes keep inflation above 5% next year. We forecast headline inflation excluding tax changes to fall below 4% in 2025 and core inflation to be close to target if fiscal policy is tightened. In contrast, we expect no cuts and tighter monetary conditions if fiscal policy remains as loose as in 2023-24. <\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>We believe that EUR-RON will move to a 5.00-5.10 range next year, with nominal depreciation reversing a small part of the real appreciation accumulated since 2020 and that is contributing to Romania\u2019s yawning external imbalances. Today, the NBR left the monetary-policy rate at 7%, while economists and markets were expecting a cut to 6.75%. Back in February, NBR Governor Mugur Is'rescu had staked a first rate cut on inflation falling for at least two more months. Subsequent readings for February and March showed disinflation resuming after higher taxes led headline inflation to spike to 7.4% yoy. Tomorrow\u2019s inflation release for April is likely to confirm the downtrend. Thus, the decision to wait is probably explained more by inflationary risks than by the current level of headline inflation. Inflation readings for April and May will be affected by the recent fall in electricity and natural-gas prices. The energy ministry announced that electricity and natural-gas bills fell by 15% and 25%, respectively, in April compared to March. This decline is from capped prices and reflects the sharp fall in international prices for natural gas and the region\u2019s improving energy mix (more renewables) at the beginning of 2024. While HICP would reflect this price decline immediately, the National Institute for Statistics (NIS) will consider actual bills, of which many are yet to be issued for April. Thus, we assume a small drop in prices in April (3% for natural gas and 2% for electricity), which would push headline inflation down to around 6.1%. In contrast, today\u2019s press release from the NBR suggests that the central bank has not taken lower electricity and gas prices into account when forming its view. It also suggests that the NIS may have omitted any decline in energy prices from April inflation. The NBR\u2019s press release following the monetary-policy meeting mentions that inflation is likely to end 2024 higher than the NBR had forecast in its February inflation report (4.7%). We note that, if the full price drop in electricity and natural gas were to be reflected in prices eventually (which is unclear, given uncertain international prices), inflation would fall below 5% in 1H24 and eventually end 2024 below 4% (almost 1pp below the NBR\u2019s February forecast), narrowly missing the target range (1.5-3.5%). The NBR\u2019s new inflation report will be presented on 15 May at 11AM EET (10AM CET, 9AM BST). A second reason for expecting a rate cut today is that it would have locked in some of the easing delivered through very loose liquidity conditions. Chart 1 shows that excess liquidity in the interbank market was almost RON 50bn in April (equivalent to 2.8% of expected 2024 GDP). As a result, ROBOR rates up to 3M are trading at close to 6% (the marginal deposit rate) and the 3M implied rate is close to 5.8%. We believe that the NBR would benefit from an instrument to manage this excess liquidity in a timely manner. In our view, such an instrument would be a tradable central-bank bill with a maturity of 1-2 weeks that pays an interest rate equal to the monetary policy rate plus a spread. This spread can be negative when markets are calm. A -1pp spread would equal remuneration to the marginal deposit rate. In times of risk aversion, the spread could increase as much as needed to stabilize the market while minimizing FX interventions (and thus preserving FX reserves) and avoiding any restrictions imposed on the capital account. Without such an instrument, the NBR can use reverse repos with FX collateral (the NBR holds just RON 4.0bn of RON bonds) or intervene massively in FX to sterilize RON liquidity. The NBR holds enough FX reserves to drain all excess liquidity (Chart 2), but markets are unlikely to endorse a rapid decline of FX reserves, given Romania\u2019s large twin deficits. We expect the NBR to start cutting on 5 July and deliver four rate cuts this year, to 6%, assuming that market conditions would allow the NBR to cut at its last monetary-policy meeting in November. This would require the government to commit publicly to tightening fiscal policy next year. Over the summer, excess liquidity could grow further, as the government has yet to spend a large amount of EUR from the Recovery and Resilience Facility (EUR\u00a07.5bn of the received funds remained unspent at the end of March, according to the EU-funds Minister, Adrian C\u00e2ciu). This means that future rate cuts could see interbank interest rates falling close to the marginal deposit rate. However, the spread between interbank and market rates on the one hand and the monetary-policy interest rate on the other might narrow before the end of the year as the government is likely to incur a larger budget deficit than it currently expects. We see this year\u2019s fiscal shortfall at 6.3% of GDP, while the ministry of finance expects it to be around 5% of GDP. Mounting government arrears and short-term borrowing to avoid pressure on bond yields are two ways in which the liquidity surplus could fall before the end of 2024. In addition, any significant pressure on the RON would trigger NBR interventions, further depleting the RON surplus. Additional rate cuts in 2025 depend on how much fiscal policy is tightened next year. While a 2pp increase in VAT and higher excise duties, taxes on microenterprises and authorized individuals seem to be endorsed by the government and international financial institutions and accepted by private-sector bodies, a progressive personal income tax (PIT) is unlikely to be implemented next year because the tax authority ANAF is not prepared to implement it. Thus, the fiscal package expected next year is likely to be heavy on inflationary measures.<\/p><\/li><\/ul><p class=\"ucrIndent\"><p>Even if indirect taxes increase significantly next year (VAT, excise duties) alongside taxes on commodity production and property, we believe the NBR will continue to cut rates as domestic demand is likely to weaken. We expect rate cuts to 4.5% in 2025, which would leave the real interest rate (ex post) at around 0.7% when excluding the first-round effect of indirect tax increases from inflation. If a progressive PIT is introduced in 2026, the ex-ante real policy rate could exceed 1.5% at the end of 2025. We expect headline inflation to exceed 5% in 2025 if tax measures are delivered. Excluding indirect taxes, headline inflation would be below 4% (Chart 3), while core inflation would be close to the 2.5% target, according to our forecast. We assume that consumer demand will grow at a much slower pace next year (1.3%) than in 2024 (3%). If the government fails to tighten fiscal policy in 2025, we fear that renewed pressure on the RON and weak appetite for sovereign bonds will force the NBR to tighten monetary conditions and forego rate cuts.<\/p><\/p><p class=\"ucrIndent\"><p>The NBR decided to keep EUR-RON trading in a 4.90-5.00 range in election year 2024, thus postponing a breach of 5.00 for a third year in a row. We expect this to change in 2025, when EUR-RON could trade in a 5.00-5.10 range, with the NBR tightly managing the float. Nominal depreciation of around 2% will do little to reverse real appreciation, which has been around 15% since the COVID pandemic, measured using both unit-labor costs and producer prices (Chart 4). We believe that the strong RON is partly to blame for Romania\u2019s large structural trade deficit in goods (which we estimate at 9% of GDP, by far the largest in CEE). This is because of large imports of food and consumer goods, which, alongside other low-value-added merchandise, are outcompeting local production. The same is true for Romania\u2019s low-value-added exports, which are struggling to maintain market share. The trade deficit prevents the C\/A deficit from narrowing below 7% of GDP, although weaker domestic demand could shrink the C\/A deficit in late 2024 and in 2025 (for details, please see our 2Q24 CEE Quarterly). Despite the yawning external deficits, we do not believe that the NBR will change its FX policy significantly. We expect Mr. Is'rescu to be confirmed by parliament for a record seventh mandate as governor, with Prime Minister Marcel Ciolacu having endorsed him publicly. Rate cuts and a commitment to fiscal tightening could help ROMGB yields if the ministry of finance times its issuance well and uses short-term borrowing from local banks when pressure mounts on yields. With marketable public debt continuing to rise rapidly, the ministry of finance needs to manage the secondary market more actively, in our view, to narrow spreads to its regional peers. This would help ROMGB 10Y yields to end 2024 close to levels registered in late 2023, which would still mark a rally from current levels. <\/p>"},{"layout":"linklist","uid":2847,"publicationDate":"12 May 13:55","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186502.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJJKdVS3cWHP6qiQnNVRYUCs=&T=1&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Sunday Wrap","product":"Sunday Wrap","synopsis":"<p class=\"ucrIndent\"><\/p><\/p><p><ul class=\"ucrBullets\"><li>I\u00b4ll remind you of the data, including the unusually large divergences \u2013 and shortfalls \u2013 in key areas, particularly recent years\u2019 large underperformance in European domestic demand.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>I\u00b4ll discuss the reasons for this underperformance, including the effect of the huge terms-of-trade loss hitting Europe (but not the US). It still leaves a lot of underperformances to be explained by policy choices.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Has it been a matter of \u201cshort-term pain for long-term gain\u201d' I\u2019ll end with a brief discussion of policy sustainability and suggest that we may no longer be thinking about this issue in the right way.<\/li><\/ul>"},{"layout":"linklist","uid":2844,"publicationDate":"10 May 12:34","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2024_186499.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRoxAUge7sCYu1T1a_K2pgKOw==&T=1&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"CEE Data Watch","product":"EEMEA Macro Note","synopsis":"<p class=\"ucrIndent\">The highlights next week are preliminary 1Q24 GDP data for Bulgaria, Poland Slovakia, Slovenia and Romania, as well as the April CPI readings for Czechia and Serbia, and the central bank meeting in Romania.<\/p>"},{"layout":"linklist","uid":2840,"publicationDate":"08 May 14:08","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186491.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJMfHK85BPUzZUATfS47GBPs=&T=1&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Large differences in real-wage trends across the eurozone","product":"Chart of the Week","synopsis":"<p class=\"ucrIndent\"><\/p><\/p><p><ul class=\"ucrBullets\"><li>Our Chart of the Week shows strong heterogeneity in the evolution of compensation per employee in real terms across the eurozone since the beginning of the pandemic (red bar). Compensation per employee is a broad measure of wages which includes a negotiated-wage component and one-off payments (along with employers\u2019 social security contributions). Given these features, it is closely monitored by the ECB when assessing the outlook for growth and inflation. <\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>At the opposite ends of the spectrum, we find Portugal with a cumulative increase in real compensation per employee of about 7%, and Italy with a contraction of about 8%. The eurozone as a whole (not shown in the chart) has recorded a decline of 3%. This compares with an increase of about 1% in the US. Within the euro area, large differences at the national level reflect a number of country-specific factors affecting both inflation and nominal compensation.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>The magnitude of the inflation shock depends, to a meaningful degree, on the energy mix of individual countries and on the response of national fiscal authorities. In general, higher exposure to natural gas prices has led to comparatively higher inflation (for example in Germany, Italy, the Netherlands and Belgium), while countries such as Portugal and Greece with low exposure to gas prices have also benefitted from generous fiscal measures aimed at shielding consumers from price increases.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>When it comes to nominal compensation, we note that Belgium is the only country in our sample where automatic wage indexation applies to a large share of public and private-sector workers. This helped to maintain positive growth for real compensation per employee. Increases in the minimum wage seem to have played a particularly important role in supporting real compensation against the inflation shock. Portugal, Greece and Spain, which have recorded an increase in real compensation, are among the countries that have hiked the minimum wage strongly. Importantly, an increase in the minimum wage tends to push up the wages of those earning modestly above the minimum wage, as these workers seek to maintain a gap with the floor set by the minimum wage. In Italy, weak growth in nominal compensation and the resulting large contraction in real compensation mainly stem from wage moderation, as reflected in relatively contained wage claims, a staggered process for contract renewals and the absence of a minimum wage.<\/p><\/li><\/ul><p class=\"ucrIndent\"><p><\/p>"},{"layout":"linklist","uid":2824,"publicationDate":"05 May 13:18","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186473.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJMfHK85BPUzZ4P7dpCunu1E=&T=1&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Sunday Wrap","product":"Sunday Wrap","synopsis":"<p class=\"ucrIndent\"><\/p><\/p><p><ul class=\"ucrBullets\"><li>European growth bounced beautifully in the first quarter of the year and inflation remained well behaved through April. The June rate cut is now a done deal, in my assessment. In the second half of the year, the ECB is increasingly likely to be tested on the degree to which it\u2019s willing to de-link from the Fed.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>This past Wednesday marked the 20th anniversary of the EU\u2019s big-bang enlargement to include eight Central European countries as well as Cyprus and Malta. The economic success of transition and integration has been clear, but the outlook has become blurred in recent years.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>French President Macron delivered his Sorbonne-II speech with a catalogue of proposed policy reforms to give Europe a chance of sovereignty in the emerging geopolitical constellations. It\u2019ll be an uphill battle and not all of the proposals will fly but some of them will.<\/li><\/ul>"},{"layout":"linklist","uid":2823,"publicationDate":"03 May 16:57","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186472.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJMfHK85BPUzZ7I_I5XvKmlw=&T=1&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - US April jobs report shows softening","product":"Data Comment","synopsis":"<p class=\"ucrIndent\"><\/p><\/p><p><ul class=\"ucrBullets\"><li>The US employment report for April showed slower employment growth and lower pay growth, amid further signs that the labor market is coming into better balance. The economy added a less-than-expected 175k jobs in April and payrolls in the prior two months were revised down modestly (by a cumulative 22k). The rise in payrolls in April is the smallest since October 2023. More than half of the job gains in April came from the private education & health sector, which tends to be acyclical. There was a big slowdown in net hiring in the leisure and hospitality sector, government sector and construction sector compared to recent months. The 175k rise in payrolls in April is marginally below a recent estimate by Brookings for the sustainable level of job gains (i.e. that needed to absorb population growth and not apply upward pressure on the unemployment rate) of around 180k per month, given higher immigration.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>The unemployment rate edged up to 3.9% from 3.8%, only 0.1pp below the FOMC median projection for the end of this year. This reflected a 63k rise in the number of unemployed, a 25k rise in the household measure of employment (an alternative measure of employment to the payroll measure), and an 87k rise in the labor force. The participation rate was unchanged, as a rise in the prime-age (aged 25-54) participation rate was offset by a fall in that of younger and older (aged 55+) workers (the latter is to be expected, overtime, given the effect of ageing). In another sign that labor demand is softening, average weekly hours worked fell back in line with its pre-pandemic level.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Average hourly earnings rose 0.2% mom in April, less than expected. It took the year-on-year rate down to 3.9% from 4.1% in March. This is above the 3.0-3.5% range that Fed officials deem to be broadly consistent with meeting the 2% inflation target over time, assuming trend labor productivity growth of 1.0-1.5%. But recent dynamics, as measured by the three-month annualized rate, point to further falls in the yoy rate ahead. In the past, volatility in average hours worked has created volatility in average hourly earnings (this is because some workers report their pay as a weekly or monthly amount, and the BLS computes their hourly pay by dividing by their weekly hours worked). But the fall in average hours worked would have tended to push up average hourly earnings, not down. Aggregate payroll income was flat in April.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>The Fed will clearly welcome the April jobs report. It shows the labor market is moving into better balance, while employment growth is not falling off a cliff but moderating gradually. However, leading indicators of the labor market, such as the NFIB survey of small business\u2019 hiring intentions, point to further slowing in the coming months. The Fed will surely need to see more than one month of good data (including on inflation) before it will feel confident enough (that inflation is moving sustainably down towards 2%) to be able to cut rates. In a separate report today, the ISM services index fell by more than expected, to 49.4 in April from 51.4 in March, with the employment index down to 45.9 from 48.5. It adds to recent evidence that aggregate demand is slowing. We still expect the first rate cut in September and a total of 75bp of cuts for this year, one more cut than financial markets currently expect.<\/p><\/li><\/ul><p class=\"ucrIndent\"><p>Chart 1 shows that payrolls rose 175k in April, after a rise of 315k in March and 236k in February. The three-month average change eased to 242k in April from 269k in the prior month.<\/p><\/p><p class=\"ucrIndent\"><p><\/p>"},{"layout":"linklist","uid":2822,"publicationDate":"03 May 14:46","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186471.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJMfHK85BPUzZ3SDQjEHa2gA=&T=1&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - There is more than tourism behind Spain\u2019s strong GDP growth","product":"Chart of the Week","synopsis":"<p class=\"ucrIndent\"><\/p><\/p><p><ul class=\"ucrBullets\"><li>Spain\u2019s economic growth outperformed once again that of the eurozone, according to data released earlier this week. Spanish GDP increased 0.7% qoq in 1Q24, the same pace as 4Q23, compared to a 0.3% qoq pace of expansion for the eurozone as a whole. The 1Q24 GDP outcome lifted Spanish GDP 3.7% above its pre-pandemic level compared to 3.4% for the eurozone. <\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>While there is a common perception that Spain\u2019s outperformance is largely driven by the recovery in tourism, our Chart of the Week shows that this is only part of the story. In fact, while Spanish services exports (among which foreign tourism is classified) have increased by more than 20% from the outbreak of the pandemic until end-2023, far outpacing its peers, the share of GDP accounted for by non-travel services exports rose much more than that of travel services exports. Incidentally, the increase of services exports would be even stronger if the 1Q24 data (not yet available for all countries) were taken into account, as Spanish services exports increased by a massive 11% qoq in the first quarter.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Spanish tourism performed better than that of the other countries: in Spain, the share of travel services exports in GDP (grey dots) increased above its pre-pandemic level (+0.6pp), whereas in the other countries it remained slightly below (Germany and France) or is broadly unchanged (Italy). However, it was Spanish non-travel services exports, especially business services, that increased the most, as reflected in the 1pp increase in the non-travel-services-exports-to-GDP ratio (black triangles). Among the other countries, only France recorded a similarly strong increase. <\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Spain\u2019s increased ability to seize the demand for higher-value-added services suggests that growth in its services exports is likely to remain healthy given that global demand for these activities is increasing at a robust pace while the starting point for Spain (in terms of non-travel services exports as a share of GDP) is lower than that of the other large eurozone countries.<\/p><\/li><\/ul><p class=\"ucrIndent\"><p>Tullia BuccoEconomist+39 02 8862-0532tullia.bucco@unicredit.euUniCredit Bank GmbHUniCredit ResearchPiazza Gae Aulenti, 4 - Tower CI-20154 Milan[#PersonalizedTracker #]<\/p>"},{"layout":"linklist","uid":2821,"publicationDate":"03 May 13:28","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2024_186469.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRosmomqOU8viV_xr6TBIeC-A==&T=1&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"CEE Data Watch","product":"EEMEA Macro Note","synopsis":"<p class=\"ucrIndent\">The highlights next week are April CPI data for Hungary, and the central bank meetings in Poland and Serbia. S&P and Fitch will review Poland\u2019s sovereign rating, while Moody\u2019s will review Croatia\u2019s sovereign rating: we expect no changes.<\/p>"}]