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Latest UniCredit Chartbook_February 2013

Economics, FI/FX & Commodities Research

Monthly recap

■ EMU: GDP dropped 0.6% qoq in 4Q12, and the negative carry-over effect of this contraction lowers by 0.2pp our yearly GDP forecast for 2013, to -0.1% from +0.1%. This is not concerning, given that the revision reflects backward-looking information. Encouragingly, and more importantly, timely soft indicators continue to trend higher, consistent with our view that eurozone GDP will stabilize already at the beginning of the year. President Draghi confirmed that the ECB does not target the exchange rate, and dismissed the view that recent FX developments reflect “deliberate competitive devaluation”. However, he also hinted that the ECB is ready to respond if currency appreciation were to tilt to the downside the balance of risk to medium-term price stability. Our feeling is that the bar for a rate cut remains fairly high, and that only a further significant appreciation of the trade-weighted EUR would force the ECB’s hand on rates.

■ US: Following the unexpected GDP decline at the end of last year (which most likely will be revised to a small gain), the US economy is regaining momentum. And while growth in the current quarter is still restrained by tighter fiscal policy, the US economy, starting in spring, will most likely experience its strongest period of the recovery thus far. In addition to consumer spending, which remains the main growth engine, two key areas are set to support expansion going forward: the structural recovery in the housing market and pent-up demand in business investment. The Federal Reserve seems to share this view. They dismissed the weak 4Q12 GDP number and even toned down their risk assessment. That said, most board members continue to emphasize that the painfully slow recovery warrants a continuation of the ultra-easy policy. The large-scale asset purchase program (QE3) will therefore most likely continue until the end of this year.

■ CEE: The end of 2012 saw a series of weak data from CEE, including a decline in IP on the back of weak external demand and struggling domestic demand. Upcoming GDP releases, as a result, are likely to show at best lackluster growth and, in some economies, another quarter of contraction. Fortunately, in many cases inflation also moved lower, allowing central banks to ease monetary conditions in some economies, e.g. Poland and Hungary. We expect 4Q12 to mark the bottom in the cycle for activity, with some signs of a gradual improvement to materialize already in 1Q13, led by external demand.

■ China: Recent data imply that the Chinese economy is already recovering and will gain some traction further down the road. However, recovery momentum will be rather moderate by historical standards. Economic growth picked up again in 4Q12 for the first time in two years, with real GDP advancing by 7.9% yoy (although the 7.8% full-year growth was the weakest since 1999). High frequency activity data surprised on a stronger note as well, showing a healthy economic momentum starting 2013.