News

The UniCredit Chartbook – 16 April 2013

Welcome to the latest UniCredit Chartbook. We hope you will find this publication useful.

Monthly recap

■ EMU: The March round of surveys was generally disappointing, particularly the PMIs, which weakened significantly. However, not all news from last month was negative: the EuroCOIN indicator continued to improve, while hard data in January-February seem consistent with a tentative stabilization in economic activity. Overall, the information availabe thus far indicates the emergence of some downside risks to our GDP forecasts, although visibility remains low. Concurrently, inflation remains on a downward trend, mostly driven by a rapid deceleration in energy prices. The latest weakish data have been reflected in a perceptibly more dovish ECB rhetoric. For the time being, we maintain our forecast for a steady refi rate. However, the risk of a further (final) 25bp cut has significantly increased.

■ US: Shifting growth from the second to the first quarter. Having stressed the upside risks to our 1Q13 GDP call for several weeks, we are now raising our growth forecast for the first quarter to 3.0% (annualized) from 1.5%. Most importantly, consumer spending weathered the expiration of the payroll tax cut much better than expected. That said, we still do not think that the consumer can completely shrug off the drag from tighter fiscal policy. Accordingly, we are lowering our 2Q13 forecast to 1.8% from 2.8%. The 2013 average still goes up to 2.2% from 2.0%. Low inflation rates and the temporary growth slowdown in the second quarter suggest that the Fed will continue to buy long-term assets at least until the end of this year.

■ CEE: The CEE economy is also showing signs of recovery, with the PMIs and industry in some economies ticking up in 1Q, although this follows a particularly weak 4Q last year. In many of the newer EU states, there are signs that credit growth has bottomed and although any recovery will be gradual, credit should at least be much more neutral for economic activity this year. Turkey is already seeing an acceleration in credit growth, a trend which poses a risk to domestic demand, while Russia is seeing credit growth slow.  Meanwhile, central banks continue to ease monetary conditions. Despite all of the above, however, policy makers are showing impatience with the pace of recovery and in some economies this is impacting the quality of policy making.

■ China: Recent activity data in China disappointed, showing that the recovery eased over the first three months of this year. While we still see room for some improvement up until this summer based on additional fiscal accomodation and unfolding re-stocking needs, and underpinned by still rising business climate indices, economic growth will level off thereafter. A gradually improving global economy will be outpaced by the recent step-up in measures to rein in house price increases and financial risks, both of which are increasingly weighing on domestic demand. Given the slower start to the year and the weaker momentum, we revise down our 2013 annual GDP growth forecast from 8% to 7¾%.