News

The UniCredit Chartbook – 21 May 2013

Welcome to the latest UniCredit Chartbook, in which a number of slightly revised forecasts is published.

Monthly recap

• EMU: We lower our 2013 GDP forecast to -0.6% (from -0.1%) and our 2014 forecast to +1.0% (from +1.2%). There are three reasons for the revisions: 1. marginally weaker-than-expected GDP in 1Q; 2. while we came out of 1Q with strong hard data, the soft indicators, including the PMIs, are recovering a tad slower than expected; and 3. our global leading indicator suggests that global growth and trade over the summer may be softer than previously envisaged. As a result, we now forecast that 2Q will post marginally negative GDP growth (instead of marginally positive) and that the 2H recovery will unfold at a somewhat slower pace than previously anticipated. The qoq GDP trajectory for 2014 remains broadly unchanged. With slower global trade, the recovery in fixed investment will likely be delayed. The inflation rate has probably troughed, but a return to 2% is not in the cards anytime soon. As a result, we now see the beginning of the ECB's refi rate normalization in mid-2015, rather than at the end of 2014.

• US: The US economy expanded by 2.5% annualized in 1Q13, driven by a strong increase in credit-fueled consumer spending. Following this solid start to the year, GDP growth is likely slowing to 1.8% in the current quarter. Most of this volatility reflects the (lagged) response to fiscal tightening and some renewed inventory adjustment. This (temporary) growth slowdown, in combination with falling inflation rates, has increased the probability that the Federal Reserve's asset-purchase program (QE3) will remain in place for longer than we currently think (i.e. into 2014).

• CEE: CEE is a region of increasing differentiation. Accompanying changes to our other European forecasts, we downgrade our growth projections for Russia and the Czech Republic, leave Poland unchanged, while upgrading our growth forecasts for Hungary and Turkey. The downgrade to our forecast for the Czech Republic reflects a particularly weak 1Q (-0.8% qoq). In Russia, the downgrade reflects a negative terms of trade shock, capacity constraints and limitations on credit growth. In contrast, Hungary posted a surprisingly strong 1Q while the slowdown in the pace of deleveraging by foreign banks should aid domestic demand. Turkey benefits from increased capital inflows, ever lower interest rates, and support from fiscal policy.

• China: We think that tepid 1Q data are likely to carry over into spring, posing some downside risks to our expectation that growth will pick up to around 8% in the current quarter. For now, we keep our GDP growth forecast of 7¾% for both 2013 and 2014.