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The UniCredit Economic Chartbook

Welcome back to the UniCredit Economic Chartbook. We have made only relatively small adjustments to our forecasts, mostly reflecting the overall better-than-expected 2Q numbers.

Monthly recap

■ EMU: We revise up our 2013 GDP forecast to -0.3% from -0.6%, to take into account stronger-than-expected growth in 2Q13 and upward revisions to GDP data referring to late 2012/early 2013. We maintain our quarterly trajectory going forward and hence the full-year GDP forecast for 2014 at +1.0%, but we acknowledge that downside risks to this estimate have started to fade as peripheral countries are already stabilizing. The brightening of the growth picture in the eurozone reflects the first signs of improvement in domestic demand at a time when exports are regaining traction. This bodes well for the sustainability of the upswing. Despite recent good growth news, the ECB remains cautious, trying to prevent market-imposed monetary tightening by employing "forward guidance". Yet, they stand "ready to act" on liquidity, which we read as a sign that the central bank’s preferred option to counter a possible tightening of money market conditions may be another LTRO, rather than a rate cut.

■ US: 2Q13 GDP growth was revised up to an annualized 2.5% from the initially reported 1.7%. The bulk of the revision came from foreign trade. Private inventories also rose faster than initially reported, while consumer spending expanded solidly. For the second half of this year, we continue to expect GDP growth to accelerate to 2.8%, as the drag from fiscal tightening fades. In line with this view, many sentiment indicators rose to multi-year highs in August. At its upcoming FOMC meeting, the Federal Reserve will likely announce its decision to moderate the pace of its asset purchases.

■ UK: We have also revised up our GDP forecasts for the UK, reflecting both the better-than-expected start to the year and a somewhat stronger recovery going forward, as indicated by survey data. Like the ECB, the BoE is more cautious on the recovery and is fighting the market-imposed monetary tightening with "forward guidance", in the case of the UK even by articulating a threshold for unemployment. While the UK recovery is likely to be strong enough to continue even as yields move higher, we worry that it is excessively skewed towards real estate and consumer loans.

■ CEE: The ability of economies to take advantage of the recovery in EMU, while managing the risks emanating from Fed tapering and persistent outflows of portfolio capital from emerging markets, will be central to country-specific growth performance across CEE over the coming twelve months. We expect the newer EU states to enjoy faster growth rates, as already reflected in stronger industry performance, which should, in turn, feed through to domestic demand. However, Russia's failure to diversify its economy away from energy means that we have reduced our growth expectations there. Turkey will continue to be forced towards a narrower C/A deficit, given the absence of sufficient external funding, which will push growth lower.

■ China: Recent data indicate that the protracted growth slowdown came to an end this summer. Business sentiment as well as activity data stabilized or gained some traction. The shift in Chinese economic policy and improving global demand seem to have lent a helping hand. While better monthly numbers imply upside risks to our forecast that GDP will stabilize this quarter and settle between the 7½% growth target and the 7% pain threshold thereafter, it would still be premature at this stage to say that the Chinese economy is set to face a sustainable acceleration in growth.