Growth Drivers

The growth outlook for the most major industrialized countries has deteriorated significantly in the second half of 2011 due to the intensification of the EMU debt crisis and the global slowdown. We expect the global slowdown to flatten out at the beginning of the year and we do not foresee a significant further deterioration of the debt crisis in the euro area, although the level of uncertainty will probably remain elevated for the foreseeable future.In this environment, UniCredit is set to leverage upon its international client franchise, providing unrivalled access to core Western European countries and exposed to the growth potential provided by its leading presence in CEE countries.

GDP growth in the eurozone should ease from 1.6% in 2011 to 0.6% in 2012. However, we expect the economy to trough this winter, followed by gradually better growth over the course of the year as financial tensions start easing. We forecast significant divergence in growth performance throughout the eurozone, as the periphery will be dragged by both fiscal consolidation and much tighter monetary conditions until the ECB regains control of monetary policy. A more aggressive ECB, further measures on eurozone governance and signs of stabilization in the economy should help markets. We expect significant spread tightening in Italy, in Spain, particularly at the short end. Meanwhile, we see further euro weakness ahead.

In Italy, GDP contracted  by 0.2 % qoq in the  third  quarter,  underperforming the eurozone where GDP expanded by 0.2% qoq. In the third quarter, Italy has virtually entered into a techincal recession since we expect  the contraction to deepen in the last quarter of 2011 as GDP  should fall by 0.6% qoq, with some downside risks. In yearly average term, we see GDP expanding by 0. 4 % in 2011 and contracting by -0.3% in 2012.

In Germany, driven by the substantial slowdown in global growth, new order dynamics has decelerated strongly. In the short term, the order cushion still maintains support for the economy, stabilizing also the domestic sectors. After a strong GDP growth this year of 3%, we expect a much softer pace in 2012 (1.2%).

At least the start of 2012 will be a particularly testing period for the CEE region. The primary uncertainty at this stage stems from EMU via a number of channels (trade, risk appetite, bank funding). Though we have maintained our 2011 growth forecast, we have reduced our 2012 growth forecast by 0.9pp to 3.0. The larger economies, namely Turkey, Poland and Russia, will lead the pack, with Kazakhstan in first place. However Slovenia, Croatia and potentially also Hungary look set to slip back into recession. Many other countries (e.g. Czech, Romania, Bulgaria, Slovakia) will struggle to post real GDP gains in excess of 2%. Deleveraging by the banking sector within EMU risks weakening currencies and lowering GDP but some countries are more at risk than others. With growth slowing, fiscal policy in many countries on a consolidation path and the ECB easing rates, official policy rates will not increase much if at all in 2012. However the low level of rates means that there is also limited scope for cuts.

The breadth of UniCredit’s unique business and geographical mix represents a remarkable competitive advantage in terms of growth opportunities, managerial options and, through diversification, earnings quality.
 

The heightened client-centric bias of Corporate and Investment Banking activities further underpins this strategic setting by steering UniCredit financials towards a higher share of recurring revenues and a lower risk profile.  
 

UniCredit is committed to a continuous focus on efficiency, targeting an optimal balance between cost control and adequate investments.

Among the various initiatives engaged on this front, gains from the roll out of One4C project are already yielding beneficial impacts on profitability. Further gains are expected through the efficiency initiatives announced in the context of the strategic plan announced on 14th November 2011.