In this page you can download a few papers on the current economic scenario produced by the Economics & Fixed Income/FX team of UniCredit Research.

All research papers are available to institutional investors through the restricted-access website.

Euro Compass – Economics & Fixed Income/FX monthly/quarterly

It provides in-depth analysis as far as ECB-watching is concerned, suggesting strategies to play on the Euribor curve and on major exchange rates. It has a dedicated section on inflation developments both in the short and medium term, a focus section with more detailed analysis on relevant issues and topics in the eurozone and tables with Macro/FI/FX forecast.

February 2010  - Risk of a two-speed recovery in the eurozone

We expect 4Q 2009 GDP to be reported at 0.3% qoq, a moderate loss of momentum after the 0.4% posted in 3Q. A slowdown in industrial activity accounts for most of the likely GDP deceleration. The pace of recovery will probably remain moderate at the beginning of the year.
Recent years have witnessed a substantial leveraging of eurozone households. While this undoubtedly increased their vulnerability to income shocks, the outlook could be characterized by very prudent optimism, as households have begun to deleverage and the aggressive monetary easing implemented by the ECB has brought significant relief. However, the situation remains fragile: labor and housing markets remain weak, undermining prospects for a recovery in consumption.
Current tensions in Spain, Greece, Portugal and Ireland are a reminder that external imbalances at single-country level do matter within the eurozone. We focus on several factors that allow to better assess the nature of these imbalances and identify the most appropriate response to the crisis: the level of competitiveness, the nature of capital inflows, and the degree of external indebtedness of the private sector.
The structural changes that Spain, Greece, Portugal and Ireland need to implement to proceed towards a more sustainable fiscal position and a more balanced growth model increase the probability of a two-speed recovery in the euro area. This complicates the ECB’s job of setting a one-size-fits-all monetary policy.
In the inflation section, we argue that momentum in food CPI remains weak and that a pick-up should not be expected soon. Cold weather could put some pressure on the price of fresh food in the very near term, but in our projections yoy food CPI turns positive only in the spring. We find that the pricing power of food manufacturers remains depressed despite the recovery trend in agricultural commodity prices.
The ECB is carefully planning its exit strategy, while keeping a nervous eye on developments in Greece and other peripheral countries. The March meeting will be the first important step, when Trichet will likely unveil the bank’s plans for withdrawing liquidity. We continue to envisage a gradual and cautious exit, and acknowledge the risk that tensions in the banking system can make the process of interest rate normalization slower than initially targeted by the ECB.
FI: Contagion risk has eased after news of an aid plan for Greece, but issues related to sovereign risk remain a key driver, supporting short-term AAA bonds. We outline a risk map of where contagion could spread and identify a number of macroeconomic and financial variables that will be important to monitor. An important conclusion we reach is that Italy is in a class of its own thanks to a combination of high private savings and prudent fiscal management in the recession.
FX: The Greek crisis won’t degenerate into a “third EMS crisis”. But, whatever the solution, at the end of the day the EUR upside potential will likely be damaged for a long period, if not structurally

CEE Quarterly – CEE Economics & Fixed Income/FX quarterly

It provides a broad overview of the key regional macro drivers, detailed country reports on 21 emerging European economies and full macroeconomic forecasts. 

Complementary to the Quarterly, the semi-annual publication CEE Economic Data 2008-2011 provides an overview of key cyclical and structural economic indicators for 21 countries in Emerging and Western Europe in both English and local languages.

1Q 2009 - Variety is the spice of life

On the back of the healthier rebound in global growth and improved outlook for some of the EME countries we raised our broad CEE-17 2010 growth forecast to 2.3% (from 1.4%). The upgrade comes mostly from our revision to the bigger countries (Turkey & Russia) whilst some smaller countries will still experience recession in 2010. In short differentiation will likely remain high in 2010.
We believe the global economic recovery is now solidly underway, and is sustain-able - but its initial pace is not. We are particularly cautious on the Eurozone, for which we forecast below-consensus growth of under 1% in 2010. Individual economies will fare very differently in the recovery with Germany probably outperforming (around 2%). Against this background, we expect that US and Eurozone policymakers will take a cau-tious approach to their exit strategies.
CEE recovery is underway but growth differentiation will remain relatively strong in 2010 as countries have different abilities to support their export growth via weaker ex-change rates and domestic demands will remain weak. Inflation will remain off the agenda in CEE but in the case of Turkey stronger growth will warrant rate hikes starting in Q3. Fiscal situation has deteriorated but still looks better than in many of the Western European countries (public sector debt is below 60% in all countries apart from Hungary).
Key macro forecast highlights: 1. Although Poland is outperforming at the moment we still believe that this reflects the late cycle nature of its economy, and expect this to turn into a moderate underperformance in 2011. This is the key reason behind our dovish NBP rate forecast (only 25bp hike). 2. We upgraded our 2010 Turkish GDP growth to 4.5% and now expect the CBT to be first central bank to hike rates in 2010. 3. We keep our Rus-sian GDP forecast (2.7%) slightly below consensus due to weak domestic demand, 4. We expect Hungary, the Baltic Countries, Bulgaria, and Romania to underperform.
FI/FX market outlook: We continue to see scope for underperformance of CEE FX vs. other asset classes, though we see value in selected relative value trades. We prefer TRY (due to monetary policy direction) and PLN (due to fundamental support). In the rates space we'd keep moderately long duration in Hungary and reduce Turkey. We believe that CEE credit could continue to outperform EMU periphery.

Market Sense – by UniCredit's Chief Economist Marco Annunziata

It's an in-depth assessment & evaluation of major economic, financial, policy events and and their market impact.

5 Mar 2010 - ECB vs IMF 

Mr. Trichet today confirmed that the ECB will keep outstanding liquidity ample for the time being while shortening its duration, to be able to withdraw it in a prompt and flexible way. The steps outlined today were in line with what we advocated, and I still believe we will see short term market rates remain low through the summer and then rise gradually back in line with the Refi, opening the way for a first rate hike in Q1 2011. The ECB gave a ringing endorsement to Greece’s latest efforts and subscribed unconditionally to the idea of an expansionary fiscal contraction—in stark contrast with the IMF’s new philosophy. Mr. Trichet also cast the handling of the Greek crisis so far as demonstration of the successful functioning of the eurozone, which I believe is going quite a bit too far. The jury is still out, and the eurozone is not out of the woods yet, it still needs to demonstrate that it can enforce fiscal discipline while generating stronger and sustainable growth. Mr. Trichet also demolished IMF Chief Economist Blanchard’s suggestion of a higher inflation target, and warned that IMF lending would not be “appropriate” for a eurozone member.

Italy Monitor

Monthly in-depth assessment and evaluation of major economic, financial, and policy issues in Italy.

Feb 2010  - Technical dip, no new recession

In 4Q 2009, GDP was down 0.2% qoq, bringing the contraction for all of 2009 to 4.9%. However, the performance at end-2009 should be seen mostly as a technical correction, rather than a new dip into recession. We expect growth to resume at the beginning of 2010.

The pace of deterioration in the labor market seems to have been easing steadily, although this was not reflected in the unemployment rate, which was up to 8.5%. Moreover, first signs are appearing that some previously discouraged individuals may be starting to look for a job again.

While corporate lending moved further into negative territory, the recent positive developments seen in loans to households gained a stronger footing in December. The Bank Lending Survey provides some encouraging signals of a more sustainable credit recovery this year.

The upward trend in inflation is about to take a breather. After having climbed to 1.3% in January, the yearly inflation rate will probably ease slightly in February, as the unfavorable base effect on energy wanes. We expect inflation to move sideways in the next few months.

In the Focus section, we argue that the pension system in Italy enjoys relatively good health compared to several European peers, but its long-run sustainability needs to be further strengthened by reforms aimed at boosting productivity and the employment rate.