UniCredit Eurozone Economist Toolbox

Transcription

1 UniCredit Eurozone Economist Toolbox Aurelio Maccario Chief Eurozone Economist - UniCredit Group UniCredit Group Research aurelio.maccario@unicreditgroup.de Florence, 03 April 2009

2 GDP Tracker: Sharp GDP contraction in Q The slump continues Actual GDP GDP Tracker Q Q Q Q Q Q Q Source: European Commission,Eurostat, National Sources, UniCredit Research Our GDP Tracker in January points to a 1.3% q-o-q contraction. Once again, IP drives the deterioration and, judging from February surveys, no recovery is in sight. We expect the GDP drop in Q to be even worse than the record one seen in Q The UniCredit GDP Tracker estimates q-o-q GDP growth using IP, construction, retail sales and car registrations, plus one index of services confidence to overcome the lack of hard data in the tertiary sector (ex retail). 2

3 Composite PMI in freefall Still falling GDP q-o-q (% chg) - LS UniCredit Composite PMI (qtr avg) - RS Sep-98 Jun-00 Mar-02 Dec-03 Sep-05 Jun-07 Mar Source: Markit,Eurostat, UniCredit Research In March, our Composite PMI tumbled to 37.9 from 40.3, hitting a new historical low. Manufacturing was up slightly from 33.5 to 34.0, while services picked up from 39.2 to Taken at face value, the Composite PMI for Q1 points to a GDP contraction of about 1% q-o-q, but this indicator has underestimated the magnitude of the recession in the recent months and we currently expect a 1.7% GDP drop in the first quarter. 3 The UniCredit Composite PMI is a weighted average of manufacturing and services PMI (headline), with weights based of the sectors share of total GVA. Weights are updated quarterly. The composite PMI is available starting from Q3-98 and explains about 60% of the volatility in q-o-q GDP.

4 Stocks at a very low level 52 Mfg PMI: Stocks of finished goods L-T average Jun-97 Oct-99 Feb-02 Jun-04 Oct-06 Feb-09 Source: Markit, UniCredit Research 4

5 Production has already adjusted significantly Residual Actual Fitted Source: UniCredit Research 5

6 Employment in a freefall Uncharted waters UniCredit Employment Indicator 3M-ma Feb-97 Feb-00 Feb-03 Feb-06 Feb-09 Source: European Commission, UniCredit Research There s no end to the slump in our employment indicator: in February, it fell 3.2 st. dev. below its long-term average, hitting a new all-time low. Mounting job losses are recorded in all sectors. 6 6 The UniCredit Employment Indicator is a weighted average of standardized 12-month ahead employment expectations in the industrial, construction, and services sectors, as computed by the European Commission for its monthly survey. Weights are based on the share of total GVA of the three sectors, and are updated quarterly. The Indicator tracks both q-o-q and y-o-y employment growth (national accounts definition), but the latter fit is better.

7 Money and credit decelerating Steady downward trend official M3 M3 corrected for portfolio shifts loans to private sector Feb-99 Feb-01 Feb-03 Feb-05 Feb-07 Feb-09 Source: ECB, UniCredit Research In February, M3 growth decelerated to 5.9% vs. 6.0%, with loans to the private sector down to 4.2% from 5.0%. Lending to NFCs fell to 7.6% vs. 8.8%, and loans to households eased to 0.7% vs. 1.2% (mortgage lending and consumer credit growth hovers around 1%). 7 The ECB estimates the size of portfolio shifts through a univariate time-series model of M3 that includes also a number of dummies and trends (see ECB Monthly Bulletin, October 2004). The estimate is carried out quarterly. However, given that this adjustment was particular to the nature of the portfolio shifts that occurred during , the growth rate of M3 corrected has coincided with that of official M3 for some time now, and continues to do so.

8 Underlying inflation keeps easing Down on aggressive sales 4.0 Headline Core 1.5 UniCredit underlying Jan-02 Jun-03 Nov-04 Apr-06 Sep-07 Feb-09 Source: Eurostat, UniCredit Research Helped by aggressive winter sales, our underlying inflation gauge in January slowed to 0.98% vs. 1.15% (the peak for this cycle was 1.20% in October 2008). The recession should further curb price pressures and push our index lower in the quarters ahead. Our UniCredit Underlying Inflation Index strips out erratic components (food, energy, alcohol) and administrative prices (among the most important: tobacco, social protection, education, medical, dental and hospital services). It covers 68% of the total HICP basket. 8

9 Persistence-Weighted (PW) Inflation Index plunges Ongoing slowdown PW Index HICP Jan-99 Sep-00 May-02 Jan-04 Sep-05 May-07 Jan-09 Source: Eurostat, UniCredit Research 9 In January, our PW Inflation measure slowed to 1.5% from 1.9%. This compares to a deceleration in headline inflation to 1.1% from 1.6%, while core inflation (ex food, energy, alcohol and tobacco) eased 0.2 pp to 1.6%. Our UniCredit Persistence-Weighted (PW) Inflation Index is an alternative measure of core inflation that gives more weight to the items of the HICP basket displaying a higher degree of persistence. At any given point in time, the degree of persistence of each of the twelve HICP sub-components is simply given by the sum of its autoregressive coefficients, a proxy for the speed with which prices converge toward the mean after a shock. The sum of autoregressive coefficients (if negative, it is put equal to zero) is then re-scaled to deliver the new, persistence-based and time-varying weight of the item

10 UniCredit Coincident Taylor Rule points to further easing ECB needs to cut further Actual Fitted Jan-99 Sep-00 May-02 Jan-04 Sep-05 May-07 Jan-09 Source: ECB, Markit, UniCredit Research Our Taylor rule based on Composite PMI and M3 growth indicates that the fair refi rate currently is just above 1.0%. As the output gap widens at a record pace and M3 slows sharply, the fair refi rate level will keep falling fast and probably dip below zero around mid-year. The UniCredit Coincident Taylor Rule is a monthly specification of the ECB s reaction function. It explains the level of the refi rate as a function of: 1) a PMI-based measure of output gap; 2) the rate of growth of M3 (corrected for portfolio shifts) in excess of the 4.5% reference value. 10

11 Monetary and Financial Conditions The disconnection goes on UniCredit MCI (LS) UniCredit FCI (RS) Aug-07 Dec-07 May-08 Oct-08 Mar-09 Source: Bloomberg, UniCredit Research Over the last month, monetary conditions tightened slightly, as the fall in short term rates was offset by the almost 2% appreciation in EUR TWI. Financial conditions tightened more markedly on the back of the slump in equity market and the rise in corporate yields. Still, FCI and MCI remain departed. 11 Our indicators are weighted sums of deviations of current asset prices from their long-term trend. The weights where obtained estimating an IS curve relating changes in GDP growth with changes in real asset prices. The MCI includes short-term rates and the exchange rate, adding corporate yields and stock market prices for the FCI.

12 Financing Costs Financing costs at their highest Financing Cost Index, NFCs (Nominal) Financing Cost Index, NFCs (Real) Apr-01 Nov-03 Jun-06 Jan-09 Source: Bloomberg, UniCredit Research The index has been rising steeply since 2005, over the past year from the plunge in inflation and stands now at 6.91% in real terms, some 20bp higher than the maximum reached in Financing Costs Indexes are computed weighting the cost of different sources of financing with the share of these sources in firms liabilities 12