” “ The UniCredit Weekly Focus

13 November 2014
Economics Research
The UniCredit
Weekly Focus
Economics, FI/FX & Commodities Research
Credit Research
Equity Research
Cross Asset Research
“
Labor market in EMU:
watch out for skill mismatch
No. 128
13 November 2014
”
– Focus: We assess how structural factors have contributed to shaping developments of the eurozone labor market
during the crisis, exploring, in particular, the reduced efficiency of the job-matching process at the country level.
We see a clear structural improvement in job-matching in Germany, while in France the worsening during the crisis
broadly offsets the improvement recorded previously. Italy and, to a larger extent, Spain show evidence of structural
deterioration, which appears to be mainly due to skill mismatch. This may affect the extent to which the
(heterogeneous) growth recovery expected in 2015 can benefit labor markets across the euro area. Moreover, the
rise of skill mismatches bears meaningful implications for policy prescriptions.
– Preview: The main event of the next week will be the PMI release for the euro area as an aggregate and for
Germany and France at a country level. In the euro area, we expect the preliminary PMIs for November to show
signs of stabilization, consistent with our expectation that there will be no recession in the euro area, although
GDP is likely to come to a virtual standstill in 4Q14. In Germany, manufacturing PMI for November will increase
slightly, while France – despite a slight increase, will continue to see the PMIs remaining in contraction (below 50)
territory. In the UK, the BoE releases the minutes of the MPC’s November meeting. We expect neither any change
in the vote nor change in the tone compared to previous meetings.
– Review: The BoE’s November Inflation Report was arguably as “dovish” as it could be. In line with our expectations,
eurozone industrial production expanded by 0.6% mom in September, partially recovering from its strong drop in
August. The expansion was largely driven by Germany and by Spain, while the rest of the eurozone was weak France posting a flat reading and Italy a negative one. The US trade deficit widened in September, much more
than expected, showing that the US remains highly reliant on foreign products. The ISM manufacturing PMI
increased in October, providing yet another sign that the US economy continues to power ahead.
Editor: Dr. Martina von Terzi, Economist (UniCredit Bank)
13 November 2014
Economics & FI/FX Research
Weekly Focus
The Focus of the Week
Labor market in EMU: watch out for skill mismatch
Ŷ
Ŷ
Ŷ
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In this note, we explore the extent to which structural factors have contributed to shaping
developments of the eurozone labor market during the crisis. Specifically, we focus on the
reduced efficiency of the job-matching process, with two caveats. First of all, the trend
towards a higher labor participation rate exaggerates the real size of the problems.
Secondly, the picture is extremely heterogeneous across countries, and the euro area
average cannot provide a reasonably accurate picture of national phenomena.
The relationship between the unemployment rate and the job vacancy rate, as well as
trends in long-term unemployment, show a clear structural improvement in the jobmatching process in Germany over the last several years, while in France the worsening
during the crisis broadly offsets the improvement recorded beforehand. Italy and, to a
larger extent, Spain show evidence of structural deterioration.
The different degree of labor market flexibility does not satisfactorily explain these changes,
which rather appear to predominantly depend on problems of skill mismatch. In our sample
of countries, Spain has recorded by far the largest increase in this mismatch.
The importance of skill mismatches in explaining the loss of efficiency in the job-matching
process may affect the extent to which the (heterogeneous) growth recovery expected in
2015 can benefit labor markets across the euro area. Moreover, the rise of skill
mismatches in some constituencies bears meaningful implications for policy prescriptions.
Focus on the labor market
For the last two years, the eurozone has seen record-high levels of unemployment, and
despite some moderate signs of improvement, weak labor markets continue to be one of the
main concerns across euro area member countries. To tackle this problem, labor market
liberalization has been identified as a key objective in the policy reform agenda, and several
countries have pursued this rather vigorously. While there is no doubt that this will prove
beneficial in the longer term, the underlying labor market weaknesses are more complex
and heterogeneous between countries and call for a wider ranging set of policies.
In this piece, we build on Draghi’s analysis of the eurozone labor market during his speech
in Jackson Hole last August. After a brief cyclical assessment at the euro area-wide level,
we investigate the effectiveness of the job-matching process in the main eurozone countries,
aiming to establish if and where structural inefficiencies may impair the labor market recovery.
We find that Italy and, to a larger extent, Spain show signs of structural deterioration in jobmatching, with skill mismatches playing an important role in explaining this phenomenon. In
our view, this bears meaningful implications for the application of policies aimed at tackling
the current unacceptably high level of unemployment.
Cyclical picture
Despite signs of improvement, the eurozone labor market remains weak. The unemployment
rate is off its peak and the declining trend has broadened to an increasing number of countries,
including most of the periphery. Our index that measures the breadth of the decline in
unemployment rates across the eleven largest eurozone countries has climbed to a level
that was last seen in 1999-2000 and 2006-2007 (chart 1 on the next page). However, the
good news ends here. The pace at which slack is being eroded generally remains very slow,
and is unlikely to accelerate in the near term, given the recent loss in GDP momentum.
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One important feature that is often disregarded is that the higher participation rate plays a
key role in explaining the current high level of the unemployment rate in the euro area.
Chart 2 shows how the eurozone unemployment rate would have evolved assuming the
participation rate is constant at the 2005 level and labor demand – as measured by the
1
employment level – moves in line with actual data . While the extent of the cyclical deterioration
from the trough would not change much, the level of the unemployment rate would be much
lower 2. Therefore, when taken at face value, the unemployment rate may exaggerate labor
market weakness in the euro area. The comparison with the US is striking, because here
the picture is exactly the opposite.
CHART 1: UNEMPLOYMENT DECLINE BROADENS
CHART 2: PARTICIPATION MATTERS
Decreasing-Unemployment Index* (EMU 11)
1.00
Unemployment rate (%)
13.0
0.90
12.0
0.80
11.0
14.0
12.0
0.70
10.0
0.60
10.0
9.0
8.0
0.50
8.0
0.40
7.0
0.30
6.0
EMU: actual - LS
EMU: Participation rate at 2005 level
US: actual - RS
US: Participation rate at 2005 level
6.0
0.20
5.0
0.10
0.00
Jan-99
4.0
2.0
4Q05
Jul-01
Jan-04
Jul-06
Jan-09
Jul-11
4.0
1Q07
2Q08
3Q09
4Q10
1Q12
2Q13
3Q14
Jan-14
*The index takes value 1 if all (eleven) countries record a drop in the unemployment rate, 0 if all countries see an increase/stabilization of the unemployment rate
Source: BLS, Eurostat, UniCredit Research
Tracking the job-matching process: the Beveridge curve
BOX 1: THE BEVERIDGE CURVE EXPLAINED
The Beveridge curve is named after Lord Beveridge, who, among other things, analyzed the
underlying process of job matching between employers and job-seekers. The curve depicts
a negative relationship between the unemployment rate (on the horizontal axis) and the job
vacancy rate (on the vertical axis). In words, when the economy weakens, firms are reluctant
to hire, the number of unfilled vacancies falls, and the unemployment rate rises. The opposite
happens in good times.
The Beveridge curve is a useful tool to assess the health of the labor market, especially
when it comes to distinguishing structural changes from cyclical developments. This occurs
because the Beveridge curve provides an indication of the efficiency of the labor market in
terms of matching unemployed workers to job vacancies. Movements along the Beveridge
curves tend to reflect predominantly cyclical factors, while shifts in the curve are typically
interpreted as caused by structural changes (chart 3 on the next page). For example,
outward shifts of the curve over time – with a given level of vacancies associated with higher
levels of the unemployment rate – may suggest decreasing labor market efficiency due to
skills-mismatches or rigidities in the matching process.
1
If we pick 2000 as reference year, the gap between solid and dashed lines would be even wider both for the eurozone and the US. This happens because the
participation rate in the eurozone is lower in 2000 than in 2005, while the opposite holds in the US.
This finding should be taken with a pinch of salt, because holding a demographic variable constant may raise some issues, for example with respect to a possible
selection bias.
2
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However, shifts in the Beveridge curve should be interpreted with caution, for at least two
reasons. First of all, in the case of eurozone countries, the times series of vacancy data is
short – it starts in 2005 – and therefore the Beveridge curve can only be constructed for a
small number of business cycles. Given that vacancy data are not seasonally adjusted, to
remove seasonality from the figures, we choose to average the vacancy rates over a fourquarter period. Therefore, our analysis starts from 1Q06. Secondly, some studies based
on long time horizons show that, in the US, outward shifts of the Beveridge curve have
generally not been a good predictor for a sustained rise in structural unemployment – at
least when higher structural unemployment implies the failure for the unemployment rate to
reach the previous cyclical low during the recovery period. In theory, the Beveridge curve
exhibits counter-clockwise loops because, at the end of downturns, unemployment adjusts
sluggishly to increases in vacancy posting and is temporarily off the Beveridge curve.
One final remark on the data we use for our analysis. Due to the lack of harmonized data,
the Beveridge curves from our sample of countries are only comparable in terms of
dynamics but not in terms of levels. In Italy and France, for instance, vacancy data are
available only for companies with more than 10 employees. Spain does not publish official
data on the vacancy rate before 1Q09; therefore, we build the Beveridge curve using the
labor shortage indicator for the manufacturing sector published by the European Commission
3
on a quarterly basis .
CHART 3:THE BEVERIDGE CURVE IN THEORY
CHART 4: DETERIORATING JOB-MATCHING PROCESS IN EMU?
Eurozone
2.4
Actual
2.2
Negative
structural shock
Vacancy rate
Vacancy Rate
The Beveridge curve
Negative
cyclical shock
1Q08
2.0
Participation rate fixed at
2005 level
1Q08
1Q06
1Q06
2Q14
1.8
2Q14
1.6
1.4
Outward Shift
1.2
1.0
5.0
Unemployment Rate
6.0
7.0
8.0
9.0
10.0
Unemployment Rate
11.0
12.0
13.0
Source: Eurostat, UniCredit Research
Charts 4 depicts two versions of the Beveridge curve for the euro area, tracing the relationship
between the unemployment rate and the job vacancy rate. The red curve is built using official
unemployment rate statistics – this is the “actual” Beveridge curve – while the black curve
uses our alternative measure of the unemployment rate assuming that the participation rate
is fixed at the level of 2005 (i.e. 61.8% vs. 63.6% in 2014). The job vacancy rate is not
4
affected, because it does not depend on the participation rate .
Chart 4 shows that the relationship between the unemployment and job-vacancy rates
improved from early 2006 until before the credit crisis, thanks to a generalized increase in
the efficiency of the job-matching process as implied by the counter-clockwise movement of
both curves. However, the improvement is more evident for the black line.
3
4
We follow Bonthuis B., Jarvis V. and Vanhala J. (2013), “What’s going on behind the euro area Beveridge curve(s)?”, ECB Working Paper 1586.
Job vacancy rate (JVR) = number of job vacancies / (number of occupied posts + number of job vacancies)*100.
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After the credit crisis, and especially after 2011, both the red and black lines move outwards
– i.e. for the same level of job openings, the unemployment rate is higher than in pre-crisis
years. However, while the red line shows a clear outward shift compared to 2006, the black
line reverts to its starting point. In other words, when adjusting for the higher participation
rate, the inefficiencies in the job-matching process appear much less severe, at least for the
eurozone as a whole.
The Beveridge curve by country: high heterogeneity
When we zoom in at the country level, we observe a wide divergence in the job-matching
patterns across the largest economies of the euro area.
Germany has witnessed an inward shift of its Beveridge curve both when this is computed
on the basis of official unemployment rate statistics (red line in chart 5) and, especially,
when we fix the participation rate at the 2005 level – the black dots in chart 5 signal the
position of the Beveridge curve in 1Q06, 1Q08 and 2Q14. In France, the relationship
between unemployment and vacancy rates shows a clear deterioration after the crisis,
regardless of trends in participation (chart 6). However, this comes after a remarkable
improvement in the pre-crisis years, and the current degree of matching is only slightly
worse than that of 2006.
CHART 5: BEVERIDGE CURVE - GERMANY
CHART 6: BEVERIDGE CURVE - FRANCE
Germany
5.0
France
0.8
1Q08
4.5
3.5
2Q14
0.6
Vacancy rate
Vacancy rate
1Q08
0.7
4.0
3.0
0.5
2Q14
2Q14
2Q14
2.5
1Q06
1Q06
0.4
2.0
1.5
Inward Shift
1Q08
1Q08
0.3
1.0
0.0
2.0
4.0
6.0
Unemployment rate
8.0
0.2
6.00
10.0
CHART 7: BEVERIDGE CURVE - ITALY
7.00
11.00
10.00
CHART 8: BEVERIDGE CURVE - SPAIN
Italy
1.2
8.00
9.00
Unemployment rate
Spain
4.5
4.0
1.0
1Q08
3.5
Vacancy rate
Vacancy rate
1Q08
0.8
1Q06
0.6
Outward Shift
2Q14
2Q14
1Q08
1Q08
3.0
2.5
1Q06
2.0
Outward Shift
1.5
1.0
0.4
2Q14
2Q14
0.5
0.2
0.0
5.5
7.5
9.5
Unemployment rate
11.5
5.0
10.0
15.0
20.0
Unemployment rate
25.0
Source: Eurostat, UniCredit Research
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In Italy and Spain, both formulations of the Beveridge curves display a clear outward shift
(charts 7-8 on the previous page), although the move is less extreme when assuming the
participation rate is constant at the level of 2005. This suggests a genuine deterioration in
the job-matching process. In Italy, the Beveridge curve is still pointing east, whereas in
Spain we observe a tentative backward-movement so far in 2014.
To gain a better understanding of the potential drivers of the shifts of the Beveridge curve,
we add Ireland to our country analysis. Ireland displays three features that make it an
interesting case study: it has the most flexible labor market in the euro area, it experienced
a big collapse of the real estate market, and it is now recording the fastest pace of GDP and
employment recovery – including in the construction sector. Chart 9 shows that Ireland
witnessed a pronounced outward-shift of the Beveridge curve regardless of developments in
the participation rate – and note that here the trend since 2009 is for lower, not higher
participation (the participation rate has settled at 64.0% in 2014 from 65.8% in 2005). However,
the counter-clockwise move of the Beveridge curve observed over the last year and a half
may signal that cyclical factors have started to reduce the extent of the outward shift.
CHART 9: BEVERIDGE CURVE - IRELAND
CHART 10: TRENDS IN LONG-TERM UNEMPLOYMENT
Ireland
3.0
Long-term unemployment ratio (%)
65.0
1Q06
2.5
Vacancy rate
1Q08
55.0
1Q08
2.0
45.0
1.5
35.0
1.0
Outward Shift
0.5
2Q14
2Q14
25.0
Germany
France
Spain
0.0
1.0
6.0
11.0
Unemployment rate
15.0
16.0
1Q06
3Q07
1Q09
3Q10
Ireland
Italy
1Q12
3Q13
Source: Eurostat, UniCredit Research
Beveridge curve shifts and long-term unemployment
As discussed in Box1, an outward-shift in the Beveridge curve does not necessarily signal a
structural change. In the aftermath of a severe financial crisis, the restructuring of the economy
may lead to a radical reallocation of resources that may generate temporary inefficiencies in
the job-matching process. Yet, if the re-adjustment process is too slow and the unemployed
remain out of work for too long – thus adversely affecting their skills and their chances of
future employability – then the shift from cyclical will rapidly turn into structural.
Chart 10 depicts the evolution of the long-term unemployment ratio, which is defined as the
percentage of workers who have been out of work for more than 12 months over the total
number of unemployed. The picture is much in line with that emerging from the Beveridge
curve framework. In Germany, the decline in the ratio is consistent with the inward-shift of
the Beveridge curve, whereas in France the ratio dropped before the crisis, but moved
higher afterwards and is now back to 2006 levels. In the rest of our sample, in contrast, the
average duration of unemployment has increased sharply, confirming the signal from the
outward shift of the Beveridge curves. Overall, this evidence suggests that a meaningful part
of the shifts of the Beveridge curves observed in both directions is of a structural nature.
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Several factors may contribute to structural shifts of the Beveridge curve. We focus on the
two that we believe may be the most relevant: 1. Stricter (looser) employment rules, which
may impair (facilitate) the adjustment process during the economic restructuring; 2. Higher
(lower) skills-mismatches, which complicate (facilitate) the recruiting activity of firms.
Beveridge curve shifts: the role of labor market rigidities…
In theory, an increase of flexibility of employment rules that facilitate the matching of labor
demand and supply should push the Beveridge curve towards the origin. Since labor market
reforms have positive results with some lag, we analyze indicators of labor market rigidity
estimated by the OECD for a time horizon that is sufficiently long, with observations in 2000,
2006 and 2013. Our goal is to see whether changes in the employment regime (if any) might
have contributed to the shifts observed in the Beveridge curves. Before getting into the details of
the analysis, it is important to emphasize that these OECD indicators do not always provide a
perfect representation of reality. By construction, they tend to simplify the complexity of the
rules governing national labor markets and, therefore, their message has to be taken with a
pinch of salt.
Chart 11 shows the OECD index that measures the flexibility in individual and collective
dismissals, with values ranging from 0 to 6. Those close to zero indicate a high degree of
flexibility, whereas those closer to 6 imply a high level of rigidity. Ireland stands out as the
country with the largest degree of flexibility, while all other countries of our sample see
broadly similar levels of the indicator. When assessing the potential impact on the Beveridge
curve, it is changes of the indicator over time that matter.
On balance, these changes do not seem consistent with the pattern of shifts of the Beveridge
curves observed in our countries. For example, a higher-to-stable indicator in Germany would
suggest, ceteris paribus, a small outward shift of the Beveridge curve. The opposite holds true for
Italy and Spain, where a falling indicator would be consistent with an inward shift of the curve.
Chart 12 reports the OECD indicator that measures the flexibility in the use of temporary
contracts, adopting the same 0-6 scale as before. The substantial improvement of the
indicator would help explain the inward shift of the German Beveridge curve, but certainly
not the outward shift in Italy and Spain.
In summary, changes in the flexibility of the labor market as captured by the OECD indicators
do not help explain the shifts in the Beveridge curves to a satisfactory extent.
CHART 11: ASSESSING LABOR MARKET FLEXIBILITY (I)
3.5
CHART 12: ASSESSING LABOR MARKET FLEXIBILITY (II)
Flexibility in collective and individual dismissals
3
Flexibility in the use of temporary contracts
2000
4
2006
3.5
2000
2006
2013
3
2.5
2013
2.5
2
2
1.5
1.5
1
1
0.5
0.5
0
0
Germany
France
Italy
Spain
Germany
Ireland
France
Italy
Spain
Ireland
Source: OECD, UniCredit Research
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… and of skill mismatches
Changes in the skills-matching process is another factor that may cause shifts in the Beveridge
curve. To analyze this phenomenon, we resort to the Skill-Mismatch Index (SMI), which is
calculated by taking into account the gap between the demand and supply for specific skills.
Specifically, we compute the gap between the share of workers with primary, secondary and
tertiary educational levels in the active population (our proxies for the supply of low, medium
and high skills) and the corresponding proportion in employment (our proxy for the demand
for each level of educational background) 5.
Charts 13-14 plot the evolution of the SMI for the eurozone and our sampled countries,
focusing on relative changes from 2001. Two features stand out.
1. The cyclical component of the SMI tends to be relatively weak. This is best seen by looking
at the experience of Germany, France and Italy in 2009, when a recession of unprecedented
depth left the SMI largely unscathed. The same holds true for the phase of strong growth
in 2006-2007, including in Spain and Ireland.
2. The SMI appears to respond swiftly to structural changes. Especially in the aftermath of a
crisis that leads to the resizing of whole industries (for example, construction), the
mismatch between the skills possessed by workers who exit shrinking sectors and those
required by expanding industries is pronounced. This pushes the SMI higher, as
happened in Spain and, to lesser extent, Ireland.
In countries that did not experience the bursting of the real estate bubble, the following SMI
trends emerge. In Germany, after a relative underperformance in the first half of the last
decade, the SMI embarked on a virtuous trajectory, probably at least in part due to the Hartz
reforms. In France, the SMI has shown remarkable stability throughout the considered time
horizon. In Italy, the SMI remained well behaved until the intensification of the sovereign
debt crisis, when the trend has become one of fast relative deterioration.
CHART 13: SMI FOR THE EUROZONE…
CHART 14: …AND ITS MAIN MEMBER COUNTRIES
Eurozone Skill Mismatch Index (2001=100)
Skill Mismatch Index (2001=100)
5000
700
Germany
France
Spain
600
4000
500
Italy
Ireland
3000
400
300
2000
200
1000
100
0
2001
2003
2005
2007
2009
2011
0
2013
2001
2003
2005
2007
2009
2011
2013
Source: Eurostat, UniCredit Research
3
5
In symbols, the SMI can be expressed as follows:
SMI
¦ (s
ijt
mijt ) 2
, where
sijt
is the share of the active population with skill level j in country i at
j 1
time t and
m
ijt is the equivalent share in employment. We follow the methodology outlined in Estevao M. and Tsounta E. (2012), “Has the Great Recession raised
US structural unemployment?”, IMF Working Papers 11-105. Ideally, since the crisis has changed the industrial structure of several economies, we would have
preferred to build the SMI using differences based on sectorial occupation rather than on education, in order to emphasize mismatches in shrinking industries. However,
while this kind of data is available in terms of employment (our proxy for demand), we do not have enough information for building an equivalent measure of supply.
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A closer look at the SMI for Spain (chart 15) and Ireland (16) provides some interesting
insight into the role played by skill mismatches in countries that witnessed the bursting of a
real estate bubble.
In the case of Spain, the huge increase in skill mismatch after the crisis was totally attributable
to a lack of demand for workers having primary and tertiary education levels, while the
match between demand and supply of workers with secondary education has remained very
good. As of 2013, the overall skill-mismatch continued to rise strongly.
CHARTS 15-16: BREAKING DOWN THE SMI FOR SPAIN AND IRELAND
Breakdown Spanish SMI
Breakdown Irish SMI
0.0025
Primary
Secondary
0.0014
Tertiary
Primary
Secondary
Tertiary
0.0012
0.0020
0.0010
0.0015
0.0008
0.0006
0.0010
0.0004
0.0005
0.0002
0.0000
0.0000
2001
2003
2005
2007
2009
2011
2013
2001
2003
2005
2007
2009
2011
2013
Source: Eurostat, UniCredit Research
In Ireland, the picture appears different under two main aspects. First of all, during the
recession, the skill mismatch increased predominantly due to developments in the tertiary
education bucket, while the degree of mismatch for workers with primary education has
been comparatively more contained. This appears puzzling, given the unprecedented downturn
in the construction sector. However, this can be largely explained by diverging trends in
participation: in Ireland, the number of active workers with primary education has dropped
by roughly one-fourth since 2008 (vs. -9.7% in Spain), while the number of workers with
tertiary education has continued to increase at a steady pace (18.6% vs. 13.5% in Spain).
Secondly, the much-improved cyclical backdrop currently allows the overall skill mismatch to
decline rapidly, courtesy of favorable developments both in the primary and tertiary buckets.
CHARTS 17-18: IRELAND SEES BROAD-BASED EMPLOYMENT RECOVERY
Employment growth rate: construction (% yoy, 3QMA)
Employment growth rate: total economy (% yoy, 3QMA)
8
20
6
10
4
2
0
0
-10
-2
-4
-6
-8
-10
1Q00
-20
Germany
France
Italy
Spain
-30
Ireland
4Q01
Germany
France
Italy
Spain
Ireland
3Q03
2Q05
1Q07
4Q08
3Q10
2Q12
-40
1Q00
1Q14
4Q01
3Q03
2Q05
1Q07
4Q08
3Q10
2Q12
1Q14
Source: Eurostat, UniCredit Research
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Charts 17 and 18 on the previous page show why this is happening: Ireland is outperforming
its euro area peers both in terms of overall employment growth and employment growth in
the construction sector, with job creation in construction even outpacing that in the overall
economy. Spain and Ireland feature one similarity, though: in both countries, workers with
secondary education have fared much better during crisis times, signaling that skill
mismatch tends to be a polarized phenomenon.
Looking ahead
Our analysis shows that structural factors have played an increasingly important role in
shaping developments of the eurozone labor market during the crisis, but with two important
caveats. First of all, the trend towards higher labor participation exaggerates the real size of
the problems. Secondly, the picture is extremely heterogeneous across countries.
A Beveridge curve framework and trends in long-term unemployment show a clear structural
improvement in the job-matching process in Germany, while in France the worsening during
the crisis broadly offsets the improvement recorded beforehand. In contrast, Italy and, to a
larger extent, Spain show evidence of structural deterioration. Although the recovery in
economic activity in Spain will probably bring some relief, the unfavorable starting point is
likely to leave the degree of mismatch at a much higher level compared to most eurozone peers.
The importance of skill mismatches in explaining the loss of efficiency in the job-matching
process affects the extent to which the (heterogeneous) growth recovery expected in 2015
can benefit labor markets across the euro area. Moreover, the rise of skill mismatches in
some constituencies bears meaningful implications for policy measures. Governments,
especially in the periphery, should reform their educational systems to better meet the actual
needs of increasingly more demanding employers and should devote more resources to
lifelong-learning programs to retrain displaced workers, whose skills are experiencing a
rapid degree of obsolescence.
Marco Valli, Chief Eurozone Economist (UniCredit Bank Milan)
Edoardo Campanella, Economist (UniCredit Bank Milan)
UniCredit Research
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The Week Ahead
Eurozone’s PMI to show signs of stabilization
Euro area
After a better than previously expected reading in October, we now expect the preliminary
PMIs for November to show signs of stabilization. We see the manufacturing PMI up to 50.9
from 50.6 and the services counterpart flat at 52.3. Overall, the Composite PMI is expected to
only marginally improve from the current 52.1. The manufacturing sector should start feeling
the positive impact of past euro depreciation, and industrial activity is likely to be the first to
benefit from falling oil prices. Nevertheless, the external context continues to be characterized
by geopolitical uncertainty and weak global trade, thus weighing on the eurozone growth
outlook. Overall, the PMI stabilization we have penciled in for November is consistent with our
expectation that there will be no recession in the euro area, although GDP is likely to come to
a virtual standstill in 4Q14 (we forecast +0.1% qoq).
Germany
Germany is likely to contribute to the eurozone’s PMI stabilization (as mentioned above). We
expect the manufacturing PMI for November will increase to 51.7 (from last month’s 51.4).
Services PMI are expected to rise slightly as well, to 55.1 from 54.4 in October. On the back of
slight increase in its subcomponents, we see further slight increase in the Composite PMI. Also
in the case of Germany, headwinds are coming from geopolitical uncertainty (especially due to
the ongoing Russia and Ukraine conflict).
France
In contrast, France is likely to continue to struggle. Similar to the euro area, we see the manufacturing PMI probably moving slightly up to 48.7 from 48.5 last month. The depressed level
of the survey suggests, however, that the IP recovery in 3Q14 was probably of a technical
nature. On the services front, we forecast stabilization at 48.3. Overall, the composite level
will stay in contraction territory, below the marginal 50.
BoE: MPC minutes to be little changed
The BoE releases the minutes of the MPC’s November meeting on Wednesday, 19 November.
We expect no change in the vote, with Ian McCafferty and Martin Weale continuing to vote for
a 25bp hike. We also see little change in the tone, with the divide on the Committee as wide
as ever. The majority is again likely to emphasize a lack of inflationary pressure from wages
and prices, signs of a domestic slowdown, and external headwinds as reasons why it is better
to wait before increasing the Bank Rate.
UniCredit Research
page 11
See last pages for disclaimer.
13 November 2014
Economics & FI/FX Research
Weekly Focus
Other Major Events & Data Releases
UK
CPI INFLATION EDGING UP IN OCTOBER
% yoy
6.0
CPI
Tue, 18 November, 10:30 CET
BRC shop price index
5.0
CPI, % yoy
4.0
Ŷ
3.0
2.0
1.0
UniCredit Consensus
Oct
1.3
Last
1.2
We see inflation edging up to 1.3% yoy in October. The
previous month’s surprise fall was largely due to volatile
transport prices and we expect some of that to unwind in
October.
0.0
Ŷ
-1.0
-2.0
-3.0
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Positive contributions should come from airfares, sea- fares
and petrol prices – the latter fell less between September
and October this year than over the same period last year.
Negative contributions are likely to come from food and
furniture prices.
RETAIL SALES ARE RISING ROBUSTLY
% yoy
8.0
Thu, 20 November, 10:30 CET
ONS retail sales volume
BRC like-for-like sales
Retail sales ex. auto, % mom
6.0
Ŷ
4.0
2.0
Ŷ
0.0
-2.0
-4.0
-6.0
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
UniCredit
Oct
Consensus
0.3
Last
-0.3
We expect retail sales to bounce back in October, rising
0.3% mom.
Last month, the ONS said that sales in September fell in
large part because of a sharp fall in clothing sales, and
retailers put this down to the unseasonably warm weather
that caused consumers to delay purchases of winter clothing.
October was also unseasonably warm, but we expect clothing
sales to have rebounded slightly as winter nears.
Source: ONS; BRC; UniCredit Research
US
CPI LIKELY DECLINED
6
% yoy
Thu, 20 November, 14:30 CET
5
4
3
Last
Oct
-0.1
-0.1
0.1
Core CPI, % mom
Oct
0.1
0.2
0.1
Ŷ
2
UniCredit Consensus
CPI, % mom
1
0
The US consumer price index likely declined 0.1% in
October. The fact that seasonal factors “expected” lower
gasoline prices at the end of the driving season prevented
a bigger decline in the headline CPI.
-1
Ŷ
-2
Headline CPI
-3
Jan-07
Jan-08
UniCredit Research
Jan-09
CPI ex food & energy
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
page 12
The core CPI, on the other hand, likely rose 0.1% in
October, allowing the core inflation rate to stay at an
unchanged 1.7%.
See last pages for disclaimer.
13 November 2014
Economics & FI/FX Research
Weekly Focus
IP LIKELY TO EDGE UP A MERE 0.1% IN OCTOBER
1.2
% mom
Mon, 17 November, 15:15 CET
1
Industrial production, % mom
Ŷ
0.8
0.6
0.4
Ŷ
0.2
0
Oct
UniCredit
Consensus
Last
0.1
0.3
1.0
US industrial production probably edged up a mere 0.1%
in October, after jumping 1.0% in September.
Working hours in manufacturing rose only 0.1%, painting
a less upbeat picture than many business surveys, which
hit multi-year highs.
-0.2
Ŷ
-0.4
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
In addition, utilities’ production likely dropped 1.7% as
milder-than-usual
temperatures
lowered
electricity
demand for heating units.
Source: Datastream; UniCredit Research
Dr. Martina von Terzi, Economist (UniCredit Bank)
Dr. Harm Bandholz, CFA, Chief US Economist (UniCredit Bank New York)
Daniel Vernazza, Ph.D., Economist (UniCredit Bank London)
Marco Valli, Chief Eurozone Economist (UniCredit Bank Milan)
Eduardo Campanella, Economist (UniCredit Bank Milan)
UniCredit Research
page 13
See last pages for disclaimer.
13 November 2014
Economics & FI/FX Research
Weekly Focus
The Week in Retrospect
UK: Inflation Report: A very ‘dovish’ BoE
Summary
The BoE’s November Inflation Report was arguably as “dovish” as it could be. This
time, it was the weaker global economic outlook weighing on their minds, and particularly
the downside news from the euro area. Although the BoE’s forecasts for growth, wages,
and inflation at the policy-relevant (2-3 years) horizon were barely changed, it said this
was because the impact from the weaker global outlook was counter-balanced by a
significantly lower market-implied path for the Bank Rate – effectively giving their
stamp of approval to the latter. In response, we have now moved our forecast for the
first rate hike out three months to mid-2015, around five months earlier than the market
now expects.
Highlights
The Governor, Mark Carney, didn’t exactly hold back with his opening words. He said, “indicators
across much of the advanced and emerging world have been moribund” and that Europe is
now haunted by, “The specter of economic stagnation”. Carney said that these downside risks
to growth in the August Report projection have now been “crystallized”. This manifested in
downward revisions to its forecasts for exports, with knock-on effects for business investment.
A slowing housing market has led it to revise down forecasts of housing investment.
All this was offset by a boost from the lower market-implied path for the Bank Rate that the
BoE uses to condition its forecasts on. When it produced its November Report, the market
implied path for the Bank Rate was for the first 25bp hike in 3Q15 (previously 2Q15) and for
the trajectory to be lower at around 25bp every six months instead of 35bp back in its August
Report projection. The BoE’s forecasts for GDP growth were barely changed – it still expects
3.5% growth in 2014, 2.9% in 2015 (previously 3.0%), and 2.6% in 2016 (as in August).
The largest forecast revision was to the near-term outlook for inflation. The Governor said it is
“more likely than not” that it will fall below 1% in the next six months – triggering an open letter
from the Governor to the Chancellor to explain why. He said the fall in inflation reflects a fall in
commodity prices, weak global inflationary pressure, and the impact of sterling’s past appreciation.
But importantly he said it was domestically-driven too, with unit labour cost growth flat-lining. It
now expects inflation of 1.2% this year (previously 1.9%), 1.4% next year (previously 1.7%),
and 1.8% in 2016 (unchanged). Carney said inflation is only expected to return to the 2% target
“slowly” and not until the “very end” of the forecast period. He said this was because, “The
forces subduing inflation today are likely to persist for some time”.
The MPC’s central estimate of spare capacity was unchanged at around 1% of GDP –
although there remains a “wide range of views” on the Committee. The BoE lowered its
forecasts for the unemployment rate to 5.7% in 4Q14 (previously 5.9%), 5.4% in 4Q15 (previously
5.6%), and 5.3% in 4Q16 (previously 5.4%). Therefore, the ‘unemployment gap’ closes by
end-2015. Its forecast for wage growth was unchanged for this year and next – it expects
nominal pay growth to rise to 3.25% by end-15, but the downward revision to inflation means
real wage growth will be stronger than in August.
In light of the particularly ‘dovish’ rhetoric from Carney we moved our forecast for the first rate
hike to mid-2015 from February 2015 – around five months earlier than the market expects.
We continue to expect subsequent hikes of 25bp per quarter – steeper than the market
expects. There are many reasons for this, but perhaps the most important one is that we
expect wage growth to accelerate strongly in the next six months – and even stronger than
the BoE expects. The regular pay growth numbers for the private sector rose at an annualized
rate of 4.6% in the three months to September. As Carney said, the actual path of the Bank
Rate is data-dependent, well they have six months for the data to change their minds.
UniCredit Research
page 14
See last pages for disclaimer.
13 November 2014
Economics & FI/FX Research
Weekly Focus
UK: Manufacturing PMI bounces back
Summary
The UK manufacturing PMI surprised to the upside by rising to 53.2 in October, bucking
the recent trend of weaker manufacturing surveys since June - one of the biggest warning
lights flashing on the BoE’s dashboard. The bad news was that the manufacturing sector
continues to face considerable external headwinds, as demonstrated by a further fall in
export orders. The good news was that domestic orders recovered strongly.
Highlights
The rise in the headline PMI in October ended a run of three consecutive months of decline.
The index is now 3.4pts below its recent peak in June and 1.7pts above its historical average
of 51.5. The headline manufacturing PMI is a weighted average of sub-indices in new orders
(up to 54.6), output (up to 54.0), employment (down to 51.8), stocks of purchases and suppliers’
delivery times. The most interesting development was in new orders – a good indicator of
near-term momentum. In 3Q, both export and domestic orders had fallen sharply. But the
report for October showed a divergence: total orders jumped to 54.6 despite a fall in export
orders. The input price index rose to 48.1 while the export price index fell to 50.7.
UK: The services sector shows signs of cooling
Summary
In contrast to the increase in the manufacturing PMI, the UK services PMI eased
significantly in October. It is now at a 17-month low and not far above its historical
average. It is the first sign of a modest slowdown in the dominant services sector
towards its long-run growth rate. Until now, signs of a slowdown were limited to the
smaller and more tradable manufacturing sector, which is being hit by external headwinds. We continue to expect GDP growth of 0.6% qoq in 4Q, slightly weaker than the
0.7% posted in 3Q14.
Details
The UK services PMI surprised when it eased significantly to 56.2 in October from 58.7 in the
prior month. Signs of a modest slowdown were also evident in the details of the services PMI
report. New orders, future business expectations and backlogs of work all eased. The only
bright spot was that the employment index nudged up to 55.6. The input price index fell to
54.7 and the output price index dropped sharply to 49.8. Easing in the services PMI report
pointed to a broader and more traditional modest slowdown as the initial fillip from pent-up
demand wanes. This is the way we and the BoE expected a slowdown to occur at the turn of
the year, rather than from the more unpredictable external headwinds facing the economy.
UK: A healthy labor market as the self-employed
find jobs as employees
Summary
The labor market report brought mixed messages. The “bad” news was that the unemployment rate stayed at 6.0%, while a slight decline was expected. Offsetting this,
the good news was that regular pay growth rose more than expected. Importantly, the
detail reveals that the labor market continues to improve strongly – it is just that the
source of improvement has changed somewhat as large numbers of self-employed find
jobs as employees.
Highlights
The unemployment rate fell marginally to 5.98% in the three months to September to two decimal places, down from 6.02% in the three months to August. It is 0.1pp below the BoE’s
August forecast. The more timely jobless claims measure of unemployment fell a sizeable
20.4K in October following an 18.4K fall in the previous month. This signals further falls in the
headline unemployment rate ahead, albeit at a slightly slower pace than in 1H14.
Comparing the three months to September with the prior non-overlapping three months, the rise
in employment of 112K was almost enough to cover the fall in unemployment of 115K. The participation rate of those aged 16-64 was unchanged at 77.8%. A concern remains that the participation rate of the young – where a ‘participation gap’ is most clearly discernible – is still falling.
UniCredit Research
page 15
See last pages for disclaimer.
13 November 2014
Economics & FI/FX Research
Weekly Focus
The rise in employment hides a very interesting development. The number in self-employment
fell heavily, by 88K, whereas the number of employees rose a very strong 196K. This
suggests that some of the self-employed would prefer to be employees – if so, this is a very
healthy development.
The percent of part-time workers who could not find a full-time job edged down to 16.5% in
the three months to September from 16.6% in the previous non-overlapping three months. It
remains well above its pre-crisis level of around 9%. Average weekly hours fell to 32.1 from
32.2. Average weekly earnings growth excluding bonuses rose to 1.3% yoy in the three
months to September, up from 0.9%. We continue to expect earnings growth to pick up quite
strongly from here with the risks skewed to the upside.
EMU IP: Weak 3Q despite a moderate rebound in September
Summary
In line with our expectations, eurozone industrial production expanded by 0.6% mom in
September, partially recovering from its strong drop in August. The expansion in eurozone IP in September was largely driven by Germany, where output ex construction
was up 1.7% mom, and by Spain where production rose 0.5% mom. IP in the rest of the
eurozone was weak, with France posting a flat reading and Italy a negative one.
Highlights
In line with our expectations, eurozone industrial production expanded by 0.6% mom in
September, partially recovering from its strong drop in August. The data breakdown showed
an expansion in the production of capital goods by 2.9% mom and a contraction in the
production of intermediate goods by 0.6% mom. Weaknesses emerged on the consumption
side. Both non-durable and durable goods contracted by 0.9% and 2.6% mom, respectively.
Finally, the energy IP component expanded by 0.3% mom. Following the EMU IP data
release, the quarterly IP growth rate in 3Q14 is negative at -0.4%.
The expansion in eurozone IP in September was largely driven by Germany, where output ex
construction was up 1.7% mom, and by Spain where production rose 0.5% mom. IP in the
rest of the eurozone was weak, with France posting a flat reading and Italy a negative one
(minus 0.9% mom). The contraction in industrial activity in 3Q14 is consistent with our
forecast for 0.2% qoq GDP growth in 3Q14 (to be published on Friday), although risks are
tilted to the downside.
US: Manufacturing ISM jumped as domestic strength
outweighed external headwinds
Summary
The ISM manufacturing PMI increased in October, matching a 3½-year high reached in
August. The ISM report is yet another sign that the US economy continues to power
ahead. Qualitative comments of the report gave upbeat assessments of the situation
and the outlook across various industries. These included strong demand as well as
the positive impact of lower energy prices on business conditions. We continue to
expect that real GDP growth will settle between 2½% and 2¾% over the next several
quarters. The sizeable growth contribution of net exports to 3Q14 growth looks a bit
inflated to us. To the extent that this figure is not revised down, it poses some downside risk to our current-quarter growth forecast of 2.8%. But the overall growth outlook
remains very resilient as the underlying strength in domestic demand clearly offsets
potential external headwinds.
Highlights
The ISM manufacturing PMI rose to 59.0 in October, matching a 3½-year high, reached in August. The increase in the headline index was largely driven by a rebound in new orders, which
rose back to 65.8 from 60.0. The production index improved to 64.8, the highest since May 2004.
The indexes for employment and inventories (52.5 after 51.5) were up as well. New export orders,
which do not enter the headline index, on the other hand, declined to 51.5, the lowest level since
May 2013. Finally, the index for prices paid dropped to 53.5, the lowest since late 2013.
UniCredit Research
page 16
See last pages for disclaimer.
13 November 2014
Economics & FI/FX Research
Weekly Focus
The ISM report is yet another sign that the US economy continues to power ahead. This is not
only reflected in the numbers, such as the production index hitting a 10½-year high. The ISM’s
press release quoted several respondents who gave upbeat assessments of the situation and
the outlook across various industries. These included strong demand as well as the positive
impact of lower energy prices on business conditions. The fly in the ointment in the report is
the drop in new export orders to a 1½-year low. To be sure, even after the latest decline, the
index level still signals ongoing growth in exports. The downward dynamic in export orders
over the past several months certainly warrants close monitoring in the coming months. In
that context, it is worth emphasizing that the gap between new orders and new export orders
widened to 14.3 points in October, the most since 1988 when the export series began.
Even if we do not think that the historical correlation between the ISM and real GDP growth
holds anymore (according to the ISM’s own calculation, the October level of 59.0 “corresponds
to a 5.2% increase in real GDP”), there can be no doubt that this is a very encouraging strong
report full of positive details. The overall growth outlook remains very resilient as the underlying
strength in domestic demand clearly offsets potential external headwinds.
US: Wider trade deficit will trigger downward revision
to 3Q14 GDP growth
Summary
The BEA and Census Bureau jointly reported that the US trade deficit widened to USD 43bn
in September, much more than expected. Exports underwent the largest monthly
contraction since February, while imports were flat. As such, net exports contributed
much less to 3Q14 GDP growth than assumed by the BEA in its advance estimate. We
think that the revised numbers are much more aligned with fundamental developments.
The consumption-driven growth model of the US remains thus highly reliant on foreign
products, as corroborated by the report not only due to the jump in the overall deficit,
but also by the composition of imports.
Highlights
Exports declined 1.5%, the largest monthly contraction since February. The drop was broadbased as only exports of food & beverage managed to expand. Imports were flat, as a sizeable
increase in consumer goods (+4.2%) offset declines in many other categories. The real goods
deficit widened to USD 50.7bn, the largest since May, as real exports dropped 1.8% and real
imports edged up 0.2%. The real trade deficit for non-petroleum goods is hovering around an
all-time high.
For the short term, the most important takeaway from the report was that net exports contributed
much less to 3Q14 GDP growth than assumed by the BEA in its advance estimate. According
to this estimate, net exports added no less than 1.2pp to GDP growth of 3.5%. To get to such
a sizeable contribution, the BEA assumed that the trade deficit had narrowed to around
USD 39bn in September. The released number was thus significantly larger. Using this
information, we calculated that net exports added “only” 0.75pp to growth. While that is still a
sizeable contribution, it is much smaller than estimated thus far. The revision from the trade
side alone is, therefore, large enough to cut the 3Q14 GDP number by 0.5pp. Including a
downward revision to construction spending, 3Q14 growth is on track to be revised down to
2.8% or 2.9%, which was our initial estimate. Of course, there is still more data to be released
that might affect the revision; those include, most importantly, inventories, retail sales and
durable goods.
Dr. Martina von Terzi, Economist (UniCredit Bank)
Chiara Corsa, Economist (UniCredit Bank Milan)
Dr. Loredana Federico, Economist (UniCredit Bank Milan)
Daniel Vernazza, Ph.D., Economist (UniCredit Bank London)
Dr. Harm Bandholz, CFA, Chief US Economist (UniCredit Bank New York)
Dr. Andreas Rees, Chief German Economist (UniCredit Bank)
Edoardo Campanella, Economist (UniCredit Bank Milan)
UniCredit Research
page 17
See last pages for disclaimer.
13 November 2014
Economics & FI/FX Research
Weekly Focus
Major Data Releases & Economic Events To Look At Next Week
Date
14 - 22 Nov 2014
Fri, 14 Nov
Time
7:30
8:00
8:45
9:00
9:00
10:00
10:00
10:00
11:00
11:00
11:00
14:30
14:30
15:55
16:00
22:00
Sat, 15 Nov
Mon, 17 Nov
Tue, 18 Nov
0:50
9:30
14:30
15:00
15:15
15:15
15:30
9:00
10:30
10:30
11:00
11:00
15:00
16:00
22:00
Wed, 19 Nov
Thu, 20 Nov
Country
Indicator/Event
Period
UniCredit
Consensus
estimates
(Bloomberg)
0.2
0.1
0.1
0.5
0.4
0.4
0.0
-0.2
0.1
0.3
0.8
0.4
-0.1
0.7
0.4
0.1
-1.5
0.2
87.5
0.2
0.6
-0.2
0.7
0.4
0.1
-0.5
-0.3
86.9
0.2
Q3
0.5
-1.8
Nov
10
6.17
79.3
0.3
79.3
1.0
(ECB)
10:00
14:30
14:30
20:00
2:35
8:00
8:00
9:00
9:00
9:30
9:30
10:00
10:00
10:30
13:00
14:00
14:30
14:30
16:00
16:00
16:00
18:00
Fri, 21 Nov
9:00
10:00
BE
SP
FR
GE
FR
CZ
HU
EC
PL
IT
EMU
EMU
EMU
US
US
US
US
US
EC
JP
EC
US
EC
US
US
EC
EC
UK
UK
GE
GE
EC
US
US
JN
EMU
US
US
US
JP
SZ
GE
FR
FR
GE
GE
EMU
EMU
UK
TR
PL
US
US
US
US
US
SZ
GR
ES
NE
EC
EC
Belgium Sovereign Debt Rating Published by Fitch
Spain Sovereign Debt Rating Published by S&P
Real GDP (% qoq)
Real GDP (% qoq)
Non-farm Payrolls (% qoq)
Real GDP (% qoq)
Real GDP (% qoq)
EU Finance Ministers Discuss Bloc's 2015 Budget in Brussels
Real GDP (% qoq)
Real GDP (% qoq)
Core CPI (% yoy)
Consumer price index, CPI (% yoy)
Real GDP (% qoq)
Import Prices (% mom)
Retail Sales (% mom)
University of Michigan Consumer Confidence
Business Inventories (% mom)
Fischer, Powell, Coeure Speak on Fed/ECB Panel in Washington
ECB Hosts Conference on Future of Bank Regulation, Supervision
Real GDP (% qoq)
EU Foreign Ministers Hold Meeting in Brussels
NY Fed Empire State Manufacturing Survey
ECB President Draghi's Quarterly Testimony in Brussels
Capacity Utilization (%)
Industrial Production (% mom)
ECB Announces Covered-Bond Purchases
EU Defense Ministers Hold Meeting
Core CPI (% yoy)
Consumer Price Index, CPI (% yoy)
ZEW Survey - Current Situation (index)
ZEW Survey - Expectations (index)
EU General Affairs Ministers Hold Meeting in Brussels
NAHB Housing Market Index
Net Long-term Capital Inflows (TIC, USD bn)
Bank of Japan Monetary Policy Statement
Current Account Balance (EUR bn)
Housing Starts (thousands)
Building Permits (thousands)
Fed Releases Minutes from Oct. 28-29 FOMC Meeting
PMI (Nomura)
Exports (real, % mom)
Producer Price Index, PPI (% yoy)
Services PMI (index)
Manufacturing PMI (index)
Services PMI (index)
Manufacturing PMI (index)
Services PMI (index)
Manufacturing PMI (index)
Retail Sales (% mom)
Repo Rate Announcement (%)
Industrial Production (% yoy)
Core CPI (ex food & energy, % mom)
Consumer Price Index, CPI (% mom)
Existing Home Sales (mn)
Leading Indicators (Conference Board, % mom)
Philadelphia Fed Business Outlook Survey
SNB Governing Board Member Zurbrugg Speaks in Geneva
Greece Sovereign Debt Rating Published by Fitch
Estonia Sovereign Debt Rating May Be Published by Moody's
Netherlands Sovereign Debt Rating Published by S&P
ECB President Draghi Speaks in Frankfurt
EU Trade Ministers Hold Meeting in Brussels
Q3
Q3
Q3
Q3
Q3
Q3
Q3
Nov
Nov
Q3
Oct
Oct
Nov
Sep
Oct
Oct
Oct
Oct
Nov
Nov
-0.1
0.7
0.4
0.2
0.1
1.5
1.2
3.2
-3.6
1.3
0.0
Nov
Sep
Sep
Oct
Oct
Nov
Oct
Oct
Nov
Nov
Nov
Nov
Nov
Nov
Oct
Oct
Oct
Oct
Oct
Oct
Oct
Nov
55
1045
1030
Previous
54
52.1
1025
1040
18.9
1017
1031
8.25
52.4
-3.3
-1
48.3
48.5
54.4
51.4
52.3
50.6
-0.3
8.25
1.4
0.2
-0.1
5.15
0.5
18.3
4.2
0.1
0.1
5.17
0.8
20.7
1.5
48.3
48.7
55.1
51.7
52.3
50.9
0.3
0.1
-0.1
5.25
0.7
*Asterisked releases are scheduled on or after the date shown; sa = seasonal adjusted, nsa = not seasonally adjusted, wda = working day adjusted
UniCredit Research
page 18
See last pages for disclaimer.
13 November 2014
Economics & FI/FX Research
Weekly Focus
UniCredit Economic Forecasts
2013
Industrialized countries
US
Euro area
Germany
France
Italy
Spain
Austria
UK
Switzerland
Japan
Developing countries
Central & Eastern Europe
Russia
Poland
Czech Republic
Hungary
Turkey
Emerging Asia
China
Real GDP (%, yoy)
2014
2015
Consumer Prices (%, yoy)
2013
2014
2015
Budget Balance (% of GDP)
2013
2014
2015
2.2
-0.4
0.2
0.4
-1.9
-1.2
0.2
1.7
1.9
1.5
2.2
0.8
1.5
0.4
-0.2
1.2
0.6
3.0
1.5
1.0
2.7
1.2
1.6
0.8
0.7
1.6
1.6
2.3
1.6
1.5
1.5
1.4
1.5
0.9
1.2
1.5
2.0
2.6
-0.2
0.4
1.8
0.5
1.0
0.6
0.3
0.0
1.7
1.6
0.1
2.8
2.2
1.0
1.6
0.8
0.8
0.6
1.9
2.0
0.2
1.8
-7.3
-3.0
0.2
-4.2
-2.8
-6.7
-1.5
-5.9
0.0
-9.3
-6.4
-2.8
0.0
-4.4
-3.0
-5.6
-2.8
-5.0
-0.1
-8.0
-5.6
-2.6
0.3
-4.3
-3.0
-4.5
-1.5
-4.0
-0.2
-6.7
1.3
1.7
-0.7
1.1
4.0
-0.4
3.0
2.4
2.9
2.9
-0.1
3.2
2.4
2.0
2.0
6.8
0.9
1.4
1.6
7.5
7.4
0.1
0.4
0.2
9.0
6.3
0.9
1.6
2.3
6.5
-0.5
-4.3
-1.3
-2.2
-1.5
0.5
5.6
-1.7
-2.9
-2.7
-0.7
-3.0
-2.5
-2.9
-3.3
7.7
7.1
6.9
2.6
2.3
2.9
-2.1
-2.1
-2.0
Real GDP (% qoq, sa)
US (annualized)
Euro area
Germany
France
Italy
Spain
Austria
UK
Switzerland
Japan
Russia
Poland (% yoy)
Czech Republic
Hungary
Turkey
China (%, yoy)
4Q13
3.5
0.3
0.4
0.2
-0.1
0.2
0.4
0.6
0.5
0.0
0.4
2.7
1.1
0.5
0.9
7.7
1Q14
-2.1
0.2
0.7
0.0
0.0
0.4
0.1
0.7
0.4
1.5
0.1
3.4
0.6
1.1
1.8
7.4
2Q14
4.6
0.0
-0.2
0.0
-0.2
0.6
0.2
0.9
0.2
-1.7
0.2
3.3
0.3
0.8
-0.5
7.5
3Q14
2.8
0.2
0.1
0.2
-0.1
0.5
0.3
0.6
0.1
0.6
0.0
2.7
0.4
0.4
0.2
7.1
4Q14
2.8
0.1
0.1
0.1
0.0
0.3
0.2
0.6
0.2
0.5
-0.7
2.6
0.4
0.4
0.4
6.9
1Q15
2.5
0.3
0.4
0.2
0.2
0.3
0.4
0.5
0.4
0.5
-0.5
2.6
0.7
0.5
0.6
7.0
2Q15
2.6
0.4
0.6
0.3
0.2
0.4
0.5
0.6
0.6
0.4
-0.2
3.2
0.7
0.5
0.6
6.9
3Q15
2.5
0.4
0.7
0.3
0.3
0.5
0.6
0.5
0.8
0.6
0.0
3.2
0.8
0.6
0.6
6.8
4Q15
2.5
0.5
0.7
0.4
0.4
0.6
0.6
0.5
0.6
-0.8
0.6
3.6
0.7
0.7
0.7
6.8
Consumer Prices (% yoy)
US
Core rate (ex food & energy)
Euro area
Core rate (ex food & energy)
Germany
France
Italy
Spain
Austria
UK
Switzerland
Japan
Russia
Poland
Czech Republic
Hungary
Turkey
China
4Q13
1.2
1.7
0.8
0.8
1.3
0.6
0.7
0.2
1.6
2.1
0.0
1.4
6.4
0.7
1.1
0.7
7.5
2.9
1Q14
1.4
1.6
0.7
0.8
1.2
0.7
0.5
0.0
1.6
1.7
0.0
1.5
6.4
0.6
0.2
0.0
8.0
2.3
2Q14
2.1
1.9
0.6
0.8
1.1
0.6
0.4
0.2
1.8
1.7
0.1
3.6
7.6
0.3
0.2
-0.3
9.4
2.2
3Q14
1.8
1.8
0.3
0.8
0.8
0.4
-0.1
-0.4
1.7
1.4
0.0
3.4
7.7
-0.3
0.6
0.0
9.2
2.0
4Q14
2.0
1.9
0.5
0.9
1.0
0.5
0.2
0.0
1.6
1.4
0.2
3.1
7.9
-0.3
0.8
0.6
9.3
2.9
1Q15
2.2
2.2
0.7
1.1
1.3
0.5
0.2
0.1
1.8
1.5
0.3
3.0
7.7
0.0
1.1
1.6
7.4
3.0
2Q15
2.0
2.1
0.9
1.0
1.4
0.8
0.6
0.5
1.7
1.7
0.1
1.3
6.5
0.7
1.6
2.2
6.5
2.9
3Q15
2.3
2.4
1.0
1.1
1.7
1.0
1.1
0.7
2.0
1.8
0.3
1.2
6.0
1.4
1.8
2.3
5.6
2.8
4Q15
2.5
2.5
1.2
1.2
1.9
1.1
1.2
0.9
2.1
2.0
0.2
2.5
5.4
1.5
1.9
2.9
6.7
2.9
Source: UniCredit Research
UniCredit Research
page 19
See last pages for disclaimer.
13 November 2014
Economics & FI/FX Research
Weekly Focus
UniCredit FI/FX & Commodity Forecasts
INTEREST RATE & YIELD FORECAST (%)
2014/15
Euro area
Refi Rate
3M Euribor
10Y Bunds
current
end-4Q
UniCredit
Forward*
end-1Q
UniCredit
Forward*
end-2Q
UniCredit
Forward*
end-3Q
UniCredit
Forward*
0.05
0.08
0.81
0.05
0.05
1.10
0.05
0.09
0.83
0.05
0.05
1.30
0.05
0.08
0.88
0.05
0.05
1.50
0.05
0.08
0.92
0.05
0.05
1.75
0.05
0.08
0.96
US
Fed Funds Target Rate
3M USD Libor
10Y Treasuries
0.25
0.23
2.37
0.25
0.35
2.70
0.25
0.24
2.41
0.25
0.40
3.10
0.25
0.29
2.49
0.50
0.75
3.30
0.40
0.44
2.57
0.75
1.00
3.60
0.65
0.62
2.64
UK
Repo Rate
10Y Gilts
0.50
2.20
0.75
2.75
0.50
2.26
1.00
3.20
0.70
2.35
1.25
3.50
0.90
2.42
1.50
3.75
1.10
2.48
Switzerland
3M CHF Libor Target Rate
10Y Swissies
0.00
0.40
0.00
0.70
0.00
0.40
0.00
0.90
0.00
0.42
0.00
1.15
0.00
0.45
0.00
1.40
0.00
0.48
Russia
Reference Rate
3M Money Market Rate
9.50
9.29
8.00
9.30
8.85
8.00
9.30
8.80
7.75
9.00
8.45
7.50
8.75
8.10
Poland
Reference Rate
3M Money Market Rate
2.00
1.94
2.00
2.20
1.85
2.00
2.22
1.80
2.00
2.24
1.80
2.00
2.28
1.85
Czech Republic
Reference Rate
3M Money Market Rate
0.05
0.04
0.05
0.35
0.05
0.05
0.35
0.05
0.05
0.35
0.05
0.05
0.35
0.05
Hungary
Reference Rate
3M Money Market Rate
2.10
2.10
2.10
2.15
2.85
2.10
2.22
2.85
2.10
2.32
2.85
2.10
2.40
3.00
Turkey
Reference Rate
3M Money Market Rate
8.25
10.10
7.50
8.20
8.20
7.50
8.08
8.10
7.50
8.18
8.20
7.50
8.20
8.40
EXCHANGE RATE FORECASTS
2014/15
EUR-USD
EUR-GBP
EUR-CHF
EUR-JPY
EUR-RUB
EUR-PLN
EUR-CZK
EUR-HUF
EUR-TRY
USD-JPY
USD-CHF
GBP-USD
current
1.25
0.79
1.20
144
57.90
4.22
27.64
306
2.80
116
0.96
1.58
end-4Q
UniCredit
Forward
1.22
1.25
0.78
0.80
1.22
1.21
140
144
51.06
47.84
4.12
4.20
27.70
27.63
308
311
3.00
3.01
115
101
1.00
0.89
1.57
1.70
end-1Q
UniCredit
Forward
1.26
1.25
0.81
0.80
1.23
1.21
146
144
52.17
48.74
4.10
4.22
27.60
27.61
315
312
3.07
3.06
116
101
0.98
0.89
1.55
1.70
end-2Q
UniCredit
Forward
1.30
1.25
0.84
0.81
1.24
1.21
152
144
52.95
49.65
4.15
4.24
27.60
27.60
310
313
3.15
3.12
117
101
0.95
0.89
1.54
1.69
end-3Q
UniCredit
Forward
1.32
1.25
0.86
0.81
1.26
1.21
156
144
53.66
50.58
4.13
4.26
27.60
27.58
315
314
3.23
3.18
118
101
0.95
0.89
1.53
1.69
end-4Q
UniCredit
Forward
1175
1188
85
85
end-1Q
UniCredit
Forward
1200
1169
85
85
end-2Q
UniCredit
Forward
1200
1169
89
86
end-3Q
UniCredit
Forward
1225
1170
89
87
COMMODITY PRICE FORECASTS
2014/15
Gold (USD/ tr oz)
Oil Price (Brent, USD/b)
current
1162
80
*Bloomberg Consensus for central bank rates
UniCredit Research
Source: UniCredit Research
page 20
See last pages for disclaimer.
13 November 2014
Economics & FI/FX Research
Weekly Focus
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UniCredit Research
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Economics & FI/FX Research
Weekly Focus
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This report is being furnished to U.S. recipients in reliance on Rule 15a-6 ("Rule 15a-6") under the U.S. Securities Exchange Act of 1934, as amended. Each U.S. recipient of this
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This document may not be distributed in Canada.
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13 November 2014
Economics & FI/FX Research
Weekly Focus
UniCredit Research*
Michael Baptista
Global Head of CIB Research
+44 207 826-1328
[email protected]
Dr. Ingo Heimig
Head of Research Operations
+49 89 378-13952
[email protected]
Economics & FI/FX Research
Erik F. Nielsen, Global Chief Economist
+44 207 826 1765
[email protected]
Economics & Commodity Research
EEMEA Economics & FI/FX Strategy
Global FI Strategy
European Economics
Marco Valli, Chief Eurozone Economist
+39 02 8862-0537
[email protected]
Artem Arkhipov, Head, Macroeconomic Analysis
and Research, Russia
+7 495 258-7258
[email protected]
Michael Rottmann, Head, FI Strategy
+49 89 378-15121
[email protected]
Dr. Andreas Rees, Chief German Economist
+49 69 2717-2074
[email protected]
Anca Maria Aron, Economist, Romania
+40 21 200-1377
[email protected]
Stefan Bruckbauer, Chief Austrian Economist
+43 50505-41951
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Anna Bogdyukevich, CFA, Russia
+7 495 258-7258 ext. 11-7562
[email protected]
Tullia Bucco, Economist
+39 02 8862-0532
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Dan Bucúa, Economist
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Edoardo Campanella, Economist
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Hrvoje Dolenec, Chief Economist, Croatia
+385 1 6006 678
[email protected]
Chiara Corsa, Economist
+39 02 8862-0533
[email protected]
ďXERPtU.RUãĖiN&KLHI(FRQRPLVW6ORYDNLD
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Dr. Loredana Federico, Economist
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Catalina Molnar, Chief Economist, Romania
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Chiara Silvestre, Economist
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Marcin Mrowiec, Chief Economist, Poland
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Daniel Vernazza, Ph.D., Economist
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Dr. Martina von Terzi, Economist
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US Economics
Dr. Harm Bandholz, CFA, Chief US Economist
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[email protected]
Commodity Research
Jochen Hitzfeld, Economist
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Carlos Ortiz, Economist, EEMEA
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[email protected]
Mihai Patrulescu, Senior Economist, Romania
+40 21 200-1378
[email protected]
Kristofor Pavlov, Chief Economist, Bulgaria
+359 2 9269-390
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Dr. Luca Cazzulani, Deputy Head, FI Strategy
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Chiara Cremonesi, FI Strategy
+44 207 826-1771
[email protected]
Elia Lattuga, FI Strategy
+39 02 8862-0538
[email protected]
Kornelius Purps, FI Strategy
+49 89 378-12753
[email protected]
Herbert Stocker, Technical Analysis
+49 89 378-14305
[email protected]
Global FX Strategy
Dr. Vasileios Gkionakis, Global Head, FX Strategy
+44 207 826-7951
[email protected]
Kathrin Goretzki, FX Strategy
+44 207 826-6076
[email protected]
Armin Mekelburg, FX Strategy
+49 89 378-14307
[email protected]
Roberto Mialich, FX Strategy
+39 02 8862-0658
[email protected]
Martin Rea, EM Fixed Income Strategist
+44 207 829-6077
[email protected]
Pavel Sobisek, Chief Economist, Czech Republic
+420 955 960-716
[email protected].cz
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*UniCredit Research is the joint research department of UniCredit Bank AG (UniCredit Bank), UniCredit Bank AG London Branch (UniCredit Bank London), UniCredit Bank AG Milan Branch (UniCredit Bank Milan),
8QL&UHGLW%XOEDQN=DJUHEDþNDEDQNDGG8QL&UHGLWBank Czech Republic (UniCredit Bank Czechia), Bank Pekao, ZAO UniCredit Bank Russia (UniCredit Russia), UniCredit Bank Slovakia a.s. (UniCredit Slovakia),
UniCredit Tiriac Bank (UniCredit Tiriac).
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