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 Ŷ 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. UniCredit Research page 2 See last pages for disclaimer. 13 November 2014 Economics & FI/FX Research Weekly Focus 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 UniCredit Research page 3 See last pages for disclaimer. 13 November 2014 Economics & FI/FX Research Weekly Focus 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. UniCredit Research page 4 See last pages for disclaimer. 13 November 2014 Economics & FI/FX Research Weekly Focus 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 UniCredit Research page 5 See last pages for disclaimer. 13 November 2014 Economics & FI/FX Research Weekly Focus 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. UniCredit Research page 6 See last pages for disclaimer. 13 November 2014 Economics & FI/FX Research Weekly Focus 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 UniCredit Research page 7 See last pages for disclaimer. 13 November 2014 Economics & FI/FX Research Weekly Focus … 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. UniCredit Research page 8 See last pages for disclaimer. 13 November 2014 Economics & FI/FX Research Weekly Focus 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 UniCredit Research page 9 See last pages for disclaimer. 13 November 2014 Economics & FI/FX Research Weekly Focus 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 page 10 See last pages for disclaimer. 13 November 2014 Economics & FI/FX Research Weekly Focus 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 Disclaimer Our recommendations are based on information obtained from, or are based upon public information sources that we consider to be reliable but for the completeness and accuracy of which we assume no liability. 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The investment possibilities discussed in this report may not be suitable for certain investors depending on their specific investment objectives and time horizon or in the context of their overall financial situation. The investments discussed may fluctuate in price or value. Investors may get back less than they invested. Changes in rates of exchange may have an adverse effect on the value of investments. Furthermore, past performance is not necessarily indicative of future results. In particular, the risks associated with an investment in the financial, money market or investment instrument or security under discussion are not explained in their entirety. This information is given without any warranty on an "as is" basis and should not be regarded as a substitute for obtaining individual advice. 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Neither UniCredit Bank, UniCredit Bank London, UniCredit Bank Milan, UniCredit Bulbank, ZagrHEDþNDEDQND8QL&UHGLW%DQN&]HFKLD%DQN3HNDR8QL&UHGLW5XVVLD8QL&UHGLW Slovakia, UniCredit Tiriac nor any of their respective directors, officers or employees nor any other person accepts any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection therewith. This analysis is being distributed by electronic and ordinary mail to professional investors, who are expected to make their own investment decisions without undue reliance on this publication, and may not be redistributed, reproduced or published in whole or in part for any purpose. Responsibility for the content of this publication lies with: a) UniCredit Bank AG (UniCredit Bank), Am Tucherpark 16, 80538 Munich, Germany, (also responsible for the distribution pursuant to §34b WpHG). The company belongs to UniCredit Group. 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Regulatory authority: “Bank of Italy”, Via Nazionale 91, 00184 Roma, Italy and Bundesanstalt für Finanzdienstleistungsaufsicht, Lurgiallee 12, 60439 Frankfurt, Germany. d) UniCredit Bulbank, Sveta Nedelya Sq. 7, BG-1000 Sofia, Bulgaria Regulatory authority: Financial Supervision Commission (FSC), 33 Shar Planina str.,1303 Sofia, Bulgaria e) ZagrebaþNDEDQND d.d., Trg bana -HODþLüD, HR-10000 Zagreb, Croatia Regulatory authority: Croatian Agency for Supervision of Financial Services, Miramarska 24B, 10000 Zagreb, Croatia f) UniCredit Bank Czech Republic (UniCredit Bank Czechia), Na Príkope 858/20, CZ-11121 Prague, Czech Republic 5HJXODWRU\DXWKRULW\&1%&]HFK1DWLRQDO%DQN1D3ĜtNRSČ3UDKD&]HFK5HSXEOLF g) Bank Pekao, ul. Grzybowska 53/57, PL-00-950 Warsaw, Poland Regulatory authority: Polish Financial Supervision Authority, Plac PoZVWDĔFyZ:DUV]DZ\-950 Warsaw, Poland h) ZAO UniCredit Bank Russia (UniCredit Russia), Prechistenskaya emb. 9, RF-19034 Moscow, Russia Regulatory authority: Federal Service on Financial Markets, 9 Leninsky prospekt, Moscow 119991, Russia i) UniCredit Bank Slovakia a.s. (UniCredit Slovakia), Šancova 1/A, SK-813 33 Bratislava, Slovakia Regulatory authority: National Bank of Slovakia, Imricha Karvaša 1, 813 25 Bratislava, Slovakia j) UniCredit Tiriac Bank (UniCredit Tiriac), Bucharest 1F Expozitiei Boulevard, RO-012101 Bucharest 1, Romania Regulatory authority: National Bank of Romania, 25 Lipscani Street, RO-030031, 3rd District, Bucharest, Romania k) UniCredit Bank AG Hong Kong Branch (UniCredit Bank Hong Kong), 25/F Man Yee Building, 68 Des Voeux Road Central, Hong Kong. Regulatory authority: Hong Kong Monetary Authority, 55th Floor, Two International Financial Centre, 8 Finance Street, Central, Hong Kong l) UniCredit Bank AG Singapore Branch (UniCredit Bank Singapore), Prudential Tower, 30 Cecil Street, #25-01, Singapore 049712 Regulatory authority: Monetary Authority of Singapore, 10 Shenton Way MAS Building, Singapore 079117 m) UniCredit Bank AG Tokyo Branch (UniCredit Tokyo), Otemachi 1st Square East Tower 18/F, 1-5-1 Otemachi, Chiyoda-ku, 100-0004 Tokyo, Japan Regulatory authority: Financial Services Agency, The Japanese Government, 3-2-1 Kasumigaseki Chiyoda-ku Tokyo, 100-8967 Japan, The Central Common Government Offices No. 7. POTENTIAL CONFLICTS OF INTEREST UniCredit Bank AG acts as a Specialist or Primary Dealer in government bonds issued by the Italian, Portuguese and Greek Treasury. Main tasks of the Specialist are to participate with continuity and efficiency to the governments' securities auctions, to contribute to the efficiency of the secondary market through market making activity and quoting requirements and to contribute to the management of public debt and to the debt issuance policy choices, also through advisory and research activities. ANALYST DECLARATION The author’s remuneration has not been, and will not be, geared to the recommendations or views expressed in this study, neither directly nor indirectly. ORGANIZATIONAL AND ADMINISTRATIVE ARRANGEMENTS TO AVOID AND PREVENT CONFLICTS OF INTEREST To prevent or remedy conflicts of interest, UniCredit Bank, UniCredit Bank London, UniCredit Bank Milan, 8QL&UHGLW%XOEDQN=DJUHEDþNDEDQND8QL&UHGLW%DQN&]HFKLD%DQN Pekao, UniCredit Russia, UniCredit Slovakia, and UniCredit Tiriac have established the organizational arrangements required from a legal and supervisory aspect, adherence to which is monitored by its compliance department. Conflicts of interest arising are managed by legal and physical and non-physical barriers (collectively referred to as “Chinese Walls”) designed to restrict the flow of information between one area/department of UniCredit Bank, UniCredit Bank London, UniCredit Bank Milan, UniCredit Bulbank, =DJUHEDþND banka, UniCredit Bank Czechia, Bank Pekao, UniCredit Russia, UniCredit Slovakia, UniCredit Tiriac, and another. In particular, Investment Banking units, including corporate finance, capital market activities, financial advisory and other capital raising activities, are segregated by physical and non-physical boundaries from Markets Units, as well as the research department. In the case of equities execution by UniCredit Bank AG Milan Branch, other than as a matter of client facilitation or delta hedging of OTC and listed derivative positions, there is no proprietary trading. Disclosure of publicly available conflicts of interest and other material interests is made in the research. Analysts are supervised and managed on a day-to-day basis by line managers who do not have responsibility for Investment Banking activities, including corporate finance activities, or other activities other than the sale of securities to clients. ADDITIONAL REQUIRED DISCLOSURES UNDER THE LAWS AND REGULATIONS OF JURISDICTIONS INDICATED Notice to Australian investors This publication is intended for wholesale clients in Australia subject to the following: UniCredit Bank AG and its branches do not hold an Australian Financial Services licence but are exempt from the requirement to hold an Australian financial services licence in respect of the financial services UniCredit Bank AG and its branches provide to wholesale clients. UniCredit Bank AG and its branches are regulated by BaFin under German laws, which differ from Australian laws. This document is only for distribution to wholesale clients as defined in Section 761G of the Corporations Act. UniCredit Bank AG and its branches are not Authorised Deposit Taking Institutions under the Banking Act 1959 and are not authorised to conduct a banking business in Australia. UniCredit Research page 21 13 November 2014 Economics & FI/FX Research Weekly Focus Notice to Austrian investors This document does not constitute or form part of any offer for sale or subscription of or solicitation of any offer to buy or subscribe for any securities and neither this document nor any part of it shall form the basis of, or be relied on in connection with or act as an inducement to enter into, any contract or commitment whatsoever. This document is confidential and is being supplied to you solely for your information and may not be reproduced, redistributed or passed on to any other person or published, in whole or part, for any purpose. Notice to Czech investors This report is intended for clients of UniCredit Bank, UniCredit Bank London, UniCredit Bank Milan, UniCredit Bulbank=DJUHEDþNDEDQND8QL&UHGLWBank Czechia, Bank Pekao, UniCredit Russia, UniCredit Slovakia, UniCredit Tiriac in the Czech Republic and may not be used or relied upon by any other person for any purpose. Notice to Hong Kong investors The information in this publication is intended for recipient(s) who is/are Professional Investor as defined in Section 1 of Part 1 of Schedule 1 to the Securities and Futures Ordinance (Cap. 571). The information in this publication is based on carefully selected sources believed to be reliable, however we do not make any representation as to the accuracy or completeness of the information. Any opinions herein reflect our judgement at the date hereof and are subject to change without notice. Any investments presented in this publication may be unsuitable for the investor depending on his or her specific investment objectives and financial position. Any reports provided herein are provided for general information purposes only and cannot substitute the obtaining of independent financial advice. Private investors should obtain the advice of their banker/broker about any investments concerned prior to making them. Nothing in this publication is intended to create contractual obligations. Notice to Italian investors This document is not for distribution to retail clients as defined in article 26, paragraph 1(e) of Regulation n. 16190 approved by CONSOB on October 29, 2007. In the case of a short note, we invite the investors to read the related company report that can be found on UniCredit Research website www.research.unicredit.eu. Notice to Japanese investors This document does not constitute or form part of any offer for sale or subscription for or solicitation of any offer to buy or subscribe for any securities and neither this document nor any part of it shall form the basis of, or be relied on in connection with or act as an inducement to enter into, any contract or commitment whatsoever. Notice to Polish investors This document is intended solely for professional clients as defined in Art. 3 39b of the Trading in Financial Instruments Act of 29 July 2005.The publisher and distributor of the recommendation certifies that it has acted with due care and diligence in preparing the recommendation, however, assumes no liability for its completeness and accuracy. Notice to Russian investors As far as we are aware, not all of the financial instruments referred to in this analysis have been registered under the federal law of the Russian Federation "On the Securities Market" dated 22 April 1996, as amended (the "Law"), and are not being offered, sold, delivered or advertised in the Russian Federation. This analysis is intended for qualified investors, as defined by the Law, and shall not be distributed or disseminated to a general public and to any person, who is not a qualified investor. Notice to Singapore investors The information in this publication is intended solely for Institutional and Accredited investors only, as defined in section 4A of the Securities and Futures Act (Cap. 289) of Singapore (“SFA”) and is not intended to be made available to the retail public. We have taken reasonable steps to select information based on sources believed to be reliable. However we do not make any representation as to its accuracy or completeness. This publication is distributed for information only and is not a prospectus as defined in the SFA. It is not and should not be construed as an offer to sell or a solicitation of an offer to buy any security or investment product. It is also not and should not be construed as providing advice regarding any security, investment or product. Any opinions herein reflect our judgement at the date hereof and are subject to change without notice. Such opinions do not take into consideration the investment objectives, financial situation, risk appetite of any other characteristics and particular needs of an investor. You should consult your advisers concerning any potential transactions and consider carefully whether the security, investment or product is suitable for you before making any investment decision. Any reports provided herein are provided for general information purposes only. Any information regarding past performances of the investment may not be indicative of future performances and cannot substitute the obtaining of independent financial advice. Notice to Turkish investors Investment information, comments and recommendations stated herein are not within the scope of investment advisory activities. Investment advisory services are provided in accordance with a contract of engagement on investment advisory services concluded with brokerage houses, portfolio management companies, non-deposit banks and the clients. Comments and recommendations stated herein rely on the individual opinions of the ones providing these comments and recommendations. These opinions may not suit your financial status, risk and return preferences. For this reason, to make an investment decision by relying solely on the information stated here may not result in consequences that meet your expectations. Notice to UK investors This communication is directed only at clients of UniCredit Bank, UniCredit Bank London, UniCredit Bank Milan, 8QL&UHGLW%XOEDQN=DJUHEDþNDEDQND8QL&UHGLW%DQN&]HFKLD Bank Pekao, UniCredit Russia, UniCredit Slovakia, or UniCredit Tiriac who (i) have professional experience in matters relating to investments or (ii) are persons falling within Article 49(2)(a) to (d) (“high net worth companies, unincorporated associations, etc.”) of the United Kingdom Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 or (iii) to whom it may otherwise lawfully be communicated (all such persons together being referred to as “relevant persons”). This communication must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this communication relates is available only to relevant persons and will be engaged in only with relevant persons. Notice to U.S. investors 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 report represents and agrees, by virtue of its acceptance thereof, that it is such a "major U.S. institutional investor" (as such term is defined in Rule 15a-6) and that it understands the risks involved in executing transactions in such securities. Any U.S. recipient of this report that wishes to discuss or receive additional information regarding any security or issuer mentioned herein, or engage in any transaction to purchase or sell or solicit or offer the purchase or sale of such securities, should contact a registered representative of UniCredit Capital Markets, LLC. Any transaction by U.S. persons (other than a registered U.S. broker-dealer or bank acting in a broker-dealer capacity) must be effected with or through UniCredit Capital Markets. The securities referred to in this report may not be registered under the U.S. Securities Act of 1933, as amended, and the issuer of such securities may not be subject to U.S. reporting and/or other requirements. Available information regarding the issuers of such securities may be limited, and such issuers may not be subject to the same auditing and reporting standards as U.S. issuers. The information contained in this report is intended solely for certain "major U.S. institutional investors" and may not be used or relied upon by any other person for any purpose. Such information is provided for informational purposes only and does not constitute a solicitation to buy or an offer to sell any securities under the Securities Act of 1933, as amended, or under any other U.S. federal or state securities laws, rules or regulations. The investment opportunities discussed in this report may be unsuitable for certain investors depending on their specific investment objectives, risk tolerance and financial position. In jurisdictions where UniCredit Capital Markets is not registered or licensed to trade in securities, commodities or other financial products, transactions may be executed only in accordance with applicable law and legislation, which may vary from jurisdiction to jurisdiction and which may require that a transaction be made in accordance with applicable exemptions from registration or licensing requirements. The information in this publication is based on carefully selected sources believed to be reliable, but UniCredit Capital Markets does not make any representation with respect to its completeness or accuracy. All opinions expressed herein reflect the author’s judgment at the original time of publication, without regard to the date on which you may receive such information, and are subject to change without notice. UniCredit Capital Markets may have issued other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. These publications reflect the different assumptions, views and analytical methods of the analysts who prepared them. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is provided in relation to future performance. UniCredit Capital Markets and any company affiliated with it may, with respect to any securities discussed herein: (a) take a long or short position and buy or sell such securities; (b) act as investment and/or commercial bankers for issuers of such securities; (c) act as market makers for such securities; (d) serve on the board of any issuer of such securities; and (e) act as paid consultant or advisor to any issuer. The information contained herein may include forward-looking statements within the meaning of U.S. federal securities laws that are subject to risks and uncertainties. Factors that could cause a company’s actual results and financial condition to differ from expectations include, without limitation: political uncertainty, changes in general economic conditions that adversely affect the level of demand for the company’s products or services, changes in foreign exchange markets, changes in international and domestic financial markets and in the competitive environment, and other factors relating to the foregoing. All forward-looking statements contained in this report are qualified in their entirety by this cautionary statement This document may not be distributed in Canada. EFI e 4 UniCredit Research page 22 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 [email protected] Anna Bogdyukevich, CFA, Russia +7 495 258-7258 ext. 11-7562 [email protected] Tullia Bucco, Economist +39 02 8862-0532 [email protected] Dan Bucúa, Economist +44 207 826-7954 [email protected] Edoardo Campanella, Economist +39 02 8862-0522 [email protected] Hrvoje Dolenec, Chief Economist, Croatia +385 1 6006 678 [email protected] Chiara Corsa, Economist +39 02 8862-0533 [email protected] ďXERPtU.RUãĖiN&KLHI(FRQRPLVW6ORYDNLD +421 2 4950 2427 [email protected] Dr. Loredana Federico, Economist +39 02 8862-0534 [email protected] Catalina Molnar, Chief Economist, Romania +40 21 200-1376 [email protected] Chiara Silvestre, Economist [email protected] Marcin Mrowiec, Chief Economist, Poland +48 22 524-5914 [email protected] Daniel Vernazza, Ph.D., Economist +44 207 826-7805 [email protected] Dr. Martina von Terzi, Economist +49 89 378-13013 [email protected] US Economics Dr. Harm Bandholz, CFA, Chief US Economist +1 212 672-5957 [email protected] Commodity Research Jochen Hitzfeld, Economist +49 89 378-18709 [email protected] Carlos Ortiz, Economist, EEMEA +44 207 826-1228 [email protected] Mihai Patrulescu, Senior Economist, Romania +40 21 200-1378 [email protected] Kristofor Pavlov, Chief Economist, Bulgaria +359 2 9269-390 [email protected] Dr. Luca Cazzulani, Deputy Head, FI Strategy +39 02 8862-0640 [email protected] 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] Publication Address UniCredit Research Corporate & Investment Banking UniCredit Bank AG Arabellastrasse 12 D-81925 Munich [email protected] Bloomberg UCCR Internet www.research.unicredit.eu *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). EFI 11 UniCredit Research page 23
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