This report has been deactivated

0

0
The ECB's balancing act
Tue, Jul 8 2008, 13:47 GMT
by Yapi Kredi Bank Economic Research Department
UniCredit Group
At
the July meeting, the ECB hiked the refi rate by 25 bp, contemporarily
adopting a more relaxed stance. However, the damage in terms of growth
perspectives was already done. The sizeable tightening in overall
financial conditions triggered by the June press conference will impact
on the growth outlook, especially in 2009. We now see next year's GDP averaging only 1.0%, after 1.6% in 2008. The inflation outlook remains basically an oil story.
The
ECB's statement sounded more dovish on growth prospects, and Trichet
plainly said that from now on he has "no bias". We continue to expect rates on hold well into 2009, and the beginning of an easing cycle in mid-2009.
However, in the near-term upside risks will keep lingering, with the
ECB's eyes wide open on the evolution of inflation expectations and
second-round effects on wages.
We try to address the issue of second-round effects.
Our findings are somewhat reassuring, although wage growth could
accelerate further and approach its peak at around the turn of the
year. It will be crucial that current inflation numbers won't be
adopted as a benchmark for next year's wage deals. To this extent,
weaker growth and a turning labor market should weigh on the unions'
bargaining power.
We take
a close look at France, a sort of swing state crucial to detect if
eurozone will resume potential relatively soon - as the ECB thinks - or
if a prolonged slowdown has just begun. We conclude that French firms' exposure to rising refinancing costs clouds the outlook.
In the rest of Europe, the monetary policy outlook remains heavily influenced by current elevated inflation numbers.
However, the Bank of England has, in our view, limited room to hike
faced with an ongoing credit crunch. In Scandinavia, central banks will
remain on the current hawkish posture, whereas we do not share current
market expectations of a series of rate hikes to be delivered by the
SNB.
Published on
Tue, Jul 8 2008, 13:49 GMT
UniCredit Group
| Via A. Specchi, 16 00186 Roma
http://www.unicreditmib.eu/ | communication@unicreditgroup.eu
Legal disclaimer and risk disclosure
The content of the Investor Relations section (hereinafter, Investor Relations) of the UniCredit website is the property of UniCredit. No prior authorization is required to store the content of the section in any format, or to reproduce or consult the said content exclusively for personal use.
The data, opinions and special sections (dates of assemblies, dates of board meetings, press releases, presentations, etc.) appearing in Investor Relations are included exclusively for the purpose of providing information on the activities of the UniCredit banking group, Gruppo Bancario UniCredit. The said data, opinions and special sections are not to be understood in any way as an incitement to saving on the part of the general public or as a means of promoting any specific form of investment or trading activity. Furthermore, the said data and information are not to be understood as a means of promoting or placing financial instruments, investment services, or banking/financial products/services.
The information may be used for personal investment decision-making purposes entirely at the user's risk.
Before terminating any operation directly or indirectly based on the information presented in Investor Relations, users are advised to contact their bank or other authorized financial broker for confirmation of the validity and accuracy of the said information and of the appropriateness of any such operations, as described in Investor Relations, in view of the user's personal needs, income, and economic or financial conditions.
The information contained in Investor Relations is produced by internal Gruppo Bancario UniCredit sources. UniCredit reserves the right to modify the said information and the functional and operational use specifications applying to Investor Relations as and when it chooses to do so, at its own discretion and with no forewarning.
UniCredit will do its utmost to ensure that the information presented in Investor Relations fully conforms to the requisites of reliability, truthfulness and accuracy, and that the said information is fully updated. UniCredit accepts no responsibility for any errors or imprecision in the content of Investor Relations resulting from circumstances that cannot be ascribed to UniCredit.
Furthermore, UniCredit accepts no responsibility for any untoward consequences of brief or prolonged interruptions, delays or dysfunctions in the provision of the Investor Relations service due to power blackouts, telephone line failures, Internet failures or circumstances beyond the control of UniCredit.
For all further information or explanations, please contact the operators indicated by the "Contacts" section of Investor Relations.