The Unicredit Economics Chartbook: Quarterly

The UniCredit
Economics
Chartbook
Quarterly
Macro Research 2 April 2020

Strategy Research
Credit Research
“ The mother of all recessions has arrived
2Q 2020 Editor: Chiara Silvestre, Economist (UniCredit Bank Milan)

April 2020 Macro Research
Economics Chartbook
Contents
3 The mother of all recessions has arrived
4 Table 1: Annual macroeconomics forecasts
5 Table 2: Quarterly GDP and CPI forecasts
5 Table 3: Oil forecasts
6 Table 4: FI forecasts
7 Table 5: FX forecasts
8 Global
10 US
12 Eurozone
14 Germany
16 France
18 Italy
20 Spain
22 Austria
24 Greece
26 Portugal
28 UK
30 Sweden
32 Norway
34 Switzerland
36 China
38 Oil
Editorial deadline: 2 April 2020, 17:00 (CET)

Published on 2 April 2020
UniCredit Research page 2 See last pages for disclaimer.

Economics Chartbook
The mother of all recessions has arrived

■ Global: Measures deemed necessary to contain the spread of COVID-19 have paralyzed the
global economy. While China has now started to lift restrictions, in the rest of the world a flat-
tening of the epidemic curve is still some weeks away. We expect the bulk of containment
measures in the US and Europe to last through June. In this environment, uncertainty sur-
rounding forecasts is huge. Nevertheless, today, we present our best guesses. We think that
global GDP will shrink by about 6% this year, with a huge fall in 1H20 followed by a rebound
in 2H20 and annual average growth of 8-9% in 2021. Impressive fiscal and monetary stimu-
lus will not be able to prevent activity from slumping in the next few months but will be key to
supporting the recovery once restrictions are eased. We suspect that the trough is likely to
be much deeper – and the recovery swifter – than in the 2008-09 financial crisis. Risks are
skewed to the downside, particularly with respect to the strength of the recovery. There is a
risk of a second wave of infection, while business failures and much-higher unemployment
may cause long-term damage to productive potential. However, concerns regarding public-
debt sustainability are overblown.
■ US: The economy will likely shrink by 10-11% this year, with a 25% cumulated contraction in
1H20 as containment measures become more stringent in the coming weeks. The labor
market is already under great pressure, and the unemployment rate will probably climb to
more than 10% from its current 3.5%. We forecast a strong economic rebound in 2H20 and
annual GDP growth of about 12% in 2021, supported by massive fiscal and monetary stimu-
lus and high flexibility in the labor market. The projected recovery is likely to allow the US
economy to reach its pre-crisis level of output by the end of 2021.
■ Eurozone: GDP might contract by about 13% in 2020, dragged down by a 25% drop in
1H20 that reflects the intensification of lockdown measures. Here, we also forecast a
rebound in 2H20 and we expect average growth for 2021 to be about 10%. The policy
response has been multifaceted. The ECB has stepped up interventions to preserve the
functioning of key markets and safeguard the transmission of monetary policy amid a quickly
deteriorating fiscal outlook. With its pandemic emergency purchase program, it stands ready
to act as a buyer of last resort in the government-bond market for as long as needed. This
backstop has created much-needed fiscal headroom. However, member states’ responses
have been uncoordinated and have lacked a common approach. The eurozone’s north-south
split has re-emerged, and financial solidarity is still elusive.
■ UK: GDP is likely to shrink by 10-11% this year, with a drop of more than 20% in 1H20
followed by a rebound in 2H20 and annual growth of about 10% in 2021. More uncertainty
than usual surrounds our forecasts, and Brexit negotiations add to risks that loom over the
expected recovery. However, we think that the UK will avoid a fallback to WTO rules.
■ China: The economy will probably expand by less than 1% in 2020, with a sharp contraction
in 1Q20 (by 7-8% qoq, or an annualized 30%) followed by rapid recovery in 2Q20 and 3Q20.
Activity was extremely weak in February, and while some improvement has materialized
since then, the economy still seems to be running at 85-90% capacity. In 2021, GDP growth
is likely to rebound to about 10%. Additional cuts to both the reserve requirement ratio and
the loan prime rate are in the cards, as is the injection of more liquidity for SMEs, with a
focus on export-oriented firms. On the investment front, digital-infrastructure projects are like-
ly to take priority over traditional ones.

2 April 2020
Economics Chartbook
Table 1: Annual macroeconomics forecasts

Government budget balance General government debt Current account balance
GDP (%) CPI inflation (%) Central Bank Rate (EoP) (% GDP) (% GDP) (% GDP)
2019 2020 2021 2019 2020 2021 2019 2020 2021 2019 2020 2021 2019 2020 2021 2019 2020 2021
World 3.0 -6.0 8.6 - - - - - - - - - - - - - - -
US 2.3 -10.8 11.8 1.8 1.2 1.9 1.75 0.25 0.25 -4.6 -13.0 -10.0 107.1 123.0 133.0 -2.3 -2.0 -2.5
Eurozone 1.2 -13.0 10.0 1.2 0.3 1.2 -0.50 -0.50 -0.50 -0.7 -11.0 -4.0 85.0 111.0 102.0 3.3 1.8 2.7
Germany 0.6* -10.0* 10.0* 1.4 0.5 1.6 - - - 1.4 -12.9 -2.9 58.8 77.8 72.6 7.3 3.0 5.0
France 1.3 -13.8 11.6 1.1 0.4 1.0 - - - -3.0 -12.3 -4.5 98.1 123.4 112.7 -0.4 -0.5 -0.6
Italy 0.3 -15.0 9.0 0.6 -0.4 0.8 - - - -1.6 -12.2 -4.9 134.8 167.0 155.5 3.0 1.7 2.3
Spain 2.0 -15.5 9.5 0.8 0.1 1.1 - - - -2.3 -12.5 -4.5 95.5 126.2 119.7 2.4 2.5 2.2
Austria 1.6 -9.1 7.9 1.5 0.9 1.9 - - - 0.7 -9.6 -2.0 70.4 86.2 80.4 1.9 0.8 1.4
Greece 1.9 -18.6 15.5 0.3 0.2 0.8 - - - 1.2 -11.7 -3.5 174.7 218.6 187.5 -0.9 -1.1 -0.8
Portugal 2.0 -15.0 9.6 0.3 0.2 0.7 - - - 0.2 -10.9 -4.1 117.7 145.7 135.9 -0.5 -0.5 -0.5
CEE 1.8 -6.3 6.0 - - - - - - - - - - - - - - -
Other Europe
UK 1.4 -10.5 9.8 1.8 0.9 1.6 0.10 0.10 0.10 -2.1 -9.0 -7.0 79.5 93.0 99.0 -3.8 -3.0 -3.3
Sweden 1.3 -6.0 5.3 1.7 1.2 1.5 0.00 0.00 0.00 0.5 -5.0 -0.3 37.0 43.0 39.0 3.9 3.0 4.0
Norway 2.4** -5.5** 6.5** 2.2 2.0 2.2 1.50 0.25 0.25 6.4 3.0 7.0 40.0 45.0 40.0 4.0 3.5 4.5
Switzerland 0.9 -10.2 9.7 0.4 -0.9 0.2 -0.75 -0.75 -0.75 1.2 -2.7 -0.8 40.0 48.2 44.3 10.7 4.5 8.6
Others
China 6.2 0.6 10.0 2.3 3.0 2.5 4.35 4.15 4.15 -6.0 -12.0 -7.0 55.0 67.0 64.0 1.0 0.9 0.7
Japan 0.7 -7.5 6.0 0.5 0.0 0.3 -0.10 -0.10 -0.10 -2.8 -8.0 -4.5 238.0 260.0 250.0 3.3 1.5 3.0
*Non-wda figures. Adjusted for working days: 0.6% (2019), -10.4% (2020) and 10.0% (2021). Source: UniCredit Research
**Mainland economy figures. Overall GDP: 1.2% (2019), -4.7% (2020) and 4.5% (2021).

Economics Chartbook
Table 2: Quarterly GDP and CPI forecasts

REAL GDP (% QOQ, SA)
4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21

US (annualized) 2.1 -10.0 -65.0 65.0 70.0 5.0 3.0 1.8 1.9
Eurozone 0.1 -3.5 -21.5 10.0 10.0 3.0 1.0 0.4 0.4
Germany 0.0 -2.5 -18.5 9.0 9.0 3.0 1.0 0.4 0.4
France -0.1 -5.0 -21.4 10.9 10.9 3.2 1.2 0.4 0.4
Italy -0.3 -5.0 -22.0 9.0 9.5 2.8 1.2 0.3 0.3
Spain 0.5 -4.0 -24.0 9.5 10.0 3.0 1.5 0.5 0.5
Austria 0.2 -0.1 -18.6 7.3 7.8 2.9 1.0 0.4 0.4
Other Europe
UK 0.0 -2.5 -20.0 12.0 8.0 3.0 1.0 0.2 0.3
Sweden 0.2 -1.0 -12.0 5.0 6.0 1.0 0.5 0.4 0.4
Norway (mainland) 0.2 -2.5 -10.0 5.0 7.0 1.0 0.3 0.3 0.3
Switzerland 0.3 -2.5 -19.0 9.5 9.0 3.0 0.9 0.3 0.4
CPI INFLATION (% YOY)
4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21

US 2.0 2.1 0.7 0.9 1.0 1.2 2.1 2.2 2.2
Eurozone 1.0 1.1 -0.2 0.1 0.2 0.5 1.5 1.4 1.3
Germany 1.2 1.6 -0.1 0.2 0.4 0.8 2.0 1.8 1.6
France 1.1 1.2 0.0 0.1 0.1 0.4 1.2 1.2 1.2
Italy 0.3 0.2 -0.9 -0.5 -0.4 0.0 1.1 1.0 0.9
Spain (HICP) 0.5 0.7 -0.4 0.0 0.4 0.9 1.4 1.2 1.0
Austria 1.3 2.0 0.6 0.6 0.7 0.9 2.2 2.3 2.3
Other Europe
UK 1.4 1.6 0.6 0.7 0.8 1.1 1.7 1.7 1.8
Sweden 1.6 1.1 1.2 1.3 1.1 1.5 1.5 1.5 1.5
Norway 1.6 1.5 2.0 2.1 2.1 2.2 2.2 2.1 2.1
Switzerland -0.1 -0.2 -1.7 -0.9 -0.6 -0.5 0.7 0.3 0.2
Source: UniCredit Research
Table 3: Oil forecasts

Current 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21
Brent (USD/bbl, average) 27 35 38 40 45 45 50 50
Source: Bloomberg, UniCredit Research

Economics Chartbook
Table 4: FI forecasts
INTEREST RATE AND YIELD FORECASTS (%)
Current 2Q20 3Q20 4Q20 1Q201 2Q21 3Q21 4Q21

EMU
Refi rate 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Depo rate -0.50 -0.50 -0.50 -0.50 -0.50 -0.50 -0.50 -0.50
3M Euribor -0.34 -0.40 -0.40 -0.40 -0.40 -0.40 -0.40 -0.40
2Y Schatz -0.65 -0.65 -0.70 -0.60 -0.55 -0.55 -0.50 -0.50
fwd -0.66 -0.66 -0.66 -0.67 -0.65 -0.63 -0.62
5Y Obl -0.60 -0.60 -0.60 -0.50 -0.40 -0.35 -0.25 -0.10
10Y Bund -0.44 -0.50 -0.50 -0.40 -0.30 -0.20 -0.05 0.10
fwd -0.41 -0.39 -0.38 -0.36 -0.35 -0.33 -0.31
30Y Bund -0.04 0.00 0.00 0.10 0.20 0.35 0.50 0.70
2/10 21 15 20 20 25 35 45 60
2/5/10 -11 -5 0 0 5 5 5 20
10/30 40 50 50 50 50 55 55 60
2Y EUR swap -0.29 -0.25 -0.30 -0.25 -0.25 -0.25 -0.20 -0.20
5Y EUR swap -0.23 -0.15 -0.15 -0.10 -0.05 0.00 0.10 0.25
10Y EUR swap -0.04 -0.05 -0.05 0.00 0.05 0.15 0.30 0.45
US
Fed Fund 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25
3M Libor 1.45 0.40 0.35 0.35 0.35 0.35 0.35 0.40
2Y UST 0.22 0.25 0.30 0.35 0.35 0.45 0.50 0.60
fwd 0.27 0.29 0.32 0.35 0.37 0.39 0.41
5Y UST 0.36 0.40 0.60 0.70 0.80 1.05 1.25 1.40
10Y UST 0.59 0.70 0.95 1.15 1.25 1.50 1.75 1.95
fwd 0.64 0.68 0.71 0.75 0.78 0.82 0.85
30Y UST 1.23 1.40 1.55 1.70 1.80 2.00 2.25 2.40
2/10 37 45 65 80 90 105 125 135
2/5/10 -8 -15 -5 -10 0 15 25 25
10/30 64 70 60 55 55 50 50 45
2Y USD swap 0.46 0.45 0.45 0.50 0.50 0.60 0.65 0.75
10Y USD swap 0.67 0.70 0.95 1.15 1.25 1.50 1.75 1.95
UK
Key rate 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10
Spreads Current 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21

10Y UST-Bund 103 120 145 155 155 170 180 185
10Y BTP-Bund 192 250 225 225 200 200 200 200
10Y EUR swap-Bund 40 45 45 40 35 35 35 35
10Y USD swap-Bund 8 0 0 0 0 0 0 0
Source: Bloomberg, UniCredit Research

Economics Chartbook
Table 5: FX forecasts
EUR Current 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 3M 6M 12M
G10
EUR-USD 1.08 1.10 1.12 1.14 1.16 1.17 1.18 1.18 1.11 1.13 1.16
EUR-CHF 1.06 1.06 1.07 1.08 1.08 1.09 1.10 1.12 1.06 1.07 1.08
EUR-GBP 0.88 0.89 0.88 0.88 0.88 0.88 0.88 0.87 0.89 0.88 0.88
EUR-JPY 117 119 119 120 122 122 122 122 119 119 122
EUR-NOK 11.27 11.60 11.50 11.40 11.30 11.20 11.10 11.00 11.57 11.47 11.27
EUR-SEK 10.99 10.90 10.80 10.70 10.60 10.50 10.40 10.30 10.87 10.77 10.57
EUR-AUD 1.79 1.80 1.81 1.81 1.81 1.80 1.79 1.74 1.80 1.81 1.81
EUR-NZD 1.84 1.83 1.84 1.84 1.84 7.03 1.82 1.79 1.83 1.84 1.84
EUR-CAD 1.53 1.52 1.52 1.54 1.55 1.54 1.53 1.51 1.52 1.53 1.55
EUR-TWI 96.7 98.6 98.3 99.0 99.7 100.4 100.8 101.0 98.5 98.5 99.9
CEEMEA & CHINA
EUR-PLN 4.56 4.45 4.30 4.35 4.29 4.35 4.30 4.35 4.30 4.29 4.31
EUR-HUF 364 345 336 340 335 338 338 345 329 334 329
EUR-CZK 27.5 27.0 26.6 26.2 26.0 25.8 25.6 25.3 25.5 25.5 25.4
EUR-RON 4.83 4.84 4.82 4.85 4.92 4.93 4.92 4.95 4.83 4.83 4.92
EUR-TRY 7.20 7.56 7.44 7.44 7.59 7.73 7.87 8.06 6.81 7.09 7.57
EUR-RUB 84.1 86.9 81.9 79.8 80.0 80.7 82.0 82.1 74.4 76.6 81.3
EUR-ZAR 20.0 18.9 19.0 19.2 19.3 19.2 19.1 18.9 19.0 19.1 19.2
EUR-CNY 7.70 7.76 7.84 7.92 8.06 8.19 8.28 8.32 7.78 7.87 8.10
USD Current 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 3M 6M 12M
G10
EUR-USD 1.08 1.10 1.12 1.14 1.16 1.17 1.18 1.18 1.11 1.13 1.16
USD-CHF 0.97 0.96 0.96 0.95 0.93 0.93 0.93 0.95 0.96 0.95 0.93
GBP-USD 1.24 1.23 1.28 1.30 1.32 1.33 1.34 1.35 1.25 1.29 1.32
USD-JPY 108 108 106 105 105 104 103 103 107 106 105
USD-NOK 10.39 10.55 10.27 10.00 9.74 9.57 9.41 9.32 10.45 10.18 9.68
USD-SEK 10.14 9.91 9.64 9.39 9.14 8.97 8.81 8.73 9.82 9.56 9.08
AUD-USD 0.60 0.61 0.62 0.63 0.64 0.65 0.66 0.68 0.61 0.62 0.64
NZD-USD 0.59 0.60 0.61 0.62 0.63 0.64 0.65 0.66 0.60 0.61 0.63
USD-CAD 1.41 1.38 1.36 1.35 1.34 1.32 1.30 1.28 1.37 1.36 1.33
USTW$ 90.8 94.2 92.5 91.3 90.2 89.2 88.3 87.8 93.6 92.1 89.9
USD-DXY 100.2 99.1 97.1 95.6 94.2 93.4 92.5 92.3 98.4 96.6 93.9
CEEMEA & CHINA
USD-PLN 4.21 4.05 3.84 3.82 3.70 3.72 3.64 3.69 3.88 3.81 3.70
USD-HUF 336 314 300 298 289 289 286 292 297 296 283
USD-CZK 25.4 24.6 23.8 23.0 22.40 22.10 21.70 21.40 23.0 22.6 21.8
USD-RON 4.46 4.40 4.30 4.25 4.24 4.21 4.17 4.19 4.37 4.29 4.23
USD-TRY 6.61 6.87 6.64 6.53 6.54 6.61 6.67 6.83 6.15 6.29 6.50
USD-RUB 77.6 79.0 73.1 70.0 69.0 69.0 69.5 69.6 67.2 68.0 69.9
USD-ZAR 18.46 17.20 17.00 16.80 16.60 16.40 16.20 16.00 17.13 16.93 16.53
USD-CNY 7.09 7.05 7.00 6.95 6.95 7.00 7.02 7.05 7.03 6.98 6.97
Forecasts are end-of-period Source: Bloomberg, UniCredit Research

Economics Chartbook
Global
Daniel Vernazza, PhD, ■ We expect global GDP to fall about 6% this year, with a very sharp contraction in the first
Chief International Economist
(UniCredit Bank, London) half of the year and a rebound in 2H20, followed by growth of 8-9% in 2021. Compared to
+44 207 826-7805 the 2008-9 financial crisis, we expect the fall in output to be more than twice as deep, but
daniel.vernazza@unicredit.eu
the recovery swifter. Across the world, the necessary social distancing measures to contain
the spread of COVID-19 has meant a large part of the global economy has essentially
been shut down, particularly those firms supplying non-essential goods and services. Chi-
na has now started to lift restrictions, including in the epicenter Hubei, as daily new cases
have fallen to a trickle, but most of the rest of the world is at the explosive section of the
epidemic curve with a flattening likely still weeks away. We expect containment measures
in the US and in Europe to last through June and to ease only gradually in 2H20. Although
there is little hard data to gauge the magnitude of the downturn, very weak economic activi-
ty data out of China for February, slumping PMIs globally for March, and reports of surging
jobless claims and reduced working hours in the US and Europe, all point to double-digit
falls in output in 1H20.
■ Once the epidemic curve is flattened and (with a lag) containment measures are eased,
output should recover fairly strongly in 2H20, driven by pent-up demand from households
who deferred consumption of non-essential items. However, output will not simply snap
back to its pre-COVID-19 levels. Containment measures will likely have to continue
through year-end, albeit scaled-down from the current situation, until a vaccine and/or hu-
man immunity is amassed to prevent a second wave of the outbreak. The risk alone of a
second wave will weigh on investment and lift precautionary saving. Potential output might
be damaged as a result of firm bankruptcies and higher (long-term) unemployment. Of
course, for 2020 GDP growth, substantial activity will be lost, e.g. meals out, travel from
1H20, as people will not simply double-up in their consumption in 2H20 from foregoing
spending in 1H20.
■ The unprecedented policy response has rightly been to support firms and households in
bridging this period of huge economic disruption, via providing grants, credit (including
through guarantees) and liquidity. But income support will only replace a portion of lost in-
come, and there are concerns over the timely and effective implementation of fiscal
measures. Strong policy support will not prevent a sharp fall in output and a sharp rise in
unemployment and firm bankruptcies in the near term, but it will reduce the depth of the
crisis and support the expected recovery once the spread of the virus is contained. Con-
cerns over public debt sustainability are overblown: key central banks have pledged to pur-
chase large quantities of government debt (unlimited in the Fed’s case) and rates will stay
low. Generally healthier balance sheets before the crisis, unprecedented policy support,
and the temporary nature of the virus should see a quicker recovery than after the 2008-9
financial crisis.
■ Much uncertainty surrounds the depth of the crisis and the strength of the expected recovery.
The risks to the latter in particular are skewed to the downside. There is the risk of a second
wave of infections as containment measures are eased and/or the virus evolves slightly to
evade human immunity (as is the case with the seasonal flu). A surge in business failures
and unemployment may cause greater long-term damage to productive potential.

Economics Chartbook
Global
TABLE: FISCAL STIMULUS PACKAGES FOR SELECTED MAJOR ADVANCED ECONOMIES
Fiscal measures (including capital provision for Public

Stabilization fund
public guarantees where this is applicable) guarantees
bn (national currency) % GDP (2019) bn (national currency) % GDP (2019)
Germany 156 (central) + 57 (federal states) 6.1 822 23.9 200bn or 5.8% of GDP (ex-guarantees)
France 45 1.8 300 12.4
Italy 25 1.4 100* 5.6
Spain 18 1.4 102 8.4
Austria 29 7.3 9.0 2.3
UK 70** 3.2 330 15
US 1,583 7.5 529 2.5
* Estimated amount of guarantees available through the nearly EUR 5bn of public resources set up to guarantee funds in the Cura Italia decree approved in March. ** Based on some assumptions on take up of
the Coronavirus Jobs Retention Scheme and Self-Employed Income Support Scheme, which are open-ended. Source: National governments, UniCredit Research
PMIs RESTAURANT SEATINGS
Euro area Japan UK US OpenTable seated diners at restaurants, global daily number, % yoy
65
20
60
0
55
-20
50
-40
45
-60
40
35 -80
30 -100
Mar-08 Mar-10 Mar-12 Mar-14 Mar-16 Mar-18 Mar-20 18-Feb 25-Feb 3-Mar 10-Mar 17-Mar 24-Mar 31-Mar
■ The flash composite output PMIs for March fell sharply in all ■ The OpenTable global number of seated diners at restaurants fell
major economies. 100% yoy by 23 March due to social distancing measures.
COVID-19 TOTALS COMMODITIES
Confirmed cases Recoveries Deaths

Index points, Jan. 2015=100
Global cumulative COVID-19 totals 140
1,000,000
130
900,000
120
800,000
110
700,000
100
600,000
90
500,000
80
400,000
70
300,000 Bloomberg Commodity Index Bloomberg Energy
60
200,000
50
100,000
40
0 Dec-16 Aug-17 Apr-18 Dec-18 Aug-19 Apr-20
22-Jan 1-Feb 11-Feb 21-Feb 2-Mar 12-Mar 22-Mar 1-Apr
■ Globally, a flattening of the COVID-19 epidemic curve is likely ■ Energy prices fell more than other commodities because of the
some weeks away. combined effect of the coronavirus-related demand shock and
the price war between Saudi Arabia and Russia.
Source: Bloomberg, IHS Markit, John Hopkins University, OpenTable, UniCredit Research

Economics Chartbook
US
Daniel Vernazza, PhD ■ We forecast the US economy to contract about 11% this year, with a huge peak-to-trough
(UniCredit Bank, London) fall of 25% between 4Q19 and 2Q20, due to the current and likely measures necessary to
+44 207 826-7805 contain the spread of COVID-19. The US economy has largely shut down, with most states
and cities ordering people to stay at home (or “shelter-in-place”), affecting more than two-
thirds of Americans. President Donald Trump announced social distancing measures (to
avoid nonessential travel; going to work, bars and restaurants; or gatherings of more than
10 people) will be extended until at least end-April and perhaps until June (after initially
wanting to lift restrictions by mid-April). The US, which has 188,000 confirmed COVID-19
cases – the most of any country – is currently on the explosive part of its epidemic curve,
roughly three weeks behind Italy, and social distancing methods and COVID-19 testing
have been lower than peers. Around 28mn Americans (8.5% of the population) have no
health insurance. We expect containment measures to become more stringent in the com-
ing weeks, and only to be gradually lifted beyond June. As yet, there is little hard data to
gauge the depth of the crisis. In March, ISM manufacturing new orders and employment
balances fell to the lowest level since 2009, but lockdowns generally exempted manufac-
turing so far – the non-manufacturing ISM will likely post a much steeper decline. Cumula-
tive initial jobless claims for the two weeks ending 28 March were 10mn – more than seven
times the previous high set in 1982. The unemployment rate is likely to rise well above
10% from 3.5% currently.
■ We expect a strong recovery in 2H20 and annual GDP growth of around 12% in 2021, a
faster recovery than the eurozone due to greater flexibility of the US labor market. We ex-
pect the economy to have almost reached its pre-crisis level of output by the end of 2021.
■ The fiscal response so far amounts to around 1.6tn (7.5% of GDP) of stimulus and more
than USD 500bn (2.5% of GDP) of loans and guarantees that need to be paid back. The
USD 2tn Coronavirus Aid, Relief, and Economic Security (CARES) Act includes USD
290bn in direct payments to households, USD 260bn in enhanced unemployment insur-
ance, USD 300bn in tax breaks mostly for businesses, and USD 350bn in forgivable loans
to SMEs if they retain workers. The Fed has done what they can to support the economy,
including lowering the fed funds rate by 150bp to 0-0.25%, pledging to purchase Treasur-
ies and agency securities in unlimited quantities, massively expanding liquidity operations,
supporting the flow of credit by purchasing commercial paper and corporate debt, and rein-
troduced the Term Asset-Backed Securities Loan Facility (TALF) to purchase asset-backed
securities backed by student, car, credit card, and small business loans.
US EPIDEMIC CURVE THREE WEEKS BEHIND ITALY INITIAL JOBLESS CLAIMS HAVE SURGED
US (lagged three weeks) Italy Weekly initial jobless claims, SA thousands

25 7,000
Cumulative confirmed COVID-19 deaths,
6,000
20
per 100,000 people
5,000
15
4,000
3,000
10
2,000
5
1,000
0 0
21-Feb 29-Feb 8-Mar 16-Mar 24-Mar 1-Apr Mar-08 Mar-10 Mar-12 Mar-14 Mar-16 Mar-18 Mar-20
Source: BLS, John Hopkins University, UniCredit Research

Economics Chartbook
US
PMI ISM MANUFACTURING
Manufacturing Services US Manufacturing output (Fed measure) ISM manufacturing output - rs

Output PMIs % 3M/3M Diffusion index
65 4 70
60 65
2
55 60
0
50 55
45 -2 50
40 45
-4
35 40
-6
30 35
25 -8 30
Mar-08 Mar-10 Mar-12 Mar-14 Mar-16 Mar-18 Mar-20 Mar-08 Mar-10 Mar-12 Mar-14 Mar-16 Mar-18 Mar-20
■ The services PMI fell to a record low of 39.1 in March, while the ■ The ISM manufacturing output and new orders balances fell to
manufacturing output PMI fell to 46.5, its lowest level since 2009. their lowest level since 2009, at 47.7 and 42.2, respectively.
AUTO SALES UST SPREADS

10Y-3M 10Y-2Y 18M3M-3M
Auto sales, SAAR in millions of units Treasury spreads, pp.
20 3.0
18
2.0
16
14 1.0
12
0.0
10
8 -1.0
■ Auto sales fell to 11.4mn units in March, down from 16.8mn

■ Treasury spreads, historically a good predictor of recessions,
in February. turned negative again as COVID-19 spread to the US. Recently
spreads turned positive after strong policy support.
CONSUMER CONFIDENCE RESTAURANT SEATINGS
Present situation Expectations OpenTable seated diners at restaurants, daily, % yoy

Conference Board consumer confidence, Index 1985=100 20
200
180 0
160
140 -20
120
-40
100
80
-60
60
40 -80
20
0 -100
Mar-08 Mar-10 Mar-12 Mar-14 Mar-16 Mar-18 Mar-20 18-Feb 25-Feb 3-Mar 10-Mar 17-Mar 24-Mar 31-Mar
■ The Conference Board measure of consumer expectations fell to ■ The number of seated diners at restaurants fell 100% yoy by
88.2 in March from 108.1 in February, the lowest reading since 23 March due to social distancing measures.
October 2016.
Source: Bloomberg, Conference Board, IHS Markit, ISM, OpenTable, WARD’s Automotive Group, UniCredit Research

Economics Chartbook
Eurozone
Marco Valli ■ We expect GDP to contract by 13% this year, reflecting the intensification across countries
Head of Macro Research,
Chief European Economist of lockdown measures to slow the spread of COVID-19 and expectations that any mean-
(UniCredit Bank, Milan) ingful lifting of restrictions will only start after June. In greater detail, we assume that
+39 02 8862-0537
1. epidemic curves in most eurozone countries will flatten by the end of April (with Italy
marco.valli@unicredit.eu
leading by one or two weeks); 2. containment measures will keep the eurozone economy
running at about 75% of its normal speed until the end of 2Q20; 3. relaxation of restrictions
will only happen very gradually and 4. large-scale fiscal and monetary support will limit but
not fully neutralize permanent damage to productive capacity, household income and hu-
man capital. Overall, we forecast that GDP will contract by about 3.5% qoq in 1Q20 and by
more than 20% qoq in 2Q20. The huge drop in the composite PMI in March, to an all-time
low, is likely to be followed by further deterioration in April as lockdown measures display
their full effects on the economy. We expect GDP to rebound by about 10% qoq in both
3Q20 and 4Q20 as restrictions are progressively eased. The strong carryover at the end of
the year might boost average growth for 2021 to 10%. However, at the end of next year,
GDP is likely to remain 4% below its level at end-2019.
■ The policy response at the European level has involved several actors. The ECB stepped
up its intervention to preserve the functioning of key markets and safeguard the transmis-
sion mechanism of monetary policy amid a quickly deteriorating fiscal outlook. The central
bank will buy, on average, more than EUR 100bn of assets per month at least until the end
of the year and will deploy most of this firepower in a flexible way to maximize its impact on
markets across asset prices and jurisdictions. The decision to scrap concentration limits of
33% for its pandemic emergency purchase program (PEPP) sends a very strong signal
that the ECB stands ready to act as a buyer of last resort in the government-bond market
for as long as needed. This powerful backstop has created much-needed fiscal headroom.
EU finance ministers agreed to trigger the general escape clause of the Stability and
Growth Pact to ensure that member states enjoy maximum fiscal flexibility, while the Euro-
pean Commission has eased state-aid rules to allow for effective implementation of public
support to firms. However, member states’ policy responses have been uncoordinated and
have lacked a common approach. The eurozone’s north-south split has re-emerged, with
Germany acting most boldly in the wake of its better starting position with regard to its pub-
lic finances, while Italy and Spain have passed less-ambitious measures. Financial solidari-
ty is also missing. EU-wide spending and guarantee programs (including those involving
the European Investment Bank) have been small so far but could be the right tool to use if
political leaders eventually agree to strengthen their joint response to the crisis. The issu-
ance of eurobonds remains unlikely.
DROP IN COMPOSITE PMI IS UNPRECEDENTED RECESSION TO BE MUCH DEEPER THAN IN 2008-09
Composite PMI GDP level (pre-crisis = 100)

65 100
Lehman bankruptcy COVID-19 (f)
60
95
55
50 90
45
Critical level 85
40
80
35
x-axis shows the number of quarters

30
75
Jul-98 Dec-03 May-09 Oct-14 Mar-20
0 1 2 3 4 5 6 7 8
Source: Eurostat, Markit, UniCredit Research

Economics Chartbook
Eurozone
GDP INFLATION
GDP qoq (%) GDP yoy (%, rs) 3.5

15 30 Headline HICP (yoy %) Forecast
Forecast 3.0
10 Core HICP (yoy %)
20 2.5
5
2.0
10
0
1.5
-5 0
1.0
-10 0.5
-10
-15 0.0
-20
-20 -0.5
-25 -30 -1.0

Sep-14 Jul-16 May-18 Mar-20 Dec-21
4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21
■ GDP is heading for a massive decline in 1H20. ■ COVID-19 and oil-price war weigh on inflation.
SECTORS LABOR MARKET
Economic sentiment indicator (standardized) Employment indicator (standardized)

3.0 3.0
Industry Services
Retail Construction
2.0 2.0
1.0
1.0
0.0
0.0
-1.0
-1.0
-2.0
-2.0
-3.0
-4.0 -3.0
Jan-99 Aug-04 Mar-10 Oct-15 Mar-20 Jan-99 Jun-04 Nov-09 Apr-15 Mar-20
■ The services and retail sectors have been hit the hardest so far. ■ The labor market is worsening quickly.
HOUSEHOLDS FINANCIAL MARKETS

Consumer confidence (standardized) Financial conditions index (standardized)
3.0 5.0
tighter
conditions
4.0
2.0
3.0
1.0
2.0
0.0
1.0
-1.0
0.0
-2.0
-1.0
-3.0 -2.0
Jan-99 Aug-04 Mar-10 Oct-15 Mar-20 Jan-99 May-04 Sep-09 Jan-15 Mar-20
■ Deterioration in consumer confidence has only begun. ■ Financial conditions have tightened abruptly.
Source: Bloomberg, Eurostat, European Commission, UniCredit Research

Economics Chartbook
Germany
Dr. Andreas Rees, ■ We expect a shrinking economic activity of about 10% in 2020. On a yearly basis, such a
Chief German Economist
(UniCredit Bank, Frankfurt) steep decline would be a record-high in the history of the federal republic and nearly dou-
+49 69 2717-2074 ble the one in 2009 (-5.7%) in the aftermath of the global financial crisis (see left chart). For
andreas.rees@unicredit.de
2021, we expect GDP growth of roughly 10%. It would be the strongest growth reading
Dr. Thomas Strobel since 1955. The forecast risks for 2020 and 2021 are tilted to the downside.
Economist
(UniCredit Bank, Munich) ■ Our scenario for 2020 includes a plunge in economic activity by roughly 18% qoq in the
+49 89 378-13013 second quarter. This quarterly decline would be roughly four times the decrease in the first
thomas.strobel@unicredit.de
quarter of 2009 (-4.7% qoq). For 3Q20 and 4Q20, we expect strong rebounds of 9% qoq
each. Higher economic activity levels in the second half of this year do not prevent yearly
GDP in 2020 from shrinking strongly but largely carry over into 2021. As a result, yearly
growth is likely to surge next year.
■ Timely available business sentiment data already points to a massive decline in economic
activity in the short-term (see right chart). The Ifo index plunged across sectors in March.
The same is true for consumer climate (GfK).
■ In order to dampen the negative economic impact, the government swiftly implemented
various fiscal measures intended to support companies and private households. With a
volume of about EUR 1,200bn, or more than one third of national GDP, it is the largest
stimulus program in the history of the federal republic. Furthermore, finance minister Olaf
Scholz announced a fiscal stimulus for the period after the coronavirus crisis in order to
kick-start the economy.
■ The major components of the rescue package are as follows: “unlimited” credit guarantees
for companies which apply for a bank loan with a coverage of up to 90% for the bank pro-
vided by KfW (currently more than EUR 400bn are earmarked for this); creation of a stabi-
lization fund worth EUR 600bn which aims at supporting bigger companies through gov-
ernment stakes (EUR 100bn), credit guarantees (EUR 400bn), and refinancing for KfW
(EUR 100bn); an extension of short-time work, i.e. companies can already apply when
10% (previously 30%) of employees are affected by stoppages; and an increase in fiscal
spending of about EUR 120bn including emergency relief of EUR 50bn for SMEs without
the need to pay it back and roughly EUR 60bn in additional funding for health care.
BUSINESS SENTIMENT (IFO) PLUNGING

“V”-SHAPED GDP PATTERN ACROSS SECTORS
Real GDP, in % yoy Balances, in %

10.0 40.0
8.0 30.0
6.0 20.0
4.0
10.0
2.0
0.0
0.0
-10.0
-2.0
-20.0
-4.0
Manufacturing Services
-6.0 -30.0
Retail Wholesale
-8.0 -40.0
Construction
-10.0 -50.0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Source: destatis, fo, UniCredit Research

Economics Chartbook
Germany
GROWTH CONSUMER CLIMATE
Real GDP (in % qoq) Real GDP (in % yoy, rs) Forecast GfK (index)
12
10.0 30
7.5 25
10
5.0 20
2.5 15
8
0.0 10
-2.5 5
6
-5.0 0
-7.5 -5
4
-10.0 -10
-12.5 -15
2
-15.0 -20
-17.5 -25
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
-20.0 -30
1Q08 1Q10 1Q12 1Q14 1Q16 1Q18 1Q20
■ GDP is set to post a double-digit decline (qoq) in 2Q20 before ■ Consumer climate (GfK) showed its biggest monthly drop and
rebounding strongly in 2H20. nosedived to its lowest level since mid-2009.
INFLATION LABOR MARKET (I)
yoy % Forecast 2.5 Short-time workers, in mn (nsa)

4.0 Government forecast
3.5
Headline Core (ex energy & food) 2.0
3.0
2.5
2.0 Global financial crisis
1.5
1.5
1.0
1.0
0.5
0.0
-0.5 0.5
-1.0
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jan-20
Jan-21
0.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
■ We expect headline and core inflation to decline sharply in the ■ The German government expects the number of short-time work-
next few months before a rebound sets in. ers to increase to 2.35mn.
LABOR MARKET (II) PUBLIC BUDGET BALANCE
mom 1,000 (3M moving average) Forecast

120 4.0
100 2.0
0.0
80
-2.0
60
-4.0
40
-6.0
20
-8.0
0
-10.0
-20
-12.0
-40
-14.0
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
-60
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
■ Job creation is likely to come to a sudden halt. Before the ■ We expect a budget deficit of about 13% of GDP in 2020. This is
COVID-19 outbreak, employment rises were already sluggish. the result of increased public spending, strongly declining tax
revenues and money raised for government stakes in companies.
Source: Feri, UniCredit Research

Economics Chartbook
France
Tullia Bucco ■ We expect GDP to contract by almost 14% in 2020 and to rise by 11-12% in 2021. Our
Economist
(UniCredit Bank, Milan) baseline profile foresees a sharp drop in GDP in 1H20 (25% on a cumulative basis), fol-
+39 02 8862-0532 lowed by a rebound in 2H20 as confinement measures start to be eased and firms gradual-
tullia.bucco@unicredit.eu
ly resume production. We expect that GDP losses will not be fully recovered by the end of
the forecast horizon (GDP will remain 3% below the end-2019 level by 4Q21). The strength
of the policy response will be a key driver of the path of activity after the trough.
■ Latest analysis by the French national statistical agency (INSEE) based on timely high-
frequency spending data, such as electricity consumption, rail transport and statistics on
bank-card transactions, points to a sudden and unprecedented (in modern history) stop in
economic activity resulting from the confinement measures during the last week of March.
The INSEE estimates that economic activity dropped by 35% relative to a “normal week”
counterfactual, with services that involve face-to-face interaction (especially accommoda-
tion, food services and transport) being among the sectors most heavily hit. This estimate
supports the latest indication from the services PMIs, which points to a dramatic deteriora-
tion in services activity in March, dropping by more than 20 points to an all-time low of 29.
■ It is reasonable to think that the decline in economic activity recorded in the last week of
March could overestimate the extent of contraction we will observe in the second quarter.
For example, in that week, several building-site closures (80% of the sites closed, accord-
ing to press reports) reflected either the lack of coordination between different layers of
government or between government officials and sectoral representatives, or workers’ con-
tagion fear due to a lack of protective equipment (such as masks). However, the govern-
ment has since taken steps to ensure the safety of all workers and also to introduce excep-
tional bonuses exempt from social contributions and taxes that firms can pay workers who
agree to return to their jobs. This is likely to contribute to a (slight) increase in activity levels
from end-of-March lows.
■ The government announced a (preliminary) fiscal package of EUR 45bn (1.8% of GDP)
and EUR 300bn (12% of GDP) of state guarantees (provided through Bpifrance) for new
bank loans to companies. Specifically, fiscal support measures include: 1. EUR 11.5bn of
liquidity support for companies through the postponement of social security and tax pay-
ments; 2. EUR 8.5bn of support for workers under the reduced-hour scheme; 3. EUR 2bn
for the health sector; 4. EUR 1bn of direct financial support for affected micro enterprises.
CONFIDENCE COLLAPSED IN THE SERVICES SECTOR… …BUT THE NEGATIVE IMPACT OF THE OUTBREAK HAS LIKE-
LY BEEN WIDESPREAD
(standardized values) Estimated drop in economic activity in the last week of March vs."normal week"
4 0
-20
2
-40
0
Total
-60
-2
-80
-4 Services PMI
INSEE services climate indicator -100
Agriculture and Industry (excl. Construction Commercial Non-commercial
Bank of France services sentiment indicator agri-food agri-food) services services
-6
industries
Jul-98 Dec-03 May-09 Oct-14 Mar-20
Source: Banque de France, INSEE, Markit, UniCredit Research

Economics Chartbook
France
GDP CPI
yoy %
50 15 4.0
forecast
40 Forecasts 10
3.0
30 5
20 0 2.0
10 -5
1.0
0 -10
-10 -15
GDP qoq %, rs 0.0
-20 GDP yoy % -20
-30 -25 -1.0

4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 Nov-04 Jul-07 Mar-10 Nov-12 Jul-15 Mar-18 Nov-20
■ We expect GDP to contract by almost 14% in 2020 and to rise by ■ Inflation is likely to hover around zero until end-2020 before re-
11-12% in 2021. accelerating somewhat next year.
MANUFACTURING SURVEYS CONSUMER CONFIDENCE

(standardized values) Consumer confidence (standardized values)
4
2 -3
2 -2
1
-1
0
0
0
-2 1
-1
INSEE manufacturing confidence
2
-4 Banque de France manufacturing
confidence -2
Opportunity to make major purchases 3
Manufacturing PMI
Opportunity to make savings (inv. scale, rs)
-6 -3 4
Dec-98 Jan-06 Feb-13 Mar-20 Jul-05 Dec-08 May-12 Oct-15 Mar-19
■ The manufacturing PMI, which is usually more reactive than other ■ Consumers have become less optimistic about the opportunity to
manufacturing surveys, dropped substantially in March. make major purchases in the near future.
SAVINGS RATIO GROWTH DRIVERS
Contribution to qoq GDP growth (pp)

8 17 2.0
6 16 1.6 Net exports Inventories

Gross fixed investment Public consumption
4 15 1.2 Private consumption GDP growth (yoy, %)
2 14 0.8
0 13 0.4
-2 Nominal disposable income (yoy, %) 12 0.0

Household consumption (yoy, %)
-4 11 -0.4
Saving ratio (% disposable income, rs)
-6 10 -0.8
1Q07 3Q09 1Q12 3Q14 1Q17 3Q19 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19
■ The savings rate is likely to increase further in the short term as ■ Domestic demand has been the main growth driver in 2019, also
uncertainty regarding the outcome from the coronavirus outbreak due to a large contribution from investment.
remains high.
Source: Banque de France, Eurostat, INSEE, Markit, UniCredit Research

Economics Chartbook
Italy
Dr. Loredana Maria Federico ■ In Europe, Italy was the country first and worst affected by the spread of COVID-19. We expect
Chief Italian Economist
(UniCredit Bank, Milan) GDP to decline by 15% in 2020, its largest drop in 60 years, and to increase by about 9% in
+39 02 8862-0534 2021. The implementation of restrictions to contain the spread of the virus started in the last week
loredanamaria.federico@
of February and intensified during March. Therefore, a significant impact on economic activity is
unicredit.eu
likely to have already been felt in the first quarter. GDP is expected to show a 5% qoq contraction
in 1Q20, and the decline is projected to worsen further in 2Q20 (-22% qoq), as an intensification
of the supply shock adds to the demand shock that has mostly affected services sectors
(e.g. trade, transport and tourism). We forecast a rebound in 2H20, as firms rebuild inventories
and confidence gradually recovers, supporting pent-up demand from the private sector. Still, the
strength of this recovery represents one of the main uncertainties to the outlook.
■ In an attempt to overcome the coronavirus emergency, in March the government approved a
fiscal package (the Cura Italia decree) worth EUR 25bn (or 1.4% of GDP). It consists of four main
pillars: 1. strengthening the national health system, civil protection and security forces;
2. supporting workers and guaranteeing that they do not lose their jobs (e.g. all employees will be
eligible for support from a wage-supplementation fund, while the self-employed will receive a one-
off payment); 3. allowing guarantees and enhancing firms’ liquidity (e.g. increasing accessibility to
the SME Guarantee Fund and liquidity support for firms, including mid-cap firms, affected by the
epidemiological emergency); 4. approving tax-related measures to directly support firms (e.g. tax
deferrals and tax credits).
■ We expect the government to take additional steps in April, with a commitment of resources that
is at least similar to that of its March decree. The new measures will be mainly aimed at providing
further support to income and liquidity for households, workers and firms to limit the economic
fallout of the pandemic. We also expect the government to further increase the amount of the
guarantees it is willing to provide to the corporate sector. The process for granting such guaran-
tees is likely to be further simplified and its offer extended to larger firms. This will be crucial to
helping SMEs and other businesses affected by the emergency, paving the way for a recovery in
the second half of the year.
■ The following rating agencies are scheduled to review their sovereign ratings of Italy in 2Q20:
S&P on 24 April (BBB, with negative outlook), Moody’s (Baa3, stable outlook) and DBRS
(BBB[high], stable outlook) on 8 May. While we do not expect a rating change in the middle of
the crisis, agencies are likely to closely scrutinize Italy’s ability to recover from the slump and
thus to manage an even higher public-debt/GDP ratio. Outcomes achieved before the current
crisis with regard to imbalances in the private, external and banking sectors help allay rating
agencies’ concerns.
BUSINESS AND CONSUMER CONFIDENCE HAVE BEEN SERIOUSLY AFFECTED, AND MORE IS LIKELY TO COME
Istat business confidence indicators (index 2010=100) Consumer confidence indicators (index 2010=100)
140 160 125 180
Manufacturing Services Construction (rs) Total (rs)
130 150
115 Household situation (ls) 160
140
120 General economic situation (rs)
130
105 140
110 120
100 110 95 120
90 100
85 100
90
80
80
75 80
70 70
60 60 65 60
Mar-07 May-09 Jul-11 Sep-13 Nov-15 Jan-18 Mar-20 Mar-08 Jul-09 Nov-10 Mar-12 Jul-13 Nov-14 Mar-16 Jul-17 Nov-18 Mar-20
Source: Istat, UniCredit Research

Economics Chartbook
Italy
GROWTH INFLATION
20.0 35.0 Headline CPI

yoy (%)
Forecasts
4.0
15.0
25.0
3.5
10.0 Forecasts
3.0
15.0
5.0 2.5
5.0 2.0
0.0
1.5
-5.0 -5.0 1.0
-10.0 0.5
GDP qoq (%, ls) -15.0
0.0
-15.0
GDP yoy (%, rs) -0.5
-25.0
-20.0
-1.0
-25.0 -35.0 -1.5
4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 Dec-10 Oct-12 Aug-14 Jun-16 Apr-18 Feb-20 Dec-21
■ We expect GDP to be hit hard in 1H20 and to rebound in 3Q20 ■ Inflation is expected to significantly decline, mainly due to a re-
and 4Q20 as restrictions are eased. duction in transport and services prices.
EXTERNAL SECTOR BANKS
Current account (in percentage of GDP) Banking sector: bad debt (EUR bn)
4.0 225
3.0 200
2.0 175
150
1.0
125
0.0
100
-1.0
75
-2.0
50
-3.0 25
-4.0 0
4Q06 4Q08 4Q10 4Q12 4Q14 4Q16 4Q18 Jan-07 Mar-09 May-11 Jul-13 Sep-15 Nov-17 Jan-20
■ Italy’s current account surplus amounted to 3.0% of GDP in 2019. ■ Bad debt was back to August 2010 levels just before the corona-
Its net international investment position was around -2.0% of virus crisis started.
GDP in 4Q19, which is essentially on balance.
PRIVATE SECTOR GOVERNMENT GUARANTEES
Private sector debt (in percentage of GDP) Total stock of government guarantees (as a percentage of GDP)
220 45
200 2012 2013 2014 2015
Non-financial corporations Households 40
180 2016 2017 2018
35
160
140 30
120 25
100 20
80
15
60
10
40
20 5
0 0
Austria France Germany Greece Italy Netherlands Portugal Spain
Austria France Germany Greece Italy Portugal Spain
■ Indebtedness in the private sector is low. ■ The total guarantees underwritten by the government amounted
to just 4.5% of GDP in 2018.
Source: Istat, Bank of Italy, Eurostat, UniCredit Research

Economics Chartbook
Spain
Edoardo Campanella ■ As a result of the coronavirus health crisis, we see Spanish GDP contracting 15.5% in 2020 and
Economist
(UniCredit Bank, Milan) rising 9.5% in 2021. There is still little information concerning Spain’s economic activity in March;
+39 02 8862-0522 the most important indicator is the manufacturing PMI, which declined to 45.7 from 50.4. How-
edoardo.campanella@
ever, it is fair to assume that anti-pandemic containment measures will hit the Spanish economy
unicredit.eu
comparatively more than the rest of the eurozone. Retail, transportation, tourism and restaurants
roughly account for 24% of Spanish GDP, as opposed to an average of 19% for the eurozone as
a whole. Also, given the severity of the health crisis in Spain, where a state of emergency was
declared on 15 March, curbs on face-to-face business activities will likely be relaxed more gradu-
ally than other measures and might be extended well into the summer, thus preventing the econ-
omy from getting back to normal soon. Thus, we see a sharp GDP contraction in 1H20 (around
25pp of cumulated output losses), followed by a solid recovery in 2H20 with an average quarterly
pace of 10% qoq.
■ Spain’s public finances are expected to significantly deteriorate in 2020, with the budget deficit
hitting 12.5% of GDP from a previously expected 2.5% due to a combination of contracting activi-
ty, falling tax revenues and stimulus measures recently approved by Madrid -- the latter amount-
ing to around EUR 18bn (or 1.4% of 2019 GDP). The package includes an increase in health
spending to address the COVID-19 crisis, unemployment benefits for workers who have been
temporarily laid off, increased sick pay for COVID-19-infected workers, tax-payment deferrals for
SMEs and the self-employed for six months and a temporary exemption from social-security con-
tributions. In addition, Madrid has extended up to EUR 100bn in government loan guarantees for
firms and the self-employed and up to EUR 2bn in public guarantees for exporters through the
Spanish Export Insurance Credit Company. These guarantees amount to 8.4% of 2019 GDP. In
terms of public debt to GDP ratio, we expect a jump from 95.5% to about 125%.
■ The COVID-19 pandemic has hit Spain particularly hard. At the time of writing, the country ranks
third globally in terms of the number of its confirmed cases (after the US and Italy) and second in
terms of the number of deaths from the coronavirus (after Italy). Spain boasts a high-quality pub-
lic health system. However, the current pandemic is overwhelming it. Among the world’s largest
advanced economies, Spain has the lowest number of hospital beds for acute care per inhabitant
(2.4), just ahead of the UK (2.1) and slightly less than the US and Italy, while the gap is rather
wide with respect to Germany (6), South Korea (7.2) and Japan (7.8).
TOURISM HAS BEEN AFFECTED BY THE HEALTH CRISIS NOT READY FOR THE COVID-19 CRISIS
Air traffic in Spanish airports (yoy, %) Hospital beds: acute care (per 1,000 inhabitants)
UK
0.0
Spain
US
-20.0
Italy
France
-40.0 Switzerland
Germany
Daily 7-Day MA
-60.0 South Korea
Japan
0 2 4 6 8
-80.0
8-feb 13-feb 18-feb 23-feb 28-feb 4-mar 9-mar 14-mar 19-mar
Source: Spanish Aviation Association, OECD, UniCredit Research Spain

Economics Chartbook
Spain
GDP PMIS
15.0 30 Manufacturing PMI Services PMI

GDP(%, qoq) 65
GDP(%, yoy, RS)
60
15
55
0.0
50
0
45
-15.0 40
-15 35
30
-30.0 -30 25
4Q18 2Q20 4Q21 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Jan-19
■ After a sharp contraction in 1H20, GDP growth is likely to bounce ■ The manufacturing PMI dropped significantly in March; we expect
back in 2H20, before gradually returning to a pre-crisis path. a sharper downward move for the services index, as it includes
activities more directly affected by the containment measures.
PRICES CONFIDENCE
HICP inflation (yoy;%) European Commission confidence index (smoothed)

6.0 20
5.0
10
4.0
0
3.0
-10
2.0
-20
1.0
0.0 -30
-1.0 -40
Consumer Industrial Retail trade
-2.0
Jan-06 Jul-07 Jan-09 Jul-10 Jan-12 Jul-13 Jan-15 Jul-16 Jan-18 Jul-19 Jan-21 -50
Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18 Jan-20
■ Inflation is expected to keep falling as a result of weak oil prices ■ Confidence in March declined across the board – albeit the
and price weakness in sectors more affected by containment smoothed series does not capture the leg down of consumer con-
measures, before recovering in 2H20. fidence.
LABOR MARKET CREDIT CONDITIONS
Affiliates to social security by sector (yoy; %) 80

Demand conditions (net percentage)
20
Construction Industry Services Total
40
10
0 0
-10 -40
-20 -80
Loans to NFCs
Loans for house purchase
-30
-120
Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Jan-19 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 1Q18 1Q19 1Q20
■ Employment creation across sectors reaccelerated slightly in Feb- ■ In 1Q20, demand for credit was extremely weak for both house-
ruary. The services sector is likely to be relatively more affected by holds and non-financial companies.
containment measures.
Source: INE, Eurostat, ECB, UniCredit Research

Economics Chartbook
Austria
Stefan Bruckbauer, ■ The economic downtrend that occurred in 2019 led to a decline in economic growth to an
Chief Austrian Economist
(Bank Austria) average of 1.6%. However, the stabilization of the economy, which was apparent in
+43 505 05 41951 improved sentiment indicators and other early indicators at the beginning of 2020, ended
stefan.bruckbauer@unicreditgroup.at
abruptly in mid-March. The spread of the coronavirus and measures implemented to con-
Walter Pudschedl, Economist tain it are sure to cause a deep recession in Austria. If the outbreak of coronavirus in Aus-
(Bank Austria) tria follows a similar timeline as the outbreak in China, such containment measures could
+43 505 05 41957
walter.pudschedl@unicreditgroup.at be gradually reduced in Austria over the summer, and a strong economic rebound could
set in. We therefore now expect GDP to decline by more than 9% in 2020 as a whole. This
would be a sharper, but shorter, slump than that experienced during the financial crisis of
2008-09. In 2021, a large part of the lost economic output could be offset by growth of
almost 8%.
■ Since the second half of March, the effects of crisis measures have also been felt in the
labor market. The unemployment rate, which fell to 4.5% in 2019 and continued its down-
ward trend at the beginning of 2020, is expected to rise sharply in the coming months. Un-
employment rate is expected to reach a peak of around 8% in the summer. We expect the
unemployment rate to amount to 6.6% for the year.
■ In the coming months, the slump in oil prices and the loss of demand due to restrictions on
public life will significantly reduce inflation, which had risen to over 2% year-on-year at the
beginning of 2020. We expect inflation to average only 0.9% in 2020. In 2021, inflation is
expected to rise above 2%, especially later in the year, due to the recovery in oil prices and
the expected economic rebound. We expect inflation to average 1.9% over the year.
■ After enjoying a slight budget surplus for two years in a row, thanks to a good economy, a
disciplined spending policy and low interest rates, the general government budget is likely
to slide into deficit as a result of measures to mitigate the economic consequences of the
coronavirus crisis. The Austrian government has launched a package of measures
amounting to EUR 38bn (or 10% of GDP). Of these, EUR 9bn is earmarked for guarantees
and warranties to ensure the liquidity of companies. EUR 10bn is to be made available for
tax deferrals and EUR 15bn for emergency aid. Since the new government was only
formed in January 2020, the budget is currently being managed via a provisional budget. In
order to maintain the greatest possible flexibility, the provisional budget is being used until
further notice. For 2020 as a whole we now expect a budget deficit of around EUR 35bn, or
almost 10% of GDP. This will also put an end to a four-year downward trend in public debt.
CORONA CRISIS BEGINS TO BE REFLECTED IN SENTIMENT SLUMP IN DEMAND SLOWS DOWN MANUFACTURING
Source: European Commission, IHS Markit, Statistik Austria, UniCredit Research

Economics Chartbook
Austria
GDP GROWTH GROWTH DRIVERS
■ The economic shock is expected to affect the economy in 2Q20 ■ On the demand side, the crisis should be reflected in a sharp
especially. With the gradual withdrawal of the crisis measures, a drop in investment and in private consumption due to restrictions
rebound can be expected from the middle of the year. in the service sector
LABOR MARKET LABOR MARKET (II)
■ Before the outbreak of the coronavirus, the Austrian labor market ■ As a result of the economic slump, the unemployment rate is
had shown signs of improvement. Seasonally adjusted figures expected to temporarily rise significantly. We expect the annual
showed a decrease in unemployment until February. average for 2020 to increase by 2 percentage points, to 6.6%.
INFLATION BUDGET BALANCE AND PUBLIC DEBT
■ Inflation is expected to temporarily fall to as low as 0.5% year-on- ■ For 2020, we expect the budget deficit to amount to EUR 35bn.
year in 2020 due to the collapse of oil prices and falling service About half of the deterioration compared to 2019 will be due to
prices. revenue shortfalls, and the other half to increased expenditures.
Source: Statistik Austria, UniCredit Research

Economics Chartbook
Greece
Tullia Bucco ■ We expect GDP to contract by almost 20% in 2020. Our baseline profile foresees a sharp
Economist
(UniCredit Bank, Milan) drop in 1H20 (35% on a cumulative basis), followed by a rebound in 2H20 as confinement
+39 02 8862-0532 measures start to be eased. The strong carryover effect at the end of the year will boost
average growth to 15-16% in 2021. However, we expect that GDP will remain 5% below
the level of end -2019 by 4Q21.
■ The great importance of tourism-related sectors (which account for 35% of GDP and 20%
of the workforce) makes Greece more vulnerable than many other eurozone countries to
the negative impact of restrictions on travel and movement. Even assuming that the epi-
demic curve will flatten by the end of April, (the country is lagging behind Italy by one or
two weeks), it will take time before air links are re-established, virus mitigation measures
are lifted and people feel safe enough to make the decision to resume travel for holidays.
This reality also explains why the government has already extended its financial support for
firms and workers – covering up to 76% of all legal business entities and 81% of private-
sector workers – for two months until June.
■ The government has so far mobilized national resources totaling EUR 6.8bn (3.5% of
GDP) to cushion the negative impact of the virus outbreak on the economy. This strong fis-
cal response follows the Eurogroup’s decision to grant Greece exceptional fiscal flexibility
and temporarily scrap the 3.5% primary surplus target for 2020. Key measures include:
1. transfers to vulnerable individuals, including a EUR 800 cash bonus for employees work-
ing in hard-hit firms, unemployment benefits, and paid leave for parents who have children
not going to school; 2. liquidity support to hard hit businesses through subsidized loans,
loan guarantees, interest payment subsidies, and deferred payments of tax and social se-
curity contribution; 3. health spending increases for new hiring of 2,000 doctors and nurs-
es, procurement of medical supplies, and cash bonuses to health sector workers. The gov-
ernment estimates that it can sustain such financial measures for two-three months without
tapping the EUR 30bn cash buffer devoted to debt service.
■ At the March meeting, the ECB announced a waiver for Greek sovereign bonds under its
pandemic emergency purchase program (PEPP), opening the door to buy Greek debt
which, instead, is not eligible for QE. Greece’s sovereign credit rating improved significant-
ly since last summer, when a new conservative government came to power. However, it
still remains, at best, two notches from investment grade. The ECB’ decision is expected to
maintain Greece’s funding cost at low levels through the current exceptional circumstances.
PMI SIGNALS DETERIORATION PMI IS USUALLY MORE VOLATILE THAN OTHER SURVEYS
(standardized levels) (standardized levels)

4.0 8 3
2
2.0 4
1
0
0.0 0
-1
-2.0 -4 -2
Manufacturing PMI
-3
-4.0 -8 EC services confidence
Manufacturing PMI, rs
-4
EC economic sentiment
GDP (yoy %)
-5
-6.0 -12
Dec-99 Nov-04 Oct-09 Sep-14 Aug-19
Sep-00 Dec-03 Mar-07 Jun-10 Sep-13 Dec-16 Mar-20
Source: Markit, European Commission, Eurostat, UniCredit Research

Economics Chartbook
Greece
GDP CPI
GDP (yoy %) 20 2
20
15.5
15 1
10
10
0
5 1.9 1.9
0.8 1.4 0
0
-0.3 -1
-0.5
-5 -3.2 -10
-10 -7.3 -2
Energy inflation (yoy, %)
-15 -20 CPI inflation (yoy, %, rs)
-3
-20 Core inflation (yoy, %, rs)
-18.6
-25 -30 -4
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Feb-14 Nov-14 Aug-15 May-16 Feb-17 Nov-17 Aug-18 May-19 Feb-20
■ We expect GDP to contract by almost 20% in 2020 and to rise by ■ Consumer inflation eased significantly in February, coming in at
15-16% in 2021. 0.2%. A further slowdown is in the pipeline.
SAVINGS RATIO DISPOSABLE INCOME
15 12 (Index 2010=100)
140 6
10 8 130 4
2
120
5 4 0
110
-2
0 0 100
-4
90
-5 Nominal disposable income (yoy, -4 -6
%, rs)
Household consumption (yoy, %) 80
-8
-10 -8 Full-time employment
Savings ratio (% of disposable 70 -10
Part-time employment
income)
Disposable income (yoy%, rs)
-15 -12 60 -12
1Q01 4Q03 3Q06 2Q09 1Q12 4Q14 3Q17 Jan-10 Oct-11 Jul-13 Apr-15 Jan-17 Oct-18
■ The savings ratio has increased sharply in 2019, reflecting the ■ The upward trend in disposable income growth has gone hand in
improvement in disposable income amid weak consumption. hand with the steady growth in part-time employment.
PRIVATE-SECTOR DEPOSITS CURRENT ACCOUNT
Private sector deposits at Greek MFIs (excluding BoG) (in % GDP)

250 20 5
230 15
210 10 0
190 5
170 0 -5
150 -5
-39%
130 -10 -10
110 -15
90 Yearly growth (%, rs) -20 -15
70 Stock (EUR bn) -25
50 -30 -20
2001 2004 2007 2010 2013 2016 2019 Dec-99 Jun-02 Dec-04 Jun-07 Dec-09 Jun-12 Dec-14 Jun-17 Dec-19
■ Private-sector deposits rose by a further 5% in 2019 but they remain ■ The current account deficit narrowed to 1.4% of GDP in 2019
around 40% below the 2009 level. (after 2.8% in 2020).
Source: BoG, Eurostat, Elstat, UniCredit Research

Economics Chartbook
Portugal
Tullia Bucco ■ We expect GDP to contract by about 15% this year, with a decline of almost 5% qoq in
Economist
(UniCredit Bank, Milan) 1Q20 and 20-25% in 2Q20, followed by a rebound by about 10% qoq both in 3Q20 and
+39 02 8862-0532 4Q20 as restrictions are progressively eased. This development would represent the worst
downturn the country has ever experienced, worse than the one recorded in the wake of
the great recession (when GDP contracted 3.1% in 2009) or the 1975 oil crisis (GDP
growth shrank 5.1% at that time). GDP growth is likely to increase by 9-10% in 2021.
■ The outlook for the Portuguese economy has undergone a sudden and marked deteriora-
tion as a result of the impact of the COVID-19 pandemic. This reflects some factors which
are characteristic of the Portuguese economy and which make the country particularly vul-
nerable to a shock of this kind. These factors include the importance of tourism-related
sectors in the economy (27% of gross value added) for which demand has already been
significantly curtailed. Hotels have reported a marked drop in reservations amidst increas-
ingly stringent restrictions on travel. The country's flagship air carrier TAP has reduced its
operations to only two weekly flights to Madeira and the Azores and announced a freeze
on hiring and investment. Furthermore, the corporate sector is almost entirely composed of
micro and small firms (97% of total), whose relatively fragile financial situation will be test-
ed by the abrupt disruption of cash flow that this crisis will entail. Finally the high percent-
age of households below the poverty line (18%) means that there is only a small margin to
absorb the shock on income, as the Bank of Portugal recently warned.
■ To support the economy in the face of the COVID-9 outbreak and limit damage to produc-
tive capacity and human capital, the government promptly adopted measures to provide fi-
nancial relief to the hardest-hit firms and households. Measures to alleviate firms’ financial
and cash flow constraints amount to EUR 9.2bn (4.3% of GDP) and they include the follow-
ing: 1. flexible payment schedules for tax payments and social contributions due by firms in
2Q20, and a reduction of social security contributions between March and May (estimated
costs: EUR 5.2bn); 2. EUR3bn (1.4% GDP) of state-guaranteed credit lines for medium,
small and micro enterprises in affected sectors, operated through the banking system; 3.
EUR 1bn (0.5% of GDP) of relief from social security payments. In addition, the govern-
ment extended the scope of the "simplified lay-off" scheme allowing firms to circumvent ex-
isting labor regulations and reduce work hours, wages or even temporarily suspend labor
contracts. PM Antonio Costa said that this measure will cost the government EUR 1bn per
month and that he expects this support scheme to last 3 months or until June, for a total of
EUR 3bn. Additional financial support to household income is being provided through the
solidarity supplement for the elderly and through social insertion income payments.
SENTIMENT HAS WORSENED SIGNIFICANTLY CONSUMPTION IS LIKELY TO DETERIORATE FURTHER
(Standardized)
2 10 8
6
1 0
4
0 -10
2
-1 -20 0
-2
-2 -30
Economic sentiment -4
Consumer confidence
-3 Industrial confidence -40
-6
Services confidence Private consumption (yoy %, rs)
-4 -50 -8
Apr-03 Sep-05 Feb-08 Jul-10 Dec-12 May-15 Oct-17 Mar-20 4Q96 1Q04 2Q11 3Q18
Source: European Commission, INE, UniCredit Research

Economics Chartbook
Portugal
GDP CPI
Yearly GDP (%)

15 2.5
CPI inflation (yoy %)
9.6
10 2.0 CPI excluding unprocessed
food & energy (yoy %)
5 3.5 2.6 2.2 1.5
0
1.0
-5
0.5
-10
-15 0.0
-15.0
-20 -0.5
2017 2018 2019 2020 2021 Nov-16 Sep-17 Jul-18 May-19 Mar-20
■ We expect GDP to contract by almost 15% in 2020 and rise by 9- ■ Consumer inflation has eased significantly since the beginning of
10% in 2021. the year, coming in at 0.1% yoy in March.
CONSUMER CONFIDENCE EMPLOYMENT
Consumer confidence (balance)

6 2
0
4 1
-10
-20 2 0
-30 0 -1
Employment (qoq %, rs)

-40 -2 -2
Employment (yoy %)
GDP growth (yoy %)
-50 -4 -3
-60 -6 -4
Dec-08 Mar-11 Jun-13 Sep-15 Dec-17 Mar-20 2Q11 3Q12 4Q13 1Q15 2Q16 3Q17 4Q18 4Q19
■ Consumer confidence declined significantly in March, although it ■ Employment growth decelerated to 0.8% in 2019 (from 2.3% in
remained slightly above its long-term average. 2018).
DISPOSABLE INCOME CURRENT ACCOUNT

(Rolling 4Q cumulative) (in % GDP)
8 12 5
6 10
0
4
8
2
-5
0 6
-2 4 -10
-4 2
-15
-6
Real disposable income yoy (%) 0
-8 Real household consumption yoy (%) Portugal
-20
-10 Saving rate (% of disposable income, rs) -2 Greece
-12 -4 -25
2Q07 1Q09 4Q10 3Q12 2Q14 1Q16 4Q17 3Q19 Dec-99 Jun-02 Dec-04 Jun-07 Dec-09 Jun-12 Dec-14 Jun-17 Dec-19
■ Household consumption growth lost some steam in 2019, mirroring ■ The current account deficit closed by end-2019.
a moderation in disposable income growth.
Source: European Commission, INE, UniCredit Research

Economics Chartbook
UK
Daniel Vernazza, PhD ■ We see UK GDP contracting about 10% this year, with a peak-to-trough fall of 22% be-
(UniCredit Bank, London) tween 4Q19 and 2Q20, due to the social distancing measures necessary to contain the
+44 207 826-7805 spread of COVID-19. From 21 March, all businesses selling non-essential goods and ser-
vices were ordered to close, including all restaurants, pubs, entertainment venues, hotels,
museums and schools. UK car producers have temporarily shut down. We expect these
containment measures (and more) to last through June and to ease gradually in 2H20.
The UK is a couple of weeks behind Italy in its epidemic curve. Higher spending on es-
sential items, particularly the stockpiling of food, will only partly offset much lower output
elsewhere. Firms are cancelling or deferring investment to preserve cash flow. The flash
composite PMI fell to a record low of 37.1 in March, but the data-collection period preced-
ed the implementation of more stringent social distancing measures. UK officials said that
claims for universal credit, the main benefit for the jobless, was almost ten times the nor-
mal rate for the last two weeks of March. The BoE’s Decision Maker Panel of CFOs for
March reported that 71% expected a negative impact on sales, and the proportion expect-
ing a large negative impact rose from 25% at the start of the survey window to almost
60% at the end. Inflation is likely to fall well below 1% in the near term.
■ The weakness should prove temporary: we forecast a strong rebound in 2H20 and annual
GDP growth of around 10% in 2021. Still, economic activity would be 1.4% lower at the
end of 2021 than before the onset of the COVID-19 crisis, due to reduced potential output
(from bankruptcies and higher long-term unemployment) and a small margin of spare ca-
pacity. More uncertainty than usual surrounds our forecasts, and the risks to the expected
recovery are skewed to the downside. Uncertainty around the future UK-EU relationship
will weigh on the recovery, but we expect a default to WTO rules to be avoided.
■ The government has announced fiscal stimulus worth around GBP 70bn (or 3.2% of
GDP), including GBP 27bn in support for businesses. A Jobs Retention Scheme (HMRC
will reimburse 80% of wages up to GBP 2,500 per month for all “furloughed workers” for
three months) and support for the self-employed will help, but implementation lags will
cost jobs. It has also offered loans and guarantees worth GBP 330bn (15% of GDP). The
Bank of England has announced a 65bp cut in the bank rate to 0.10%, a GBP 200bn in-
crease in its stock of asset purchases, a term-funding scheme with additional incentives
for SMEs, purchases of commercial paper, additional liquidity operations, and a reduction
in the countercyclical buffer rate to 0% from 1%. The MPC has said it can expand asset
purchases further, if needed. These measures will not prevent output from falling sharply
in the near term, but they should support a decent recovery in 2H20.
THE UK EPIDEMIC CURVE IS TWO WEEKS BEHIND ITALY COVID-19 EXPECTED TO HAVE A LARGE NEGATIVE IMPACT
UK (lagged two weeks) Italy BoE Decision Maker Panel of CFOs: Expected impact of COVID-19 on sales over the
14,000 next year, March 2020, average probability, %
Cumulative confirmed COVID-19 deaths
45
12,000 40
35
10,000
30
8,000 25
6,000 20
15
4,000
10
2,000 5
0
0 Large negative Small negative No impact Small positive Large positive
21-Feb 29-Feb 8-Mar 16-Mar 24-Mar 1-Apr (>10%) (<10%) (<10%) (>10%)
Source: BoE, John Hopkins University, UniCredit Research

Economics Chartbook
UK
PMI OUTPUT PMI EXPECTATIONS
Services Manufacturing Construction Output Expectations for future output

PMI output index
70 80
60 70
50 60
40 50
30 40
20 30
Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Jan-19 Mar-12 Mar-14 Mar-16 Mar-18 Mar-20
■ The composite output PMI fell to a record low of 37.1 in March, ■ PMI expectations of future output fell more sharply than the PMI
slightly below the previous low of 38.1 in November 2008. (current) output balance in March.
CONSUMER CONFIDENCE BUSINESS CONFIDENCE
Major purchases Household financial situation expectations Differences from averages since 1997 (number of standard deviations)
General economic situation expectations Unemployment expectations (inverted) 3.0
Differences from averages since 1997 (number of standard deviations)
3.0 2.0
2.0
1.0
1.0
0.0
0.0
-1.0
-1.0
-2.0
-2.0
-3.0 -3.0
-4.0 -4.0
■ Consumer confidence fell slightly in March but the data collection ■ Business confidence fell quite sharply in March, reversing the
period largely preceded more stringent social distancing measures. “Boris bounce” following the 12 December election.
LABOR MARKET RESTAURANT SEATINGS

Unemployed for up to 6 months Vacancies
OpenTable seated diners at restaurants, daily, % yoy
change yoy, in thousands 20
200
150
0
100
50 -20
0
-40
-50
-100 -60
-150
-80
-200
-250 -100
Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 18-Feb 25-Feb 3-Mar 10-Mar 17-Mar 24-Mar 31-Mar
■ Short-term unemployment was rising, and vacancies falling, even

■ The number of seated diners at restaurants fell 100% yoy by 23
before the spread of COVID-19. March due to social distancing measures.
Source: GfK, Lloyds Banking Group, Markit, OpenTable, ONS, UniCredit Research

Economics Chartbook
Sweden
Chiara Silvestre, Economist ■ This year, Swedish GDP will probably shrink just over 6.0%. At the time of writing, Sweden’s
(UniCredit Bank, Milan)
chiara.silvestre@unicredit.eu government has not yet imposed a complete lockdown: most restaurants, shops and schools
have remained open, with people being asked to respect social distancing measures and
avoid crowds. The latter measures have started to keep households away from shops and
restaurants, leading many enterprises to halt production due to both demand and supply dis-
ruption. Although the lockdown is not complete and fiscal and monetary policy stimulus
should provide support, the Swedish economy is likely to shrink this year due to the con-
straining effects of the COVID-19 and containment measures on the domestic economy cou-
pled with consequences of waning foreign demand on exports. We expect that GDP will de-
cline by 1.0% qoq in 1Q20, with the bulk of the drop to come in 2Q20, when we envisage
GDP contracting by about 12% qoq. We then forecast GDP to rebound, rising by about 5%
and 6% in 3Q20 and 4Q20, respectively. In 2021, the complete removal of restrictions and
the return to more normal activity is likely to lift average growth to 5-5.5%.
■ There were three packages of stimulus measures announced by the Swedish government in
response to the COVID-19 outbreak. 1. The new crisis package (16 March), among whose
main measures were that companies be able to defer payment of employers’ social security
contributions, preliminary taxes on salaries and VAT. Overall, the government estimates that
this package will cost at least SEK 300bn (6% of GDP). 2. New credit guarantees for airlines
and for Swedish export companies and, by extension, the shipping industry (18 March).
Overall, the proposal would mean that the Swedish Export Credit Agency’s credit guarantee
framework would be expanded by SEK 50bn. 3. Further stimulus targeted at SMEs
(25 March), which will raise Sweden’s emergency spending to 1.3% of GDP. The announced
measures will bring Sweden’s discretionary fiscal stimulus to SEK 70bn. We expect the gov-
ernment to announce further stimulus before the spring bill due in mid-April.
■ In an attempt to curb the risk of financial distress stemming from the COVID-19 outbreak, the
Riksbank’s board took three emergency actions: 1. to lend up to SEK 500bn to companies
through the banks (13 March); 2. to spend an additional SEK 300bn (or almost 6% of GDP),
from March to December of this year on government bonds, municipal bonds and covered
bonds, with an indication that it may decide later to expand into corporate bonds (16 March);
and 3. to enable dollar loans (USD 60bn swap line with the Fed) and to start buying corporate
bonds (19 March). While a number of other central banks have recently cut rates, we think it
is unlikely that the Riksbank will reverse the course of its monetary policy and come back to a
sub-zero repo rate after having lifted it out of negative territory last December. The measures
taken so far are more effective than a rate cut. According to a recent study led by the Riks-
bank, the central bank’s bond buying scheme equates to 50bp in rate cuts.
STEEPEST MONTHLY PLUNGE IN MANUFACTURING PMI COVID-19 CONSTRAINING EFFECT ON GDP
Manufacturing PMI Real GDP (% yoy)

70 15
65
10
60
5
55
50 0
45
-5
40
-10
35
30 -15
Feb-95 Sep-98 Apr-02 Nov-05 Jun-09 Jan-13 Aug-16 Mar-20 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21
Source: Swedbank & Silf, Statistics Sweden, UniCredit Research

Economics Chartbook
Sweden
ECONOMIC SENTIMENT INFLATION
yoy (%) CPIF

Economic Tendency indicator (index)* CPIF (ex. energy)
115 3.0
Forecast
110
2.0
105
1.0
100
95 0.0
Riksbank's target
*Values above 100 indicate stronger-than-average growth
90
Nov-17 Mar-18 Jul-18 Nov-18 Mar-19 Jul-19 Nov-19 Mar-20 -1.0
Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Dec-21
■ The economic tendency indicator fell 92.4 in March from 98.7 in ■ Subdued inflation due to lower oil prices and the COVID-19 virus.
February representing a near seven-year low.
BUSINESS SECTOR CONSUMER SECTOR
Economic sentiment indicator (standardized) Consumer confidence (standardized)

4.5 3.0
Industry Services
Construction Retail
3.0 2.0
1.5 1.0
0.0 0.0
-1.5 -1.0
-3.0 -2.0
-3.0
-4.5
Nov-96 Mar-00 Jul-03 Nov-06 Mar-10 Jul-13 Nov-16 Mar-20
Nov-96 Mar-00 Jul-03 Nov-06 Mar-10 Jul-13 Nov-16 Mar-20
■ The services sector has been severely damaged by the downturn. ■ Fall in consumers’ confidence in March following the assessment
of their personal finances, likely due to concerns about the eco-
nomic impact of the spread of COVID-19.
LABOR MARKET SEK
Unemployment rate (%, sa) Index, 10 November 1992=100

130
8.5
Competition-weighted nominal exchange rate, KIX*
8.0 125
7.5 120
7.0 115
6.5 110
6.0 105
*Higher values indicate a weaker SEK
5.5 100
5.0 95
Feb-15 Feb-16 Feb-17 Feb-18 Feb-19 Feb-20 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20
■ The unemployment rate rose to a four-and-a-half year high in February. ■ The SEK weakened sharply in March partly due to the economic
hit of the COVID-19 pandemic.
Source: European Commission, Statistics Sweden, Riksbank, UniCredit Research

Economics Chartbook
Norway
Chiara Silvestre ■ We expect both the mainland and overall GDP to contract this year, by about 5.5% and
Economist
(UniCredit Bank, Milan) 4.7%, respectively. The Norwegian government has recently extended to 13 April the far-
chiara.silvestre@unicredit.eu reaching restrictions to try to halt the spread of the COVID-19 outbreak. These measures
are likely to be extended again thereafter, which would hurt businesses and the economy
further. Norway has started to be negatively impacted by the global downturn, the plunge in
oil prices, and the restrictions imposed domestically. The economic impact from lockdown
measures are likely to lead to mainland GDP shrinking for two consecutive quarters: by
about 2.5% in 1Q20 and by a more significant 10% in 2Q20. Once the lockdown measures
are gradually removed, mainland GDP is expected to rebound by about 5% in 3Q20 and 7%
in 4Q20. The carryover effect at the end of this year will likely boost average mainland GDP
growth to 6.5% and overall GDP towards 4.5% in 2021.
■ The Norwegian government has recently announced a number of measures to help alleviate
the economic shock of the COVID-19 outbreak, including 1. offering NOK 6.5bn worth of tax
relief and deferment; 2. confirming that workers will now receive full pay for the first 20 days
if laid off – their employers will only have to pay the first two days of their salaries, while the
state will pay for the next 18 days; and 3. proposing two new loan measures, providing sup-
port of a total of NOK 100bn. The first measure is a state guarantee targeted at bank loans
to small and medium-sized enterprises worth NOK 50bn, while the second measure is a re-
instatement of the Government Bond Fund worth up to NOK 50bn, to be invested in bonds
issued by Norwegian companies. This latter tool was first used in the aftermath of the 2008-
09 crisis. We think that the government will undertake much more significant fiscal expan-
sion under these extraordinary circumstances as there is room to spend from the oil wealth
fund, with the sovereign wealth fund providing a sizeable fiscal buffer.
■ The monetary policy response was decided in two stages. First, during an extraordinary
meeting on 12 March, the Norges Bank's Committee voted unanimously to reduce the policy
rate by 50bp to 1.0% due to the outbreak of COVID-19. During the same meeting, the Nor-
ges Bank also announced that it would offer extraordinary three-month NOK F-loans (which
are the primary instrument used to provide liquidity to the banking system) to banks as from
13 March 2020 "for as long as is deemed appropriate". The Norges Bank has advised the
Ministry of Finance to reduce the countercyclical capital buffer for banks from 2.5% to 1%,
with immediate effect. A reduction in the countercyclical capital buffer can counteract a
tightening of banks' lending standards. Second, at another extraordinary meeting on 19
March, in response to the actions of other central banks, the collapse of the oil price, and the
likely shock to economic growth, the Norges Bank decided to deliver a 75bp cut, bringing the
depo rate down to 0.25%. We do not expect further policy action by the Norges Bank.
MANUFACTURING PMI DETERIORATED STRONGLY IN MARCH THE NORGES BANK DELIVERED
PMI (manufacturing, index) PMI (manufacturing index, 3MMA) Depo rate (%)
65 6.00
60
4.50
55
50 3.00
45
1.50
40
35 0.00
Jan-05 Mar-07 May-09 Jul-11 Sep-13 Nov-15 Jan-18 Mar-20 2Q04 4Q06 2Q09 4Q11 2Q14 4Q16 2Q19 4Q21
Source: NIMA Norwegian Association of Purchasing & Logistics, Norges Bank, UniCredit Research

Economics Chartbook
Norway
GDP INFLATION
Mainland GDP Overall GDP yoy (%) Headline Core

yoy (%) 6.0
20.0
5.0
15.0 Forecast
4.0
10.0
3.0
5.0
2.0
0.0
1.0
-5.0
0.0
-10.0
-1.0
-15.0 Norges Bank's target
-2.0
-20.0 Dec-05 Dec-09 Dec-13 Dec-17 Dec-21
1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21
■ GDP set to contract during 2020 due to COVID-19. ■ Subdued inflation due to lower oil prices and COVID-19.
INDUSTRIAL PRODUCTION (I) INDUSTRIAL PRODUCTION (II)
IP, mom (%) IP, yoy (%) IP (oil extraction and related services, % mom) IP (crude petroleum, % mom)
6.0 25.0
4.0 20.0
2.0 15.0
0.0 10.0
-2.0 5.0
0.0
-4.0
-5.0
-6.0
-10.0
-8.0
-15.0
-10.0
Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 -20.0
Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20
■ Industrial production decreased 2.3% mom in January due to… ■ … a contraction in the oil production, extraction and related
services sector.
1
LABOR MARKET NOK
Application for unemployment benefit (thousands) Index 1995=100

70 135
Import-weighted NOK exchange rate, I-44*
60 130
50
125
40
120
30
20 115
10 110
0
105
10-Mar-20
11-Mar-20
12-Mar-20
13-Mar-20
14-Mar-20
15-Mar-20
16-Mar-20
17-Mar-20
18-Mar-20
19-Mar-20
20-Mar-20
21-Mar-20
22-Mar-20
23-Mar-20
24-Mar-20
25-Mar-20
26-Mar-20
27-Mar-20
28-Mar-20
29-Mar-20
30-Mar-20
31-Mar-20
9-Mar-20
1-Apr-20
*Higher values indicate a weaker NOK

100
Mar-18 Sep-18 Mar-19 Sep-19 Mar-20
■ Daily data collected by the Norwegian Labor and Welfare Admin- ■ After weakening in March, the NOK appreciated sharply at the
istration (NAV) indicate that about 11% of the labor force was un- beginning of April after the Norges Bank made clear that it is
employed in March due to COVID-19 disease. ready to intervene to defend its own currency.
Source: Norges Bank, Norwegian Labor and Welfare Administration, Statistics Norway, UniCredit Research
1
The I-44 (NOK index) is a nominal effective exchange rate index based on NOK exchange rates as measured against the currencies of Norway’s most important trading partners.
A rising index indicates a depreciating krone.

Economics Chartbook
Switzerland
Dr. Andreas Rees, ■ The Swiss economy is likely to show a markedly strong decline in 2020 as we expect eco-
Chief German Economist
(UniCredit Bank, Frankfurt) nomic activity to plunge by about 10%. For 2021, we expect a significant rebound in GDP
+49 69 2717-2074 growth of around 9-10%. However, the risks are skewed to the downside. In terms of quar-
andreas.rees@unicredit.de
terly growth rates, we project economic activity to drop in 1Q20 (-2½% qoq) but mainly in
Dr. Thomas Strobel 2Q20 by 19% qoq. For 3Q20 and 4Q20, we expect growth to recover by around 9% qoq
Economist each quarter. However, despite the strong rebound, GDP growth is likely to decline on av-
(UniCredit Bank, Munich)
erage in 2020, with a large carry over into 2021, which should lead to a strong acceleration
+49 89 378-13013
thomas.strobel@unicredit.de in economic activity next year.
■ In March, the Federal Council announced two rescue packages totaling CHF 42bn (around
6% of GDP) to cushion the economic fallout from the COVID-19 outbreak. The aim of
these measures, which target various groups, is to maintain employment, safeguard wages
and support self-employed workers. Measures have also been taken in the cultural and
sports sectors to prevent bankruptcies and to dampen drastic financial consequences.
■ The major components of the second and larger rescue package (around CHF 32bn) are:
1. liquidity support for companies to ensure that affected SMEs receive bridging loans
(CHF 20bn); 2. temporary, interest-free deferral of social security contributions; 3. extended
interest-free payment periods for taxes; 4. extension and simplification of compensation for
short-time working; 5. compensation for loss of earnings for self-employed persons and em-
ployees; 6. immediate financial aid for the cultural sector (e.g. arts, design, film, music and
museums) and sports organizations as popular sporting events have had to be cancelled;
and 7. further measures to help the tourism industry and hospitals.
■ Due to our baseline of a plunge in economic activity and a sharp decline in oil prices in
1H20, headline inflation is likely to decrease around 1% yoy on average in 2020, while be-
ing largely flat in 2021. The appreciation of the Swiss franc against other major currencies
(due to its safe-haven status) will probably dampen inflation further.
■ In March, the SNB left its key policy rate unchanged at -0.75%, instead relying on FX mar-
ket interventions to counteract upward pressure on the CHF. The central bank also an-
nounced it would raise the threshold factor for exempting sight deposits from negative in-
terest rates from 25 to 30. It further introduced a new lending instrument, the COVID-19 re-
financing facility (CRF), which provides banks additional liquidity, charged at the SNB tar-
get rate, to support the economy. Additionally, the SNB reduced the countercyclical capital
buffer to 0%. In our baseline scenario, we expect the SNB to remain on hold for the time
being and to continue its FX market interventions to dampen upward pressure on the CHF,
if necessary.
SWISS ECONOMY TO DROP MARKEDLY SNB TO REMAIN ON HOLD
Forecast SNB policy rate, in % ECB deposit rate, in %

Real GDP (in % qoq) 24.0
12.0 0.10
Real GDP (in % yoy, rs) 20.0
8.0 0.00
16.0
4.0 12.0 -0.10
8.0 -0.20
0.0
4.0
-0.30
-4.0 0.0
-4.0 -0.40
-8.0
-8.0 -0.50
-12.0 -12.0
-0.60
-16.0
-16.0 -0.70
-20.0
-20.0 -24.0 -0.80
1Q16 1Q17 1Q18 1Q19 1Q20 1Q21 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
Source: Bloomberg, Swiss Federal Department of Economic Affairs, UniCredit Research

Economics Chartbook
Switzerland
LEADING INDICATORS CAPACITY UTILIZATION
%
140 70 90
KOF Leading Indicator Manufacturing PMI (rs)
130 65 88
120 60 86
110 55
84 Long-term average
100 50
82
90 45
80
80 40
78
70 35
76
60 30
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jan-20
74
1Q06 1Q08 1Q10 1Q12 1Q14 1Q16 1Q18
■ The KOF Leading Indicator and the manufacturing PMI dropped ■ Capacity utilization in the manufacturing sector remained above
significantly in the wake of the COVID-19 outbreak. its long-term average before the COVID-19 outbreak but is likely
to plunge in 2Q20.
GOVERNMENT BOND YIELDS INFLATION

% %
5 4
German 2-year yield Swiss 2-year yield CPI Core CPI
4 3
3
2
2
1
1
0
0
-1 -1
-2 -2
Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18 Jan-20 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18 Jan-20
■ The spread between German 2Y government bond yields and ■ Headline and core inflation were close to zero in February but are
Swiss 2Y government bond yields has remained tight recently. likely to decline sharply in the next few months.
INTERNATIONAL TRADE LABOR MARKET

%
20 4.5
Real exports, in % yoy (3M MA) Real imports, in % (3M MA)
15
10 4
0 3.5
-5
-10 3
-15
-20 2.5
-25
May-08
May-15
Jul-09
Nov-11
Jul-16
Nov-18
Jan-06
Mar-07
Sep-10
Jan-13
Mar-14
Sep-17
Jan-20
2
Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18 Jan-20
■ Exports have already been shrinking (latest available data: Feb- ■ The unemployment rate has remained at a low 2.3% recently, but
ruary 2020) but are likely to decline even more markedly in the is likely to increase soon.
next few months.
Source: Bloomberg, KOF, Federal Statistics Office of Switzerland, Federal Customs Administration, State Secretariat for Economic Affairs, UniCredit Research

Economics Chartbook
China
Edoardo Campanella, ■ We are downgrading our GDP growth forecast for China for 2020 to 0.6% from 4.2% . We expect
Economist (UniCredit Bank, Milan)
+39 02 8862-0522 a sharp contraction of 30% qoq in annualized terms in 1Q20 to be followed by rapid recovery in
edoardo.campanella@unicredit.eu 2Q20 and 3Q20, of about 18% each quarter – with 2Q20 benefiting from a bounce back in do-
mestic demand and 3Q20 supported by a gradual recovery from the health crisis in advanced
economies in the summer. Economic growth should then start stabilizing in 4Q20 before moder-
ately converging towards the quarterly path it was on prior to the COVID-19 outbreak. Given this
growth backdrop, we expect that Beijing will fail to achieve its goal of doubling overall GDP from
2010 to 2020. For 2021, we expect GDP to grow by about 10% (previously 5.9%). These esti-
mates are based on the assumptions that there will not be a second coronavirus wave, although
the risk is non-negligible.
■ The official manufacturing PMI rebounded in March, rising to 52.0 from 35.7. The services index
also jumped above the 50 threshold to 52.3 from 29.6. The Caixin PMIs reported similar move-
ments. These figures confirm that the Chinese economy has started to normalize, but the data
should be treated with caution. The PMI survey asks firms whether there was an increase in ac-
tivity compared to the previous month. Since in February the extension of Lunar New Year holi-
days, factory shutdowns, quarantines and other containment measures basically froze the econ-
omy, respondents are seeing improvements from a level of activity that was extremely low. Data
on coal consumption and urban mobility, for example, seem to indicate that the Chinese econo-
my is operating at 85-90% capacity, with a lot of variation across sectors and regions. Hard data
indicate that economic activity was much weaker than expected in February. Industrial value-
added figures, retail sales and fixed-asset investment recorded unprecedented contractions,
while construction starts were down by over 40% yoy, and auto sales were down 42% yoy.
■ On the policy front, Beijing has limited room for maneuver, having already adopted a combination
of monetary, regulatory and fiscal measures, and showing little appetite for additional aggressive
measures given that the shock also hit the supply side of the economy. The PBoC has activated
a number of targeted lending facilities, lowered the reserve requirement ratio (RRR) and cut the
loan prime rate (LPR) by 10bp. Some additional cuts to both the RRR and the LPR are in the
cards, as well as the injection of more liquidity for SMEs, with a special focus on export-oriented
firms. Some more action is likely to take place on the investment front, with digital infrastructure
projects taking priority over traditional ones. To support the declining profits of SOEs that are pri-
marily active in upstream industries, Beijing will likely stimulate the real estate and construction
industry in order to activate demand for industrial commodities, boost their prices and increase
SOEs’ profits. Also the auto sector might benefit from fiscal incentives to purchase cars.
UNPRECEDENTED DROP IN ECONOMIC ACTIVITY PMIS REBOUNDED IN MARCH
yoy, % Official PMIs

65
30.0
Industrial production Retail sales
15.0 50
0.0
35
-15.0
Manufacturing Services
20
-30.0
Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
Source: NBS, UniCredit Research

Economics Chartbook
China
GDP FIXED ASSET INVESTMENT
GDP growth (%) Investment in fixed asset (yoy, %)

20.0 20
30.0
10.0
15
0.0 15.0
10
-10.0
5 0.0
-20.0
qoq( annualized) yoy (rs) Total SOEs Private

0 -15.0
-30.0
-40.0 -5
1Q01 1Q03 1Q05 1Q07 1Q09 1Q11 1Q13 1Q15 1Q17 1Q19 1Q21 -30.0
Mar-12 May-13 Jul-14 Sep-15 Nov-16 Jan-18 Mar-19
■ GDP is expected to contract massively in 1Q20, before recover- ■ Fixed asset investment sank in February across the board.
ing ground in 2Q20 and 3Q20.
CAR PRODUCTION COVID-19 SPREAD
Number of vehichles produced Chinese regions

3,500,000
100
% of Chinese new coronavirus cases
3,000,000 Hubei
80
2,500,000
60
2,000,000
1,500,000 40
1,000,000 20
Total 12MA
500,000 Zhejiang Shangdong Jiangsu Guangdong
0
0 2 4 6 8 10 12
0
Jan-13 Jul-14 Jan-16 Jul-17 Jan-19 % Chinese GDP
■ Vehicle production sank in February, after having recorded a ■ Most of the COVID-19 cases in China were concentrated in
deceleration in previous months due to the trade war with the US. Hubei, leaving many of the key production centers almost unaf-
fected.
PRICES PROFITS
20
yoy (%) Growth of industrial profits (year to date, %)
100
CPI PPI Private enterprises SOEs
10 80
60
0 40
20
-10 0
-20
-20 -40
Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18 Jan-20 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17 Feb-18 Feb-19 Feb-20
■ Consumer prices were on the rise at the turn of the year, primarily ■ Unlike in 2015, when SOE profits sank and Beijing adopted
driven by food-related pressure due to rising pork-meat prices. supply-side policies to boost them, February profits for private
firms as well were deep in the red.
Source: China Automobile Manufacturers Association, Markit, NBS, UniCredit Research

Economics Chartbook
Oil
Edoardo Campanella ■ We expect Brent prices to stabilize within the USD 35-40/bbl range for the rest of the year.
Economist
(UniCredit Bank, Milan) Since the global demand outlook is deteriorating by the day, only a significant reduction in
+39 02 8862-0522 supply will be able to bring some price relief to the market. Some output adjustment is inev-
edoardo.campanella@unicredit.eu
itable, with both traditional and US shale producers being forced to remove barrels from
the market to allow prices to stabilize.
■ In its March update, the International Energy Agency (IEA) lowered its demand forecast for
a second consecutive month, penciling in a contraction of 90kb/d for 2020 – the first annual
decline since 2008. However, its baseline scenario is benign, as China remains the main
source of demand weakness while the global economy is expected to slow with a limited
impact on oil demand. Therefore, it is more informative to consider the worst-case scenario
provided by IEA that is closer to our baseline of a global recession in 1H20. This assumes
around a 0.7mb/d contraction in global demand in 2020 due to the global spread of
COVID-19 and a slower recovery in oil demand. In this scenario, output losses in terms of
barrels would be slightly more than those recorded in 2008. Since the global macroeco-
nomic outlook is rapidly deteriorating, we do not rule further downward revisions by IEA.
■ The price war between Saudi Arabia and Russia risks flooding the market as soon as April,
when OPEC+ members will no longer have to comply with any production quota and will be
free to pump as much oil as they want. In our view, Riyadh, whose fiscal breakeven price is
above USD 80/bbl, is playing hardball to force Moscow to decide where to stand: either it
cooperates with OPEC to deepen and extend the curbs until December (for an overall cut
of 3.5mb/d) or the OPEC+ alliance will collapse. In the latter case, OPEC will go it alone
and remove barrels from the market (around 2mb/d), while the price that Russia will have
to pay is a loss of influence in the Middle East from its OPEC+ membership. Also the
Trump administration is currently intervening to facilitate dialogue between Russia and
Saudi Arabia to address the current tensions. If there is no intervention at all, our risk sce-
nario envisage prices to stay well below USD 30/bbl for the rest of the year.
■ Whether the price war ends or not, the least competitive US producers will likely be pushed
out of the market anyway as most of them need Brent price above USD 45/bbl. According
to Energy Aspects, several US operators have announced cuts to their 2020 budget. And
some key American producers asked the state of Texas to introduce curbs on overall pro-
duction.
In just a
OIL DEMAND TO CONTRACT FOR FIRST TIME SINCE 2008 OECD INVENTORIES TO RISE SHARPLY
m/b OECD stocks minus pre-shale boom average

Oil demand growth (mb/d)
OECD stocks minus 5YMA
3.0 400
300
Cyclical
slowdown
1.5
200
Financial
crisis 100
0.0
Cyclical slowdown
Cyclical slowdown 0
Coronavirus
shock -100
-1.5 Jan-16 Sep-16 May-17 Jan-18 Sep-18 May-19 Jan-20 Sep-20
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Source: EIA, UniCredit Research

Economics Chartbook
Oil
OPEC+ DEAL PRICE SPREADS
Compliance with December output deal WTI Midland, Texas (USD)

5.0
0.0
Non-OPEC
-5.0
-10.0
-15.0
Saudi Arabia's contribution -20.0

OPEC-10
-25.0
Spread to Brent Spread to WTI benchmark
-30.0
0% 100% 200% Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
■ Saudi Arabia is engaged in a price war with Russia, because ■ The spread between the WTI Midland price (a gauge of the
Moscow was never been fully committed with the OPEC+ shale-oil price) and regular WTI is widening again – implying that
alliance. shale-oil producers are pumping too much.
COST CURVE FISCAL BREAKEVEN PRICE
Average cost (USD

per barrel) Fiscal breakeven price (USD/bbl)
60 200
50
160
40
120
30
80
Canada Oil Sands
20
Other Non-OPEC
United States
Other OPEC
Kazakhstan
Saudi Arabia
excl. Shale
US shale
40
Norway
10
Mexico
China
Brazil
Russia
0 0
0 15 30 45 60 75 90 Iran Saudi Arabia Iraq Russia
Cumulated production (mb/d)
■ With Brent hovering around USD 30/bbl, only Saudi Arabia would ■ Saudi Arabia is far less competitive than Russia in terms of the
be able to fully cover its operational costs. Brent price needed to balance its fiscal budget.
OPEC PRODUCTION US SHALE PRODUCTION
Oil production (m/bd) Drilled but uncompleted wells (DUCs) Rig count (rs)
4.0 9,000 2,500
8,000
2,000
7,000
1,500
2.0
6,000
1,000
5,000
Iran Venezuela
500
4,000
0.0
Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 3,000 0
Dec-13 Apr-15 Aug-16 Dec-17 Apr-19
■ As a result of stifling US sanctions, both Iran and Venezuela are ■ DUCs in the US have peaked, meaning that producers are get-
giving a helping hand to OPEC with a heavily curtailed production. ting ready to adjust production.
Source: Energy Aspects, IEA, OEPC, UniCredit Research

Economics Chartbook
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115 03 Praha 1, Czech Republic and subject to limited regulation by the National Bank of Slovakia, Imricha Karvaša 1, 813 25 Bratislava, Slovakia. Regulatory authority: National
Bank of Slovakia, Imricha Karvaša 1, 813 25 Bratislava, Slovakia
k) UniCredit Bank Romania, Bucharest 1F Expozitiei Boulevard, 012101 Bucharest 1, Romania. Regulatory authority: National Bank of Romania, 25 Lipscani Street, 030031, 3rd
District, Bucharest, Romania
l) UniCredit Bank AG New York Branch (UniCredit Bank, New York), 150 East 42nd Street, New York, NY 10017. Regulatory authority: “BaFin“ – Bundesanstalt für Fi-
nanzdienstleistungsaufsicht, Marie-Curie-Str. 24-28, 60439 Frankfurt, Germany and New York State Department of Financial Services, One State Street, New York, NY 10004-1511
Further details regarding our regulatory status are available on request.
ANALYST DECLARATION
The analyst’s remuneration has not been, and will not be, geared to the recommendations or views expressed in this report, neither directly nor indirectly.
All of the views expressed accurately reflect the analyst’s views, which have not been influenced by considerations of UniCredit Bank’s business or client relationships.
POTENTIAL CONFLICTS OF INTERESTS
You will find a list of keys for company specific regulatory disclosures on our website https://www.unicreditresearch.eu/index.php?id=disclaimer.
RECOMMENDATIONS, RATINGS AND EVALUATION METHODOLOGY
You will find the history of rating regarding recommendation changes as well as an overview of the breakdown in absolute and relative terms of our investment ratings, and a note on the
evaluation basis for interest-bearing securities on our website https://www.unicreditresearch.eu/index.php?id=disclaimer and https://www.unicreditresearch.eu/index.php?id=legalnotices.
ADDITIONAL REQUIRED DISCLOSURES UNDER THE LAWS AND REGULATIONS OF JURISDICTIONS INDICATED
You will find a list of further additional required disclosures under the laws and regulations of the jurisdictions indicated on our website
https://www.unicreditresearch.eu/index.php?id=disclaimer.
E 19/3
UniCredit Research page 40

Economics Chartbook
UniCredit Research* Macro Research
Erik F. Nielsen
Dr. Ingo Heimig
Group Chief Economist Head of Research Operations
Global Head of CIB Research & Regulatory Controls
+44 207 826-1765 +49 89 378-13952
erik.nielsen@unicredit.eu ingo.heimig@unicredit.de
Head of Macro Research
Marco Valli
Head of Macro Research
Chief European Economist
+39 02 8862-0537
marco.valli@unicredit.eu
European Economics Research
Dr. Andreas Rees Dr. Loredana Federico Stefan Bruckbauer

Chief German Economist Chief Italian Economist Chief Austrian Economist
+49 69 2717-2074 +39 02 8862-0534 +43 50505-41951
andreas.rees@unicredit.de loredanamaria.federico@unicredit.eu stefan.bruckbauer@unicreditgroup.at
Tullia Bucco Edoardo Campanella Walter Pudschedl

Economist Economist Economist
+39 02 8862-0532 +39 02 8862-0522 +43 50505-41957
tullia.bucco@unicredit.eu edoardo.campanella@unicredit.eu walter.pudschedl@unicreditgroup.at
Dr. Thomas Strobel

Chiara Silvestre Economist
Economist +49 89 378-13013
chiara.silvestre@unicredit.eu thomas.strobel@unicredit.de
International Economics Research
Daniel Vernazza, Ph.D.

+44 207 826-7805
EEMEA Economics Research
Dan Bucşa Gökçe Çelik Mauro Giorgio Marrano

Chief CEE Economist Senior CEE Economist Senior CEE Economist
+44 207 826-7954 +44 207 826-6077 +43 50505-82712
dan.bucsa@unicredit.eu gokce.celik@unicredit.eu mauro.giorgiomarrano@unicredit.de
Artem Arkhipov
Florin Andrei, Ph.D. Head, Macroeconomic Analysis Hrvoje Dolenec
Senior Economist, Romania and Research, Russia Chief Economist, Croatia
+40 21 200-1377 +7 495 258-7258 +385 1 6006-678
florin.andrei@unicredit.ro artem.arkhipov@unicredit.ru hrvoje.dolenec@unicreditgroup.zaba.hr
Dr. Ágnes Halász

Chief Economist, Head of Economics and Ľubomír Koršňák Kristofor Pavlov
Strategic Analysis, Hungary Chief Economist, Slovakia Chief Economist, Bulgaria
+36 1 301-1907 +421 2 4950 2427 +359 2 923-2192
agnes.halasz@unicreditgroup.hu lubomir.korsnak@unicreditgroup.sk kristofor.pavlov@unicreditgroup.bg
Pavel Sobíšek
Chief Economist, Czech Republic
+420 955 960-716
pavel.sobisek@unicreditgroup.cz
UniCredit Research, Corporate & Investment Banking, UniCredit Bank AG, Am Eisbach 4, D-80538 Munich, globalresearch@unicredit.de
MR 20/1
Bloomberg: UCCR, Internet: www.unicreditresearch.eu
*UniCredit Research is the joint research department of UniCredit Bank AG (UniCredit Bank, Munich or Frankfurt), UniCredit Bank AG London Branch (UniCredit Bank, London), UniCredit Bank AG Milan Branch
(UniCredit Bank, Milan), UniCredit Bank AG Vienna Branch (UniCredit Bank, Vienna), UniCredit Bank Austria AG (Bank Austria), UniCredit Bulbank, Zagrebačka banka d.d., UniCredit Bank Czech Republic and Slo-
vakia, ZAO UniCredit Bank Russia (UniCredit Russia), UniCredit Bank Romania.
UniCredit Research page 41

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The UniCredit

Macro Research 2 April 2020

“ The mother of all recessions has arrived

2Q 2020 Editor: Chiara Silvestre, Economist (UniCredit Bank Milan)

Editorial deadline: 2 April 2020, 17:00 (CET)

UniCredit Research page 2 See last pages for disclaimer.

The mother of all recessions has arrived

UniCredit Research page 3 See last pages for disclaimer.

Table 1: Annual macroeconomics forecasts

UniCredit Research page 4 See last pages for disclaimer.

Table 2: Quarterly GDP and CPI forecasts

4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21

CPI INFLATION (% YOY)

4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21

Source: UniCredit Research

Table 3: Oil forecasts

Source: Bloomberg, UniCredit Research

UniCredit Research page 5 See last pages for disclaimer.

Current 2Q20 3Q20 4Q20 1Q201 2Q21 3Q21 4Q21

Spreads Current 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21

Source: Bloomberg, UniCredit Research

UniCredit Research page 6 See last pages for disclaimer.

Forecasts are end-of-period Source: Bloomberg, UniCredit Research

UniCredit Research page 7 See last pages for disclaimer.

UniCredit Research page 8 See last pages for disclaimer.

Fiscal measures (including capital provision for Public

PMIs RESTAURANT SEATINGS

Confirmed cases Recoveries Deaths

UniCredit Research page 9 See last pages for disclaimer.

US (lagged three weeks) Italy Weekly initial jobless claims, SA thousands

Source: BLS, John Hopkins University, UniCredit Research

UniCredit Research page 10 See last pages for disclaimer.

Manufacturing Services US Manufacturing output (Fed measure) ISM manufacturing output - rs

AUTO SALES UST SPREADS

■ Auto sales fell to 11.4mn units in March, down from 16.8mn

CONSUMER CONFIDENCE RESTAURANT SEATINGS

Present situation Expectations OpenTable seated diners at restaurants, daily, % yoy

UniCredit Research page 11 See last pages for disclaimer.

DROP IN COMPOSITE PMI IS UNPRECEDENTED RECESSION TO BE MUCH DEEPER THAN IN 2008-09

Composite PMI GDP level (pre-crisis = 100)

x-axis shows the number of quarters

Source: Eurostat, Markit, UniCredit Research

UniCredit Research page 12 See last pages for disclaimer.

GDP qoq (%) GDP yoy (%, rs) 3.5

-25 -30 -1.0

SECTORS LABOR MARKET

Economic sentiment indicator (standardized) Employment indicator (standardized)

HOUSEHOLDS FINANCIAL MARKETS

Source: Bloomberg, Eurostat, European Commission, UniCredit Research

UniCredit Research page 13 See last pages for disclaimer.

BUSINESS SENTIMENT (IFO) PLUNGING

Real GDP, in % yoy Balances, in %

Source: destatis, fo, UniCredit Research

UniCredit Research page 14 See last pages for disclaimer.

INFLATION LABOR MARKET (I)

yoy % Forecast 2.5 Short-time workers, in mn (nsa)

LABOR MARKET (II) PUBLIC BUDGET BALANCE

mom 1,000 (3M moving average) Forecast

UniCredit Research page 15 See last pages for disclaimer.

Source: Banque de France, INSEE, Markit, UniCredit Research

UniCredit Research page 16 See last pages for disclaimer.

-30 -25 -1.0

MANUFACTURING SURVEYS CONSUMER CONFIDENCE