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Monthly Review: July


The US economy is expected to have slowed down during Q2 of 2013, as we estimate that its real GDP grew by 0.9% (Q/Q-AR rate), compared to Q1’s 1.8%. For 2013 as a whole, we estimate that it will grow by 1.8%, slower than 2012’s 2.2%. In more detail, the growth rate of personal outlays is expected to accelerate (from 1.9% to 2.1%), while fixed investment (from 9% to 7%) and government expenditure (from -1.7% to -2.9%) are expected to decelerate and deteriorate, respectively.

The EZ economy is expected to have posted an improvement during Q2 of 2013, as we estimate that its real GDP shrank marginally by 0.1% compared to Q1’s -0.3%. For 2013 as a whole, we estimate that it will shrink by 0.7%, worse than 2012’s -0.6%. In more detail, the smaller positive contribution from net exports is expected to offset the improvement (meaning a smaller negative contribution) in domestic demand.

We estimate that Japan’s economy will grow at a faster rate (2.2%) during 2013 than in 2012 (1.9%). The main positive factor is the JPY depreciation which supports exports and consequently business investment. The inflation rate will accelerate to 0.7% at the end of 2013 and above 2.0% by the end of 2014. In June, it was at 0.4%, the highest level since the end of 2008. Debt sustainability (public debt to GDP ratio) at 235%, is the most important risk for Japan’s economy. Since the outbreak of the crisis in 2008, the primary budget deficit has reached 9% of GDP for every year.

The environment is mainly characterized by low volatility. Apart from our negative view for the gold market, our view for the other markets remains neutral. We set apart the considerable improvement in the emerging equity markets. We also observe that the long term bonds have become cheap relative to the short term bonds and the applied monetary policy. The technical view for the S&P500, EURUSD and oil is positive.