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Monthly Review: January


  • In the US, based on the assumption of a political agreement on the fiscal front, we estimate that real GDP will grow by 1.5% in each quarter of the first half of 2013. Then it will accelerate to 2.5% during the second half of 2013 as the negative impact of the fiscal measures will gradually diminish. Hence, real GDP will grow by 1.9% during 2013, lower than in 2012.
  • In the Eurozone, based on the assumption of a gradual transition towards a more complete union and taking into consideration the improvement in the leading indicators, we estimate that real GDP will shrink marginally (by 0.1% - quarterly rate) during the first quarter of 2013 and then will return to mild growth rates (0.2% - 0.3%), resulting in an annual rate of -0.2% during 2013, better than in 2012.
  • In Japan, the combination of an expansionary fiscal policy and the higher inflation target set by the BoJ could quite possibly lead real GDP growth rate above the current level of 0.5%. On the other hand, the very high level of debt to GDP (237%) significantly increases the long-term uncertainty. In China, many economic data releases have shown improvement, raising the growth rate outlook above the consensus of 8.0%.
  • We note that the risk–return profile of the emerging equity markets has improved, resulting in a positive outlook (marginally better than the outlook of the developed markets). The technical outlook for German Bunds has abruptly deteriorated leading, along with the negative fundamentals, to a negative general outlook (as in the case of US Treasuries). The significant rise in the Euro area trade surplus has improved the fundamental outlook of the EUR/USD, while its technical outlook is enhanced by the flows, which look for an alternative safe–haven currency as the Yen is depreciating very fast. Currently the picture is neutral, but risks are tilted to the downside.