Economic Analysis - BMI Vs Consensus: Eurozone Exuberance Going Too Far - FEB 2018


Below Consensus Eurozone Growth And EUR: Our forecast for 1.8% real GDP growth in the eurozone in 2018 is now below Bloomberg consensus, which has moved up to 1.9% since last month and is likely to go higher still in the coming months. While we expect eurozone economic activity to remain healthy and, in many countries, still above potential as output gaps close, we also believe expectations are becoming overly bullish due to the ongoing strength of economic data in H217. Related to this, we maintain our bearish outlook for the euro, with our end-2018 forecast of USD1.10/EUR significantly below consensus expectations of USD1.17/EUR.

Above Consensus Eastern European Inflation: Our forecasts for 2018 inflation are above consensus in a broad array of both EU and non-EU eastern European markets. This includes the Czech Republic, Hungary, Poland, Romania, Slovakia, Turkey, Ukraine and Kazakhstan. In line with this, we are also above consensus with respect to end-2018 policy rates in the Czech Republic, Poland, Romania and Ukraine. A notable exception is Hungary, where the central bank's extremely dovish stance will stoke inflationary pressures and present downside risks to the forint in 2018.

Bearish TRY and UAH, Bullish PLN and CZK: We are notably below consensus on the Turkish lira and Ukrainian hryvnia in 2018. Similar factors will weigh on both currencies, namely, high inflation and elevated political risks. Meanwhile, we are bullish with respect to consensus on the Polish zloty and Czech koruna. This largely relates to our expectation for strong economic growth and our above-consensus view on policy rate hikes in 2018 for both countries.

Below Consensus UK Growth & Policy Rate: Our forecast for 1.2% real GDP growth in the UK is below consensus of 1.4%. While UK economic activity slowed in 2017 and underperformed other major economies, the external backdrop propped up growth to a significant extent. However, weak fixed investment in 2017 was an offshoot of the uncertainty in light of Brexit, which will continue in 2018. Weak investment bodes poorly for a rebound in productivity in the near term, which is badly needed to make up for slower growth in employment and the labour force. In line with this, we believe the Bank of England will keep the base rate on hold at 0.50% in 2018 after hiking in November 2017.

GDP Growth & Exchange Rate
2018 Real GDP Growth, % End 2018 Exchange Rate
Source: Bloomberg, BMI
Country BMI Bloomberg Consensus Consensus Last Month Currency BMI Bloomberg Consensus Consensus Last Month
Austria 2.0 2.0 1.8 USD/EUR 1.10 1.17 1.18
Azerbaijan 1.2 1.4 1.4 AZN/USD 1.70 - -
Belarus 1.5 1.5 1.5 BYR/USD 2.24 - -
Belgium 1.5 1.6 1.6 USD/EUR 1.10 1.17 1.18
Croatia 2.8 2.8 2.8 HRK/USD 6.75 - -
Czech Republic 3.3 3.2 3.0 CZK/EUR 25.00 25.60 25.90
Denmark 2.1 1.8 1.8 DKK/USD 6.77 6.42 6.32
Eurozone 1.8 1.9 1.8 USD/EUR 1.10 1.17 1.18
Finland 2.0 2.0 1.5 USD/EUR 1.10 1.17 1.18
France 1.8 1.8 1.7 USD/EUR 1.10 1.17 1.18
Germany 1.8 2.0 1.8 USD/EUR 1.10 1.17 1.18
Greece 1.5 2.0 2.0 USD/EUR 1.10 1.17 1.18
Hungary 3.3 3.5 3.3 HUF/EUR 309.00 310.50 309.00
Ireland 3.6 3.3 3.2 USD/EUR 1.10 1.17 1.18
Italy 1.1 1.3 1.2 USD/EUR 1.10 1.17 1.18
Kazakhstan 3.3 3.2 3.2 KZT/USD 320.00 340.00 340.00
Luxembourg 2.7 3.5 3.2 USD/EUR 1.10 1.17 1.18
Netherlands 1.8 2.1 1.9 USD/EUR 1.10 1.17 1.18
Norway 2.0 2.0 2.0 NOK/USD 7.73 8.09 7.84
Poland 3.6 3.7 3.5 PLN/EUR 4.10 4.24 4.23
Portugal 1.9 1.9 1.9 USD/EUR 1.10 1.17 1.18
Romania 3.8 3.9 3.7 RON/EUR 4.60 4.62 4.59
Russia 1.7 1.9 1.8 RUB/USD 60.56 58.85 57.55
Slovakia 3.4 3.6 3.6 USD/EUR 1.10 1.17 1.18
Spain 2.2 2.5 2.5 USD/EUR 1.10 1.17 1.18
Sweden 2.5 2.5 2.5 SEK/USD 8.55 8.33 8.03
Switzerland 2.0 1.8 1.7 CHF/USD 1.07 0.99 0.97
Turkey 3.8 3.7 3.3 TRY/USD 4.25 3.88 3.63
Ukraine 3.0 3.0 3.0 UAH/USD 28.40 26.90 27.00
United Kingdom 1.2 1.4 1.3 USD/GBP 1.31 1.32 1.32
Uzbekistan 8.1 - - UZS/USD 7,900.00 - -
Inflation & Policy Rate
2018 Average Inflation, % End-2018 Policy Interest Rate, %
Source: Bloomberg, BMI
Country BMI Bloomberg Consensus Consensus Last Month Country BMI Bloomberg Consensus Consensus Last Month
Austria 2.3 1.8 1.7 Austria 0.00 0.00 0.00
Azerbaijan 9.0 7.3 7.3 Azerbaijan 8.00 - -
Belarus 10.0 7.8 7.8 Belarus 18.00 - -
Belgium 1.9 1.6 1.7 Belgium 0.00 0.00 0.00
Croatia 1.7 1.5 1.5 Croatia 3.00 3.00 3.00
Czech Republic 2.6 2.2 2.1 Czech Republic 1.25 1.20 1.15
Denmark 1.4 1.5 1.5 Denmark 0.00 -0.65 -0.50
Eurozone 1.4 1.4 1.4 Eurozone 0.00 0.00 0.00
Finland 1.4 1.1 1.2 Finland 0.00 0.00 0.00
France 1.5 1.2 1.2 France 0.00 0.00 0.00
Germany 1.9 1.6 1.7 Germany 0.00 0.00 0.00
Greece 1.2 1.0 1.0 Greece 0.00 0.00 0.00
Hungary 3.3 2.7 2.7 Hungary 0.90 1.05 1.15
Ireland 1.9 1.1 1.1 Ireland 0.00 0.00 0.00
Italy 1.7 1.1 1.2 Italy 0.00 0.00 0.00
Kazakhstan 6.7 6.5 6.5 Kazakhstan 9.75 - -
Luxembourg 2.0 1.7 1.8 Luxembourg 0.00 0.00 0.00
Netherlands 1.5 1.4 1.4 Netherlands 0.00 0.00 0.00
Norway 1.8 1.7 1.8 Norway 0.50 0.65 0.65
Poland 2.8 2.3 2.2 Poland 2.00 1.80 1.80
Portugal 1.6 1.4 1.4 Portugal 0.00 0.00 0.00
Romania 3.3 3.1 2.9 Romania 3.00 2.60 2.65
Russia 3.8 4.0 4.0 Russia 7.00 6.95 6.95
Slovakia 2.4 1.8 1.8 Slovakia 0.00 0.00 0.00
Spain 2.8 1.5 1.4 Spain 0.00 0.00 0.00
Sweden 1.8 1.9 1.8 Sweden -0.50 -0.15 -0.10
Switzerland 0.8 0.6 0.6 Switzerland -0.75 -0.75 -0.75
Turkey 9.8 8.5 8.5 Turkey 8.00 8.00 8.00
Ukraine 10.8 8.1 8.1 Ukraine 13.50 9.80 9.85
United Kingdom 2.4 2.5 2.5 United Kingdom 0.50 0.70 0.65
Uzbekistan 11.0 - - Uzbekistan 12.00 - -