Economic Analysis - BMI Vs Consensus: Where We Stand In 2018 - NOV 2017


Above Consensus Polish And Czech Growth, FX And Interest Rates: We hold a stronger-than-consensus view on real GDP growth, policy rates and exchange rates in Poland and the Czech Republic. Tight labour markets and strong wage growth will continue to boost household purchasing power in 2018, while fixed investment will be supported as more and more EU co-financed infrastructure projects enter the construction phase. Against the backdrop of rapidly growing economies, inflation is set to rise in the two countries and we also hold a more hawkish view on the trajectory of monetary policy. In turn, we also hold a more bullish view on the Polish zloty and the Czech koruna. We forecast the zloty to appreciate from a current spot rate of EUR4.25/PLN to EUR4.05/EUR by end-2018, compared to a rate of EUR4.21/PLN forecasted by Bloomberg consensus. We forecast the koruna to appreciate to CZK25.00/EUR by end-2018, compared to a consensus forecast of CZK26.00/EUR.

Parity Not In Picture But Still Bearish On EUR: Despite recent upward revisions to our euro forecasts we still hold a below consensus view on the currency. We forecast an end-2018 exchange rate of USD1.10/EUR, compared to USD1.17/USD projected by Bloomberg consensus. This view is informed by four main factors. Firstly, we believe we believe that H117 will be a high water mark in terms of eurozone growth. Second, we expect political risks to resurface in 2018, with the Italian election and the end of Greece's bailout programme representing sources of instability. Third, we believe that ECB will maintain a very cautious and gradual approach to monetary tightening. Finally, we are above market-implied consensus for the pace of US Federal Reserve interest rate hikes in 2018.

Slightly Above Consensus Eurozone Growth, But Bearish Greece: Our 1.8% real GDP growth forecast for the eurozone in 2018 is slightly above the 1.7% pencilled in by Bloomberg consensus. However, there are some key differences on a country-by-country basis. Most prominently, we are well below consensus on the growth prospects for Greece, which will be subjected to substantial political uncertainty as the end of its bailout programme in 2018 approaches.

CIS - Above Consensus Ukrainian And Kazakh Growth, On Par In Russia: While Ukraine's economy is still performing well below potential, the impact of a trade blockade with the separatist held regions in the Donbas is starting to fade and the consumer outlook has significantly improved. In Kazakhstan, rising oil prices and production has come alongside a recovery in non-oil industries. We see significant upside for long-term growth in Kazakhstan, as the government's privatisation programme and the country's integration in the Belt & Road initiative could significantly boost FDI and support a diversification of the economy ( see 'Privatisation And Belt And Road Present Upside For-Long Term Growth ', August 4). In contrast to Ukraine and Kazakhstan, we are on par with the consensus outlook for Russia, which foresees real GDP growth slowing from 2.5% in Q217 to 1.6% in 2018. The recent strength of the economy will prove unsustainable in the context of a weak oil price recovery and lacklustre structural reform implementation.

Below Consensus On UK Inflation And Interest Rates: Our forecasts for inflation and interest rates in the UK are both below Bloomberg consensus. On the assumption that the current inflationary shock is transitory and largely the result of exchange rate passthrough, our average 2018 inflation forecast of 2.4% is lower than the 2.6% forecasted by Bloomberg consensus. As a result, we believe that the Bank of England (BoE) will keep its base rate on hold at 0.25% throughout the year. In contrast, Bloomberg consensus of 0.35% suggests that an increasing number of survey participants expect interest rate hikes in 2018. That said, we do note a rising probability that the BoE turns more hawkish in the coming months.

Europe - Real GDP Growth And 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 1.8 1.7 USD/EUR 1.10 1.17
Azerbaijan 1.8 1.7 AZN/USD 1.70 -
Belarus 1.5 1.5 BYR/USD 2.24 -
Belgium 1.5 1.6 USD/EUR 1.10 1.17
Croatia 2.8 2.6 HRK/USD 6.75 -
Czech Republic 3.3 2.8 CZK/EUR 25.00 26.00
Denmark 1.8 1.8 DKK/USD 6.77 6.48
Eurozone 1.8 1.7 USD/EUR 1.10 1.17
Finland 1.5 1.5 USD/EUR 1.10 1.17
France 1.6 1.6 USD/EUR 1.10 1.17
Germany 1.8 1.8 USD/EUR 1.10 1.17
Greece 1.2 2.0 USD/EUR 1.10 1.17
Hungary 3.0 3.3 HUF/EUR 306.00 308.00
Ireland 3.2 3.2 USD/EUR 1.10 1.17
Italy 1.0 1.1 USD/EUR 1.10 1.17
Kazakhstan 3.3 3.1 KZT/USD 320.00 315.50
Luxembourg 2.7 3.2 USD/EUR 1.10 1.17
Netherlands 1.8 1.9 USD/EUR 1.10 1.17
Norway 2.0 2.0 NOK/USD 8.33 7.86
Poland 3.6 3.3 PLN/EUR 4.05 4.21
Portugal 1.9 1.7 USD/EUR 1.10 1.17
Romania 3.8 3.5 RON/EUR 4.52 4.56
Russia 1.6 1.6 RUB/USD 61.29 59.50
Slovakia 3.1 3.6 USD/EUR 1.10 1.17
Spain 2.4 2.5 USD/EUR 1.10 1.17
Sweden 2.5 2.4 SEK/USD 8.45 8.06
Switzerland 1.8 1.7 CHF/USD 1.04 0.97
Turkey 3.3 3.2 TRY/USD 3.60 3.60
Ukraine 3.0 2.7 UAH/USD 27.00 27.50
United Kingdom 1.3 1.2 USD/GBP 1.31 1.29
Uzbekistan 8.1 - UZS/USD 4,200.00 -
Europe - Inflation And Interest 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 1.7 Austria 0.00 0.05
Azerbaijan 9.0 7.1 Azerbaijan 8.00 -
Belarus 10.0 9.0 Belarus 18.00 -
Belgium 1.9 1.7 Belgium 0.00 0.05
Croatia 1.7 1.6 Croatia 3.00 3.65
Czech Republic 2.8 2.1 Czech Republic 1.25 0.80
Denmark 1.3 1.5 Denmark 0.00 -0.55
Eurozone 1.4 1.4 Eurozone 0.00 0.05
Finland 1.4 1.2 Finland 0.00 0.05
France 1.5 1.2 France 0.00 0.05
Germany 1.7 1.6 Germany 0.00 0.05
Greece 1.2 1.0 Greece 0.00 0.05
Hungary 3.3 2.9 Hungary 1.10 1.10
Ireland 1.9 1.1 Ireland 0.00 0.05
Italy 1.5 1.2 Italy 0.00 0.05
Kazakhstan 6.5 6.8 Kazakhstan 8.50 -
Luxembourg 2.0 1.8 Luxembourg 0.00 0.05
Netherlands 1.5 1.4 Netherlands 0.00 0.05
Norway 1.9 2.0 Norway 0.50 0.65
Poland 2.4 2.1 Poland 2.50 1.90
Portugal 1.6 1.4 Portugal 0.00 0.05
Romania 2.9 2.9 Romania 2.50 2.60
Russia 4.2 4.1 Russia 7.00 7.05
Slovakia 2.4 1.9 Slovakia 0.00 0.05
Spain 2.8 1.5 Spain 0.00 0.05
Sweden 1.9 1.8 Sweden -0.25 -0.10
Switzerland 0.8 0.6 Switzerland -0.50 -0.70
Turkey 9.5 8.1 Turkey 7.95 8.10
Ukraine 9.1 7.9 Ukraine 9.50 9.50
United Kingdom 2.4 2.6 United Kingdom 0.25 0.35
Uzbekistan 11.0 - Uzbekistan 8.00 -