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CEEMEAnomics Summary - 2 September 2015

Core Content

This document provides a comprehensive overview of economic developments and outlooks in Central and Eastern Europe (CEEMEA) and related regions such as Saudi Arabia and South Africa. It outlines key data releases, policy decisions, and market dynamics for the week of 2 September 2015, focusing on inflation, growth, and currency stability.

Main Themes and Key Points

1. Central Europe Economic Outlook

• Poland: Q2 GDP growth slowed to 3.3% y/y from 3.6% y/y in Q1, primarily due to weaker net trade and a strong PLN. Domestic demand continued to support the economy.
• Czech Republic: Q2 GDP growth reached 4.4% y/y, up from 4% in Q1. Growth was driven by robust private consumption and increased fixed investment.
• Central Europe H2 Outlook: Strong growth is expected for the remainder of 2015, though risks include Chinese economic weakness and a potential slowdown in the eurozone.

2. Inflation and Economic Indicators

• Hungary: Inflation is expected to rise due to higher food prices offsetting lower fuel costs. The government plans to convert all remaining consumer foreign-currency loans into HUF by December.
• Czech Republic: Inflation is likely to increase as well, supported by the manufacturing PMI showing a slight rise to 50.7 in August.
• Russia: Inflation is expected to inch up to 15.8% y/y in August due to the RUB depreciation. The central bank may pause rate cuts, but will likely continue cautious easing in the medium term.
• Turkey: CPI inflation is forecast to remain broadly unchanged at 6.8% y/y in August. The PMI fell below the 50 threshold, indicating economic contraction. The country's Q2 GDP growth is expected at 3.5%, but the pace may slow in the coming months.

3. Currency and FX Policies

• Hungary: The conversion of consumer FX loans will be done at the NBH fixing rate of 19 August. The government and banks will subsidize the process, with costs split evenly. The move is expected to have minimal impact on the HUF exchange rate.
• South Africa: The rand remains weak, having depreciated by about 10.5% against the USD since July. The SARB is cautious about FX intervention, emphasizing financial stability and a flexible exchange rate regime. The bank will only act if there is a threat to market order or financial stability.
• Saudi Arabia: The USD peg remains in place despite rising fiscal deficits and low oil prices. The authorities have strong foreign exchange reserves and low public debt, which support the peg. Fiscal tightening is expected in the future to address the budget deficit.

4. Political and Social Concerns in South Africa

• A fabricated dossier claims the South African Treasury is a tool of a covert intelligence operation from the apartheid era, aimed at maintaining control over fiscal and monetary policy.
• The document is dismissed as "rubbish," but its existence raises concerns about political stability and the integrity of key state institutions.
• The National Treasury and SARB are seen as resilient institutions, but increasing political pressures may challenge their independence.

Key Data Preview

Important Disclosures

• The analysis was produced by Turk Ekonomi Bank A.S. and reviewed by BNP Paribas.
• The document does not contain investment research recommendations.
• The views expressed are the personal views of the author, Nic Borain, and are not influenced by compensation from BNP Paribas Cadiz Securities.