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CEEMEA Weekly Summary - 2 April 2014

Core Content Overview

This document provides an analysis of economic and political developments in Central and Eastern Europe and Africa, focusing on Turkey, Hungary, and South Africa. It outlines key economic indicators, political trends, and future outlooks for these regions.

Key Political Developments

• Turkey:

  • The ruling AKP party secured a clear victory in local elections, indicating Prime Minister Recep Tayyip Erdogan's strong support.
  • This win may lead to a presidential election in August and possibly an early parliamentary election.
  • The political noise is expected to increase, as the AKP aims to consolidate its power.

• Hungary:

  • General elections are set for 6 April.
  • Opinion polls suggest the Fidesz party, led by Viktor Orban, will likely win and remain in power.
  • The government's main challenge will be to maintain economic growth while reducing public and external debt.
  • Fidesz is expected to adopt a more orthodox policy approach in the next term, focusing on policy predictability and attracting foreign investment.

Economic Highlights

Turkey

• GDP Growth: Turkish GDP grew at 4.4% y/y in Q4 2013, slightly above the market estimate of 4.0% and in line with forecasts.
• Leading Indicators: Mixed signals for growth in the coming quarters, but hard data have been robust.
• Inflation: Fitch is expected to maintain Turkey's investment-grade rating, though risks remain.
• Fiscal Policy: The Turkish Treasury raised TRY 12bn in bond auctions, indicating continued government spending.

Hungary

• GDP Growth: March PMI data for manufacturing showed 51.7, suggesting continued positive growth.
• Interest Rates: The Polish central bank is expected to keep rates unchanged until the end of Q3.
• Inflation: March CPI numbers for Hungary and the Czech Republic are expected to show low inflation.
• Consumer and Corporate Credit: South African private-sector credit growth rose to 8.7% y/y in February, with corporate lending driving the increase.
• Household Credit: Growth remained weak, at 5.2% y/y in February, with household overdrafts and general loans slowing.
• Insolvency Trends: Insolvency growth returned to positive territory, highlighting ongoing consumer debt issues.
• SARB Policy: The South African Reserve Bank is expected to be cautious in its rate hiking approach, maintaining accommodative monetary conditions for some time.

Key Economic Outlooks

• Turkey:

  • 2014 GDP growth forecast is 2.2%.
  • The government is expected to face challenges as energy price cuts lose their impact, potentially increasing inflation.
  • Policy predictability will be crucial to maintaining investment climate and growth.

• South Africa:

  • 2014 GDP growth forecast is 2.6%.
  • The SARB is expected to continue a measured approach to rate hikes, given the weak consumption outlook.
  • Consumer confidence and weak employment remain key headwinds for credit growth and economic activity.

Political and Social Trends in South Africa

• ANC and Zuma:

  • The release of the 'Nkandla' report has caused internal strain within the ANC, with some leaders supporting the public protector's findings.
  • The ANC has traditionally occupied the moral high ground, but recent events may erode this.
  • There are signs of shifting support, especially in urban areas, with Zuma's personal support remaining strong in rural KwaZulu-Natal.

• Polling Confusion:

  • Polls are mixed, with some suggesting a comfortable ANC majority and others indicating a decline in support.
  • The report may not significantly affect the election outcome, but could influence voter behavior.

• Platinum Strike:

  • The strike has lasted 51 days, with significant production and working day losses.
  • Amplats CEO Chris Griffith believes the strike may be entering a settlement phase.
  • Companies are concerned about potential platinum price spikes and are likely to take measures to avoid them.

Risks and Challenges

• Hungary:

  • Maintaining growth while reducing debt is a key challenge.
  • Uncertainty about how to phase out FX-denominated mortgages may delay fiscal reforms.

• South Africa:

  • Continued insolvency trends and weak consumer confidence are concerns.
  • The SARB's policy will likely remain accommodative, but rate hikes are expected as inflation pressures rise.

• Turkey:

  • Inflationary pressures may increase as energy price cuts fade.
  • Political instability and uncertainty could impact the economy.

Summary of Key Figures

Disclaimer

• This analysis is produced by BNP Paribas Cadiz Securities (Pty) Ltd, reviewed but not amended by BNP Paribas.
• BNP Paribas holds a 60% stake in the company.
• This document does not contain investment research recommendations.