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CEEMEA Weekly Summary - 12 February 2014

Core Content Overview

This summary provides an analysis of economic and political developments in the CEEMEA region (Central and Eastern Europe, the Middle East, and Africa), focusing on Hungary, Russia, South Africa, and Turkey. The report outlines expectations for interest rate changes, GDP growth, and the potential impact of the Sochi Winter Olympics and the upcoming South African general election.

Main Themes and Key Points

Hungary: Interest Rate Cuts Expected

• The Hungarian National Bank (NBH) is expected to cut interest rates again, likely by 15 basis points (bps), to support economic recovery.
• The decision may be influenced by the weak HUF and recent market volatility.
• There is a possibility that the NBH may reduce the pace of easing to 5-10bps or even pause before the new economic projections in March.
• The ultimate goal remains to bring the main policy rate down to 2.50%, consistent with the "Funding for Growth" scheme loans.

Russia: Economic Slowdown and Olympic Impact

• The Sochi Winter Olympics were the most expensive in history, costing over USD 50bn, with RUB 530bn (about USD 17bn) directly funded by the government.
• Despite the high cost, the economic impact on 2014 GDP growth is expected to be negligible.
• The Games may eventually transform Sochi into a tourist resort and business hub, but this is not expected to happen in 2014.
• Russia's economy is heavily dependent on oil prices, with GDP growth likely to remain below 3% y/y in 2014 and 2015 due to structural issues like low productivity and high unit labor costs.
• The Krasnodar region, where Sochi is located, may benefit more from the Olympics in the long term due to increased infrastructure and tourism potential.

South Africa: Mixed GDP Growth and Political Uncertainty

• South Africa's Q4 2013 GDP growth is expected to be stronger due to base effects from the previous quarter's industrial action.
• Manufacturing and mining production are expected to show improved growth, although consumer demand remains weak, leading to subdued trade sector performance.
• The South African Reserve Bank (SARB) is likely to continue monetary tightening, with a 50bp rate hike in January and further hikes expected in 2014.
• Consumer confidence and credit growth are weak, with non-performing loans rising despite accommodative monetary conditions.
• The negative output gap is expected to persist in 2014, resulting in below-potential GDP growth of 2.6% y/y, below both the SARB's estimates and the country's potential growth rate of 3.0-3.5%.

South Africa: Political Climate and Protests

• The general election is scheduled for 7 May 2014, with significant voter registration and media attention expected.
• Service-delivery protests have increased in frequency and intensity, though they are not expected to lead to an 'Arab Spring'-like upheaval.
• These protests, however, may deter investment and create uncertainty in the political environment.
• The Democratic Alliance (DA) planned a protest against the ANC, which was called off due to violence between supporters.
• Julius Malema's Economic Freedom Fighters (EFF) are suspected of using protests as opportunistic marketing, though they are not the sole drivers of the unrest.

Turkey: Tight Monetary Policy and Economic Outlook

• The Central Bank of the Republic of Turkey (CBRT) is expected to keep key rates on hold on 18 February, maintaining a tight liquidity stance.
• S&P has cut Turkey's debt outlook to negative, though the credit rating remains BB+ (one notch below investment grade).
• Despite market volatility, economic activity has been resilient, but growth is expected to slow from 4.1% in 2013 to 2.2% in 2014.
• Higher interest rates and delayed market turmoil effects are expected to slow growth further.

Key Data and Indicators

Summary of Economic and Political Outlook

• Hungary: Rate cuts are expected to continue, with the focus on reducing the main policy rate to 2.50%.
• Russia: Economic growth is expected to remain below 3% y/y, with no significant benefit from the Olympics in 2014.
• South Africa: GDP growth is expected to recover slightly in Q4 2013, but growth is likely to remain below potential in 2014.
• Turkey: Economic growth is expected to slow, with interest rates likely to stay unchanged in the near term.

Disclaimer

This analysis has been produced by BNP Paribas Cadiz Securities (Pty) Ltd and has been reviewed, but not amended, by BNP Paribas. BNP Paribas holds an indirect 60% stake in BNP Paribas Cadiz Securities. This analysis does not contain investment research recommendations.