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CEEMEAnomics Summary - 16 September 2015

Core Content

This report provides an overview of economic developments and central bank activities in the CEEMEA region (Central and Eastern European Markets and Emerging Asia), focusing on Poland, Hungary, Turkey, and South Africa. It includes forecasts, data analysis, and commentary on inflation, industrial production, current-account balances, and monetary policy decisions.

Main Themes

Poland

• Industrial Production: Expected to grow by 7.5% y/y in August, driven by a favorable working-day effect and strong car production. The PMI decline was attributed to exaggerated expectations of power shortages.
• Inflation: CPI inflation eased to -0.6% y/y in August, with a projected drop to -0.7% in September due to lower gas prices. However, food prices and core inflation (clothing and footwear deflation easing) are expected to push headline CPI inflation to 0.3-0.4% y/y in December.
• Monetary Policy: The National Bank of Poland has paused rate cuts since March and is expected to remain on hold for the foreseeable future.

Hungary

• Rate Decisions: The National Bank of Hungary is likely to keep rates on hold for at least Q1 2016, following a 15bp cut in July.
• Policy Outlook: Despite inflationary pressures, the NBH has indicated that rates will remain unchanged for a long time. However, rising inflation and the US Fed's potential rate hikes may lead to tightening in 2016.

Turkey

• GDP Growth: Q2 GDP growth surprised to the upside at 3.8% y/y, driven by strong domestic demand and private investments. However, leading indicators suggest a slowdown in H2 and a more visible deceleration in 2016.
• Inflation: Inflation is expected to accelerate in September to 15.8% y/y, with a visible decline likely starting in December. The CBRT is likely to remain on hold until the end of October before delivering a 50bp rate cut in December.
• Current Account: The current-account deficit has remained around USD 45bn since March 2015. Expected slowdown in domestic demand should narrow the deficit in H2.
• Currency and Politics: Political uncertainty and global risk aversion have weakened the TRY, making it vulnerable to further depreciation. The CBRT is hesitant to act without clarity on the US Fed's rate decisions.

South Africa

• Current Account: The deficit narrowed to 3.1% of GDP in Q2 due to a trade surplus and ZAR weakness, but the improvement is expected to be short-lived.
• GDP Growth: The economy is under pressure, with a forecast of 1.4% growth in 2015 and 1.8% in 2016. Weak household income, high debt-to-income ratios, and low consumer confidence are key concerns.
• Inflation and Trade: CPI inflation is expected to moderate slightly in August to 4.8% y/y, while PPI inflation is forecast to remain stable at 3.3% y/y. The trade surplus in Q2 was supported by a weaker ZAR, but services receipts and tourism remain weak.
• FDI and FX Flows: FDI inflows have been minimal, with a net outflow of ZAR 0.2bn in Q2. Portfolio investment has been the main source of financing, but the lack of FDI inflows remains a concern.

Key Data and Forecasts

Poland

• Industrial Production (Aug): Forecast at 7.5% y/y.
• Retail Sales (Aug): Forecast at 3.0% y/y.
• PPI Inflation (Aug): Forecast at 3.3% y/y.
• Unemployment Rate (Aug): Forecast at 9.9%.

South Africa

• CPI Inflation (Aug): Forecast at 4.8% y/y.
• PPI Inflation (Aug): Forecast at 3.3% y/y.
• CPI Inflation (m/m): Expected to fall by 3.8%.
• SARB MPC Rate Decision (23/09): Expected to keep rates unchanged at 6.00%.

Turkey

• CBRT One-Week Repo Rate (22/09): Expected to remain at 7.50%.
• CBRT Overnight Borrowing Rate (22/09): Expected to remain at 7.25%.
• CBRT Overnight Lending Rate (22/09): Expected to remain at 10.25%.
• CBRT Overnight Lending Rate (22/09): Expected to remain at 10.75%.

Central Bank Watch

Key Risks and Outlooks

• Poland: CPI inflation is expected to stabilize and turn positive by December, with a more robust pickup in early 2016.
• Hungary: Rate decisions are likely to stay on hold until Q1 2016, with tightening expected in the following year.
• Turkey: Despite an upside surprise in Q2 GDP, growth is expected to slow in H2. The current-account deficit is likely to narrow, but external financing needs remain high.
• South Africa: The current-account deficit is expected to reach a low point in 2015, but external imbalances are likely to persist. FDI inflows remain weak, and tourism is a continued drag on the services account.

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 is an indirect shareholder of BNP Paribas Cadiz Securities (Pty) Ltd with a 60% stake. This analysis does not contain investment research recommendations.