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Summary of THE WEEKLY WRAP

Core Content Overview

This document provides a comprehensive analysis of economic and political developments across Central and Eastern Europe (CEE), South Africa, and Turkey for the week of 10 August 2014. It outlines the current economic outlook, key risks, and policy implications for each region, with a focus on growth, inflation, and monetary policy.

Main Themes and Key Points

Poland: Impact of Russian Sanctions

• Economic Growth: Recent data indicate a slowdown in Polish economic activity, with Q2 growth expected to be slightly lower than Q1 (2.8% y/y vs. 3.4% y/y).
• Sanctions Impact: New US and EU sanctions on Russia are expected to reduce Polish GDP growth by 0.4pp in 2014 and 0.8pp in 2015, primarily due to weaker exports.
• Export Sectors: The chemical and food-producing sectors are most affected, as Russia accounts for 8.5% and 6.6% of exports, respectively. A ban on Polish fruit and vegetables by Russia could further dampen growth.
• Inflation: CPI inflation in Poland is expected to remain negative in July, with a projected decline to -0.3% y/y from -0.7% y/y in June.
• Monetary Policy: The slowdown in growth may support the case for monetary easing, with the possibility of interest rate cuts in the coming months.

South Africa: Political and Economic Developments

• US-Africa Summit: The US is hosting its first-ever 'US-Africa Leaders Summit' in Washington, aiming to counter Chinese and EU influence and tap into Africa's projected economic growth.
• Labour Reform: The amended Employment Equity Act has been implemented, and the Labour Relations Act is under review. The government is attempting to reduce strike activity and improve wage negotiations.
• Public Sector Lockouts: Ongoing lockouts by NEASA (National Employers Association of South Africa) are affecting the engineering and metalwork sectors, highlighting inflexibilities in the labour market.
• Nuclear Power Expansion: Despite concerns about cost and feasibility, the government is pushing ahead with nuclear power projects, which are seen as a costly and risky endeavor.

Turkey: Inflation and Monetary Policy Outlook

• Inflation Surprises: Turkish CPI inflation rose to 9.32% y/y in July, driven by broad-based price pressures, especially in clothing and services. This has increased upside risks to the year-end inflation forecast of 8.2%.
• Rate-Cut Cycle: The rise in TRY volatility and inflation suggests the end of the rate-cut cycle. A 50bp cut in the policy rate is still expected in August, but there is a risk of a smaller cut or no cut at all.
• Core Inflation Decline: While headline inflation is expected to remain high, core inflation (excluding food) is projected to decline gradually as the impact of TRY depreciation has largely been realized.
• Political Context: The first round of Turkey's presidential election is set for 10 August. If no candidate secures over 50% of the vote, a second round will be held on 24 August. Moody's is scheduled to review Turkey's credit rating on 8 August, which is currently Baa3 with a negative outlook.

Key Data and Forecasts

Important Disclosures

• The analysis is produced by BNP Paribas Cadiz Securities (Pty) Ltd, reviewed but not amended by BNP Paribas, which holds a 60% indirect stake in the firm.
• Nic Borain, an independent political analyst, certifies that the views expressed are his personal views, and no part of his compensation is tied to specific recommendations in the document.
• The document does not contain investment research recommendations.

Conclusion

The report highlights the regional economic and political dynamics, emphasizing the negative impact of Russian sanctions on Poland, the potential for US influence in Africa, and the challenges faced by Turkey in managing inflation and monetary policy. It also underscores the importance of upcoming data releases and policy decisions in shaping the outlook for these economies.