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CEEMEA Weekly Summary - 15 January 2014

Core Content

This summary provides an analysis of economic developments and central bank policies across Central and Eastern Europe and the Middle East, focusing on key markets such as Poland, Russia, Hungary, and South Africa.

Main Countries and Their Economic Outlook

Poland

• Economic Recovery: Activity data and leading indicators suggest a continuing economic recovery, driven increasingly by domestic demand.
• Domestic Demand Boost: Real income growth and EU-funded public spending are supporting consumption and investment.
• Inflation Outlook: Corporate inflation expectations remain low, and CPI inflation is expected to stay below the 2.5% target, with a likely stabilization at less than 1.5% y/y in 2014.
• Monetary Policy: The National Bank of Poland (NBP) is expected to keep interest rates unchanged in 2014, with the first rate hike anticipated in 2015.
• Growth Forecast: Poland is expected to see GDP growth of more than 3% in 2014, supported by improved labor market conditions and EU structural funds.

Russia

• Exchange Rate Flexibility: The Central Bank of Russia (CBR) has scrapped its daily USD 60mn FX intervention, moving towards a full float of the rouble in 2015.
• Ruble Depreciation: The move is expected to accelerate RUB depreciation, which is driven by deteriorating external balances and a worsening growth-inflation mix.
• Impact on Growth: A weaker RUB may ease financial conditions, but the impact on economic growth is expected to be limited due to the low share of non-oil and non-gas exports.
• Inflation Outlook: Inflation is expected to remain gradually lower in 2014, with a likely disinflation to 5.0–5.5% y/y, although import price pressures may slow this process.
• Current Account: The current account surplus is expected to narrow and potentially turn into a deficit by 2015.

Hungary

• Monetary Policy: The Hungarian National Bank (MNB) is expected to cut rates by 20bp, bringing the main policy rate to 2.80%, with further easing forecast for Q2 2014.
• Nuclear Projects: Hungary plans to build new nuclear reactors in collaboration with Russia, with Russia expected to provide a EUR 10bn 30-year loan to finance 80% of the project.

South Africa

• ANC Manifesto: The ANC's manifesto was well attended and energetic, emphasizing economic policy stability, mineral policy risks, infrastructure investment, and public-service reform.
• Currency Pressure: The ZAR is under pressure due to weak fundamentals, power shortages, and platinum strikes.
• Political Climate: The ANC's election campaign is expected to dominate headlines, with President Zuma's comments on constitutional reform causing alarm among opposition parties.
• Economic Policy: The ANC is promoting an interventionist industrial policy, which could pose risks for the mining sector but may offer opportunities for infrastructure development.

Key Data and Events

Economic Calendar (16–24 January 2014)

• Poland:
  • Industrial production y/y: 11.1% (forecast)
  • Corporate wages y/y: 3.3% (forecast)
  • Corporate employment y/y: 0.3% (forecast)
  • CPI inflation m/m: 0.3% (forecast)
• Russia:
  • Trade balance: USD 13.7bn (forecast)
  • Current account: EUR -950mn (forecast)
• Hungary and Turkey:
  • MNB meeting and rate decision: Expected to cut rates to 2.80%
  • CBRT one-week repo rate: 4.50% (forecast)
  • CBRT o/n lending rate: 8.25% (forecast)
• South Africa:
  • CPI inflation y/y: 5.4% (forecast)
  • Retail sales y/y: 5.1% (forecast)
  • Unemployment rate: 13.5% (forecast)

Key Economic Indicators and Trends

• Poland: Strong industrial production and robust leading indicators support continued growth, with domestic demand playing a key role.
• Russia: FX intervention removal is expected to weaken the RUB, but the impact on growth is limited. The country faces challenges with external balances and inflationary pressures.
• South Africa: The ZAR is under pressure from strikes, power shortages, and weak fundamentals, despite the ANC's efforts to promote infrastructure and reform.
• Hungary: The central bank is expected to continue easing monetary policy, with a significant rate cut anticipated in the coming months.

Important Notes

• The document highlights the risks and opportunities associated with the ANC's policies, particularly in the mining and infrastructure sectors.
• The political climate in South Africa is expected to remain volatile, with potential impacts on economic stability and market sentiment.
• The analysis is provided by BNP Paribas Cadiz Securities, with important disclosures regarding potential conflicts of interest.