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The European Commission published its Autumn forecasts

Wed, Nov 4 2009, 06:21 GMT
by Lars Christensen

Danske Bank A/S

Review

• Yesterday, the Romanian central bank (NBR) decided to keep its key policy rate on hold at 8.00%. This was no major surprise and in our view it was the only option that the NBR had given the significant political uncertainties there and the renewed selling pressure on the leu. If rates had been cut, the leu would have come under further pressure. That said, we do not think the decision will be enough to ease the pressure on the leu given the political uncertainties and the negative environment in the region currently. In fact, despite a very weak economy, the NBR might be forced to hike its key policy rate if the region’s currency sell-off continues and/or political uncertainties do not ease soon. 

• Latvian industrial production for September came out more or less in line with our expectations, falling 15.3% y/y in September (our forecast was -15.5% y/y). It is clearly too early to talk about a recovery in the Latvian economy. Furthermore, given the latest retail trade data, Q3 GDP might be relatively weak. 

• Turkish inflation declined to 5.08% y/y in October from 5.3% y/y in September, well above the consensus expectation of 4.6% y/y and our forecast of 4.3% y/y. We are disappointed that inflation only eased to 5.08% y/y as we expected quite a strong base effect to have lowered inflation in October significantly. Inflation is now likely to have bottomed and we now expect it to rise above 6.50% in the coming quarters. Therefore, today’s number combined with the recent weakness in the lira might well have closed the door for further monetary easing in Turkey. 

• Yesterday, the European Commission published its Autumn forecasts. Most notable is the outlook for public finances in Eastern Europe next year. For example the EC now forecasts a budget deficit 7.5% of GDP for Poland – more or less in line with the Polish government’s forecast. Equally interesting is that the EC forecast for public debt of 57% of GDP in Poland in 2010 is above the (quasi) constitutional limit of 55%. For the EC Autumn forecast.

Preview

• Hungarian Minutes from the latest monetary policy setting meeting are due today.

Trading update

• Although the EMEA-FX markets gained some ground following the stronger-thanexpected ISM release late Monday afternoon, the impact was limited. It is likely that a recovery in industry is already priced and hence is not enough to spur a strong rise in risk appetite. Please read more on the outlook for EMEA FX-markets .

• The global markets – and therefore the EMEA markets – are likely to be in a waitand- see mode ahead of the Federal Reserve meeting later today.

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Published on  Wed, Nov 4 2009, 07:46 GMT