Estonian industrial production dropped 30.1% y/y in June, much worse than our forecast of -26%. Weak IP over Q2 raises the risk that GDP will fall more in Q2 than in Q1. As we anticipated, the retail trade stabilized further in June, falling 11% y/y – somewhat better than our forecast of -12.4% y/y. However, higher consumption taxes will put more pressure on Estonian consumers over the coming months.
The Icelandic government said that the IMF’s review of Iceland’s rescue program has been postponed, in effect delaying the payout of the next instalment on Iceland’s IMF loan. The postponement of the review is related to uncertainty concerning the settlement of the “Icesave-issue” with the UK and Dutch governments.
The EBRD, the EIB and the World Bank said on Sunday they would help Ukraine with financing (USD 1.7bln) to support energy reforms and secure stable supplies of Russian natural gas to Europe. The agreement comes as Moscow recently urged Brussels to support Ukraine as fears were rising that another gas spat could emerge in the coming winter, if Ukraine would not meet payments.
Preview
PMI for July is due for release across the EMEA region.
Latvian industrial production (IP) for June will be published today. We expect a another downbeat reading. Latvian industrial confidence indicators have improved in recent months, but this might not be enough to sustain the recovery process.
Turkish inflation for July out today. We expect inflation in July to drop to 5.2%. Given the current inflation development and the TCMB’s inflation forecasts of 5.9% by end-2009 and 5.3% by end-2010 – both below the end-year targets for 2009 and 2010 respectively (7.0% and 6.0%) – there should be room for some further monetary easing over the next couple of months. We expect the TCMB to cut its key policy rate by an accumulated 100bp in the next three months and keep it flat during 2010.
Trading update
The positive sentiment remained intact on Friday. Global markets were supported by better than expected US Q2 GDP flash estimate, which showed that a deeper inventory liquidation in Q1 and Q2 sets the stage for a rebound in growth in the coming quarters that is even stronger than we had previously expected.
