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EMEA Daily

The deflationary process continues in Latvia

Tue, Feb 9 2010, 06:20 GMT
by Lars Christensen

Danske Bank A/S  |  View company's profile

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Review 

  • Czech unemployment increased to a higher-than-expected 9.8% in January, up from December’s 9.2%. We see Czech unemployment continuing to rise in the coming months. 

  • The deflationary process continues in Latvia. In January CPI dropped by 3.1% y/y – more than our forecast of -2.7% y/y, but less than the consensus expectation of -3.3% y/y. Overall the continued deflationary process is necessary to re-establish Latvian competitiveness. In fact if one assumes that Latvia’s competitiveness has to be established to pre-bubble levels vis-à-vis the euro zone without a devaluation, then we estimate that the deflationary process will have to continue until at least 2013-14 if monthly deflation continues at the same rate as we have seen over past year. 

  • Turkish industrial production surged by 25.2% y/y in December, exceeding consensus forecast of 18.0% y/y and up from December’s 2.2% y/y fall. However, the strong surge is largely the result of a significant base effect.


Preview 

  • We expect Czech January inflation in January to rise to 1.4% y/y, up from December’s 1.0% y/y. In general, inflation in the Czech Republic this year will only be pushed up by tax changes, and given the depressed domestic demand, the real inflationary pressure in the economy will be practically non-existent. 

  • Latvian Q409 GDP figures are due for release today. We expect the pace of contraction to decline somewhat, and look for a decline of 15.3% y/y in Q409, up from a 19% y/y fall in Q309.


Trading Update 

  • EMEA FX markets were fairly mixed yesterday. Concerns over Club-Med sovereign debt dominated the markets on Monday and left the CEE currencies vulnerable. The PLN was the worst performing among the CEE and proved that it remains the most sensitive to the initial spark in risk aversion.

Published on  Tue, Feb 9 2010, 06:28 GMT


Danske Bank http://www.danskebank.com/ | danskeresearch@danskebank.com

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