Review

  • While January PMIs that were published yesterday across the EMEA region were generally better than expected, Polish PMI in January disappointed when it showed an unexpected drop to 51.0, down from 52.4 in December. The setback was mainly due to slower growth of output and new orders compared to December. By contrast, Hungarian PMI in January surprised well on the upside, increasing to 53.5, from 49.1 in December. This strong increase looks somewhat overdone, and we are likely to see some setback in Hungarian PMI in the coming months. 

  • In the wake of the global crisis and drop in oil prices, Russia's GDP shrank 7.9% in 2009. It was the biggest annual contraction in 15 years. The outcome was better than the consensus forecast of -8.5% y/y, but marginally worse than our expectation of -7.5% y/y. As expected the contraction was broad based, but the biggest decline was in construction and manufacturing. We expect the Russian economy to recover this year, with growth possibly reaching 3%. However, structural features of the Russian economy (high dependency on oil) imply some risk to our forecast, which at least currently looks balanced.

  • Yesterday, Poland’s central bank deputy governor Witold Kozinski said that 2015 is a good date for euro zone entry, but he could not rule out some delay. We welcome this realism.


Preview

  • Today is quiet in terms of economic data. The only figure due is vehicle sales for January in South Africa.


Trading Update

  • Risk appetite returned somewhat in financial markets on Monday. The Polish zloty benefited the most, despite the disappointing January PMI published on Monday morning. Although we expect the PLN to outperform its regional peers given the upbeat economic outlook for the Polish economy this year, we see further PLN gains fairly limited in the short term. Overall we think that the CEE currencies are trading at fairly strong levels and we see a possibility of a negative correction going forward, especially if Greek concerns intensify.