Review

  • Lithuanian retail sales disappointed in July falling by 6.3% y/y, almost the same rate of decline as in June. However, a small positive increase on a monthly basis (2.5% m/m) indicates stabilisation, which is likely to continue in the coming months. Furthermore, Q2 GDP was revised up, to 1.3% y/y from a flash estimate of 1.1% y/y. Detailed breakdown shows that rapid exports growth was the main driver of the increase, while the stabilisation of domestic demand was mainly due to base effects and a positive change in inventories. We stick to our GDP forecasts and expect the Lithuanian economy to expand by 1% in 2010E and by more than 3% in 2011E.

  • Russian bank lending continued to grow at a steady but moderate pace in July. Total nominal lending growth was 0.8% m/m and 1.5% y/y. We continue to expect rapid credit growth in Q4, driven by the household sector.

  • Three-month rolling unemployment in Hungary dropped to 11% in May to July, down from 11.1% in April-June. 


Preview

  • The recovery in the Polish economy continues and we expect this to be confirmed by Q2 GDP that is due for release today. Hence, we expect Polish GDP to have grown by 3.3% y/y Q2 – up from 3% y/y in Q1 and slightly more optimistic than the consensus expectation of 3.2% y/y.

  • We do not expect to see significant stabilisation in Latvian retail trade – the decline slows somewhat to minus 2.9% y/y in July, only slightly up from minus 3.1% y/y in June. Uncertainties about the Latvian economy remain substantial – these are hardly likely to boost consumer optimism, at least during this year.

  • The drop in Estonian wages is likely to stabilise in Q2, but it have to wait for a positive growth trend. More pronounced effect on the economic recovery in earnings cannot be expected until 2012.


 Trading update

  • It is rather depressing to look at our EMEA FX Scorecard right now, as five out of seven currencies in the Scorecard score negatively indicating a potential for further weakness in the EMEA currencies on a one- to three-month horizon. The best scoring currency for the second week in a row is the Israeli shekel, but the score on ILS is only slightly positive – so it is not exactly a strong buy signal. The fact is that this looks more like an ugly contest than a beauty contest – as the general outlook for the EMEA currencies in the short run appears to be rather bleak.