Review

  • Polish GDP grew 3.5% y/y in Q2, which beat consensus. We now expect GDP growth this year to be in the range of 3.0%-3.5%.

  • Russian finance minister Kudrin sees inflation possibly reaching 7.5% in 2010, above the Economic ministry’s forecast of 6-7%. However, he sees no need for the central bank to hike the refinancing rate. We believe that Kudrin’s 7.5%-level, just below the current 7.75% refi rate, could perhaps have been used to justify the current monetary policy. We expect year-end 2010 inflation to reach 8%, with further acceleration in 2011.

  • EU Commissioner Olli Rehn was quoted in the Hungarian Sunday paper Vasarnapi Hirek as saying that Hungary must reduce its budget deficit below 3% of GDP next year to ensure sustainable growth. From Rehn’s comments it is quite clear that the EU is not willing to allow Hungary to run GDP deficit higher than 3% next year.

  • Yet another Czech central bank (CNB) board member, Robert Holman, called for a rate hike in the Czech Republic. He stated in the weekly magazine Tyden "... in the end we'll move to lift [interest] rates to 1%. I don't know whether it'll be at the end of this year, or the start of next year." Holman is the third CNB board member who recently called for a rate hike.

  • Estonian wages were up 1.2% y/y in Q2; the wage and salary recovery trend is significantly faster than we predicted (-1.1% y/y). According to Estonian statistics, the increase was influenced by the decrease in the number of persons on holiday without pay.

  • The Latvian retail trade outcome in July was only marginally better than our expectation; retail trade declined by 2.0 % y/y. On the other hand, the stabilisation trend is obviously clear and is likely to continue further.


Preview

  • We expect acceleration in Estonian IP recovery in July based on growing external demand. However, there is a clear downside risk to growth in IP going forward. PMI and the new orders index in the euro area indicate slowing, growth which may be a negative factor for the Estonian industrial and export outlook.


Trading update

  • Amid thin trading, EMEA currencies were fairly mixed yesterday. With a EUR/USD somewhat higher, some of the euro-sensitive currencies failed to benefit from positive local news. For instance, the Polish zloty did not react to better-than-expected Q2 GDP numbers. Also, the Czech koruna did not benefit from hawkish comments from CNB board member Holman.