Review

  • Hungarian industrial production in July surprised somewhat on the downside (at 9.0% y/y in July, down from June’s 15.2%) – as did Polish and Czech IP figures. This is in line with the negative surprise on German manufacturing numbers in July. The numbers are not that bad, but clearly show some moderation in manufacturing activity in central and eastern Europe (CEE).

  • Release of the Czech final Q2 GDP came out better than the preliminary numbers showing that the Czech economy expanded by 2.4% y/y (flash estimate was 2.2% y/y) and by 0.9% q/q (flash estimate was 0.8% q/q).

  • The revision of Q2 GDP in the Baltics was minor – in general the new figure confirms that recovery in growth accelerated. As was broadly expected the growth engine was exports, which are expected to contribute positively to GDP growth in the coming quarter as well. Domestic demand remains weak and the positive outcome mainly comes from the positive inventory cycle or restocking.

  • Russian Q1 GDP growth was revised up from 2.9% to 3.1% y/y. The upward revision was expected due to the change in calculation basis. The first estimate for Q2 released in August was 5.2% y/y. Furthermore, Russian weekly CPI was up 0.2% w/w in the first week of September. This shows that year-on-year inflation continues to accelerate. Consumer prices presented no change in September 2009.

  • Fitch affirmed Russia’s credit rating at ‘BBB’ and revised its outlook to positive. 


Preview

  • In line with consensus we expect Czech inflation to rise to 2.0% y/y in August, up from 1.9% y/y in July. Even though Czech inflation could rise above the Czech central bank’s 2% inflation target in the coming months, it will only be temporary and in our view will not trigger a rate hike.

  • Given that the recovery of the South African economy is losing steam, global economic slowdown poses further downside risks to the SA economy, inflation is well contained and the strength of rand is excessive. The SA central bank is expected to cut its key policy rate by 50bp to 6% at today’s MPC meeting. 


Trading update

  • Hungarian markets remained under pressure amid higher risk aversion on the back of renewed concerns about eurozone debt problems yesterday. The market is beginning to price in near-term rate hikes in Hungary as the forint continues to weaken especially against the Swiss franc.