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Emerging Markets Weekly

Hong Kong Chief Executive Donald Tsang, his popularity at a record low

Mon, Jul 14 2008, 09:11 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

LATIN AMERICA

Argentina

Argentine central bank President Martin Redrado said emerging economies are coping with a global credit squeeze and helping to shore up economic growth across the world. ``Emerging markets are weathering very well for the first time a storm that has not been produced in emerging markets,'' he said in an Bloomberg Television interview in Aix-en- Provence, France. ``The deceleration will not be so big in the world economy because of the strength of emerging markets.''

Brazil

Brazil's inflation rate will rise to 6.40 percent at year-end, more than the 6.30 percent forecast made a week earlier, a central bank weekly survey said. The annual inflation rate 12 months ahead will be 5.32 percent, up from a previous forecast of 5.28 percent, according to the July 4 survey of about 100 economists. The central bank targets inflation at 4.5 percent, plus or minus 2 percentage points.

Chile

Chilean economic activity expanded 2.1 percent in May from the same month a year earlier, more than the 2.0 percent estimate of 17 economists in a Bloomberg survey. Economic activity expanded 4.8 percent in April.
Chilean economists raised their inflation forecast for this year by 2 percentage points, a central bank survey of economists showed. Consumer prices will rise 7.5 percent this year, according to the median estimate of 36 economists in a survey carried out between July 2 and July 8.

Ecuador

Ecuador's bonds tumbled after Finance Minister Fausto Ortiz resigned, renewing concern the government may default on about $10 billion of debt. The extra yield investors demand to own Ecuador's debt rather than U.S. Treasuries jumped 39 basis points, or 0.39 percentage point, to 6.5 percentage points at 12:30 p.m. in New York, according to JPMorgan Chase & Co.'s EMBI Plus index. The so-called spread is the widest since March 31. Ortiz resigned after government officials decided last night to seize 195 companies, including television stations, in a bid to collect debts stemming from a 1990s banking crisis, Ecuavisa TV reported.

Peru

Peru's central bank has ``limited'' ability to control inflation as prices surge for imported wheat, soybean and crude oil, central bank President Julio Velarde said. It could take longer than the bank had forecast to bring inflation back within the bank's 1 percent to 3 percent inflation target, Velarde said. The 12-month inflation rate is expected to slow to 3 percent next year from 5.7 percent through June, he said.

Venezuela

Venezuelan consumer prices rose 2.4 percent in June from the previous month, according to the country's national consumer price index, which includes prices from 10 major cities. Inflation was faster than the 1.9 percent median forecast from five analysts in a Bloomberg survey. So far this year, consumer prices have risen 15.1 percent, according to the national price index.

AFRICA & MIDDLE EAST

Egypt

Egyptian inflation accelerated to an average 11.7 percent in the fiscal year that ended June 30, Minister of Economic Development Osman Mohamed Osman said. Average annual inflation in the 2006-2007 fiscal year was 10.9 percent, Osman said, according to a statement released by the Cabinet.

Israel

Syrian President Bashar al-Assad said on Monday a military attack on Iran over its nuclear programme would have grave consequences for the United States, Israel and the world. Speculation of a strike against Iran's nuclear facilities has mounted following a report that Israel staged an air force exercise which was a rehearsal for such an attack. "It will cost the United States and the planet dear," Assad said in an interview with France Inter radio, adding that such an attack, if it occurred, would have an impact on Israel. "Israel will pay directly the price of this war. Iran has said so. The problem is not the action and reaction. The problem is that when one starts such action in the Middle East, one cannot manage the reactions that can spread out over years or even decades," said Assad who came to Paris for the EU-Mediterranean summit. Assad said logic would dictate that there would be no attack on Iran because of the serious repercussions, but such reasoning was not necessarily shared by the current U.S. administration. "This administration is an administration whose doctrine is a warmonger's doctrine. It does not reason with our logic, ours and that of most European countries, most countries in the world," Assad said.

Saudi Arabia

Ratings agency Fitch said it upgraded Saudi Arabia's long-term local and foreign currency issuer ratings to AAfrom A+, citing high oil prices. "At today's oil prices, Saudi Arabia is earning around one billion dollars a day from oil exports, reinforcing an already strong external balance sheet and creating a buffer against future shocks," said Charles Seville, associate director in Fitch's sovereign team, in a statement. Inflation has risen, but Fitch said that it "would have to worsen considerably to threaten the rating". Fitch revised the outlook on Saudi Arabia's ratings to stable from positive.

South Africa

South African Central Bank Governor Tito Mboweni said the global inflation outlook is ``bad'' and may be getting ``worse,'' Switzerland's Finanz und Wirtschaft reported, citing an interview. Mboweni said that the global economy could ``easily'' get into a situation like in the 1970s when there was no growth and inflation and interest rates were high, according to the Zurich-based newspaper. South Africa's inflation excluding energy and food stands at 6.1 percent, he said, according to Finanz und Wirtschaft.

ASIA

China

Hong Kong Chief Executive Donald Tsang, his popularity at a record low, was urged by Chinese Vice President Xi Jinping to overcome ``difficulties and challenges.'' Xi, who ended his first visit to the city since being appointed vice president in March, said Tsang should ``govern sensibly and reasonably,'' and overcome ``current problems,'' the South China Morning Post reported. At the same time, Xi said the government in Beijing supports Tsang's administration, according to text of his remarks from China's government Web site. Tsang's popularity has reached a record low according to a university survey, amid accelerating inflation and public anger over appointment of political appointees.

Indonesia

Indonesia's consumer confidence index dropped to a record low in June after the government increased fuel prices a month earlier and on concern that food costs will continue rising, a research body said. The index plunged to 65.3 last month, the lowest since the survey began in 1999, from 74.0 in May, according to the Jakarta-based Danareksa Research Institute, which surveyed respondents in six provinces. An index below 100 indicates more pessimists than optimists.

Philippines

The Philippines may lower its 2008 economic growth target for a second time in four months as the fastest inflation in 14 years cuts consumer spending and stifles manufacturing output. ``If the trend we see is very sharp increases in prices, we would have no choice but to adjust our targets,'' Economic Planning Secretary Augusto Santos told reporters in Manila. Growth may slow this quarter as inflation peaks, he said.

Thailand

A top leader of Thailand's People Power Party (PPP) was found guilty of vote buying and banned from politics for five years on Tuesday, a ruling that could lead to the dissolution of the main party in the coalition government. It is among several court cases coming to a head in July as supporters of former Prime Minister Thaksin Shinawatra and his opponents in the military and royalist establishment struggle for control of Thailand's future nearly two years after a coup.

EMERGING EUROPE & CIS

Hungary

The Hungarian central bank's decision to keep rates on hold at 8.50 percent on June 23 was backed by 6 rate setters, while 4 voted for a 25 basis point hike, including Governor Andras Simor and one of his deputies. This was the first time the rate-setting Monetary Council has voted down Simor, the minutes of the June 23 meeting published on Friday showed. Deputy Governor Ferenc Karvalits also voted for a hike while Deputy Governor Julia Kiraly voted to hold rates. Analysts said the minutes showed the Council was divided and the rate outlook was uncertain, even though no rate hike is expected this month. "The Council was quite divided and we cannot say that the minutes were not hawkish. Those who argued for keeping rates on hold wanted to slow (the rate hike) cycle," said David Nemeth at ING Bank.

Romania

EU newcomer Romania tops Standard & Poor's 2008 Fiscal Flexibility Index (FFI) due to the dominance of capital expenditures in its budget and a low overall level of tax productivity that indicates substantial potential for growth in revenues without hikes in tax rates, S&P said. The index, calculated for 30 European countries, indicates the governments' ability to adjust to adverse economic trends, and to react swiftly and effectively in the wake of economic shocks by modifying tax and expenditure policies in a way that safeguards smooth debt-service payments, S&P said in a report.

Russia

The Russian government's budget surplus amounted to 7 percent of gross domestic product in the first half of the year, the Finance Ministry said, citing preliminary figures. The surplus widened to 1.33 trillion rubles ($57 billion) from 1.26 trillion rubles in May, the Moscow-based ministry said in a statement on its Web site.

Slovakia

Fitch has upgraded the Republic of Slovakia's Long-term foreign currency Issuer Default rating (IDR) to 'A+' from 'A' and withdrawn the Rating Watch Positive that was assigned to the Long-term foreign currency IDR in May 2008. Fitch has also raised Slovakia's Country Ceiling to 'AAA' from 'AA', affirmed Slovakia's Long-term local currency IDR at 'A+' and Short-term IDR at 'F1'. The Outlooks for Slovakia's Long-term IDRs are Stable. "The upgrade of Slovakia's Long-term foreign currency IDR follows today's formal decision that it will become the 16th member of the euro area from January 2009," says David Heslam, Director in Fitch's sovereign team.

Slovenia

Slovenia's opposition centre-left Social Democrats (SD) have an edge over the ruling conservative Slovenian Democratic Party (SDS) two months ahead of a September 21 parliamentary election, a poll published on Friday showed. The results, published in the widely circulated Mladina weekly, were in line with most other opinion polls published in the European Union member state over the past weeks.

Turkey

Inflation forecasts in Turkey rose in early July, dashing hopes that a surprise drop in food prices last month might be the first sign of broader relief and boosting the prospects for an interest rate hike later this month. The central bank's bimonthly survey of inflation expectations, published Wednesday, found that experts and decision-makers in Turkey's economy expect consumer of price inflation to reach 11% at the end of 2008, up from the June survey projection of 10.7%. The jump belies the fact that June inflation actually declined on the month due to a sudden but significant decline in food prices. The Turkish lira dived on the news, with the USD-TRY rate jumping 1% to above 1.22 within minutes of the data's release. The currency later retraced to TRY 1.21 against the dollar.

Ukraine

Ukraine's Cabinet lowered this year's budget-deficit target to 1.95 percent of gross domestic product from 2.1 percent as it tries to damp Europe's fastest inflation. The changes to the law on the budget were submitted to lawmakers, Prime Minister Yulia Timoshenko told a news conference in Kiev. She and President Viktor Yushchenko have been arguing over domestic policy, including how to fight inflation and the sale of state assets. The president urged the government to bring down the inflation rate, at 31.1 percent in May, by cutting spending.

INDUSTRIAL COUNTRIES

Iceland

Iceland's CB Governor Fridriksson stated to Reuters that the CB expects the krona to regain some of its strength as it is trading at historically low levels. Fridriksson expects that the krona will not depreciate further given the low levels it is already trading at. Fridriksson acknowledged that last year the CB had expected the krona to depreciate but that this has occurred at a much faster pace than was envisaged. The unit is currently at around 120/Eur and as a high-yielder has been prone to volatile trade. The unit has especially come under pressure over concerns of the domestic banking sector. The govt and CB have been attempting to boost confidence over its economy and banking sector but Fridriksson concedes that the negative environment prevailing in global financial markets is rendering it difficult to deflect the consequent impacts on the domestic economy.

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Published on  Mon, Jul 14 2008, 09:24 GMT

Archive

• Chile's economy expanded faster than expected in the second quarter
  Published On Mon, Sep 1 2008, 11:06 GMT
• Argentina bought back more than $110 million in bonds this week
  Published On Mon, Aug 25 2008, 07:48 GMT
• Venezuelan industrial production fell 1.4 percent in May from a year earlier
  Published On Mon, Aug 18 2008, 08:22 GMT
• Hungary posted a smaller-than-expected trade surplus in June
  Published On Tue, Aug 12 2008, 07:05 GMT
• Emerging Markets Weekly
  Published On Mon, Aug 4 2008, 10:47 GMT

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