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Emerging Markets Weekly

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Chile's economy expanded faster than expected in the second quarter

Mon, Sep 1 2008, 11:06 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

LATIN AMERICA

Argentina

Argentina's trade surplus widened in July to $1 billion from $517 million in the same month a year earlier, the National Statistics Institute said in a statement. Exports rose 53 percent to $7 billion while imports rose 46 percent to $6 billion, the institute said in Buenos Aires.
Argentine doesn't plan a new offer to investors who refused to accept the terms of a 2005 restructuring of defaulted debt, Cabinet chief Sergio Massa said. Massa spoke to reporters in Buenos Aires.

Brazil

Brazilian bank lending expanded last month at the slowest pace since February as rising interest rates made borrowing more expensive and damped the consumer spending that has driven growth to record levels. State and non-state bank lending climbed to 1.086 trillion reais ($669.5 billion) last month, a 1.7 percent rise from a revised 1.068 trillion reais in June, the central bank said in a statement distributed in Brasilia. Lending rose 32.7 percent from the year-earlier month. Monetary policy makers have raised benchmark interest rates three times since April, to 13 percent from a record low 11.25 percent, in a bid to cool domestic demand and inflation.
Brazil's Treasury lowered its target for total debt this year as part of a revision to its financing plan prompted by the country's economic expansion. The Treasury set its target for total debt this year to between 1.36 trillion reais ($833.4 billion) and 1.42 trillion reais, below a previous target of 1.48 trillion reais to 1.54 trillion reais. ``Strong economic indicators, especially the government's elevated fiscal surplus, is allowing greater flexibility in debt management,'' the Treasury said in an e-mailed statement.

Chile

Chile's economy expanded faster than expected in the second quarter, giving the central bank room to raise interest rates to stem inflation. Chile's gross domestic product grew 4.3 percent in the second quarter, up from a revised 3.3 percent in the first quarter, the Santiago-based central bank said on its Web site.
Chile's central bank policy makers voted unanimously to increase interest rates at their last meeting by half a percentage point for the third straight month. Central bank president Jose De Gregorio lifted borrowing costs to 7.75 percent to help stem the fastest inflation in 13 years. The bank published minutes from the Aug. 14 meeting on its Web site.

Colombia

Fitch Ratings affirmed Colombia's foreign currency sovereign Issuer Default Rating (IDR) at 'BB+' and the local currency IDR at 'BBB-'. The Rating Outlook remains Stable with the sovereign's country ceiling at 'BBB-', and affirmed the short-term IDR at 'B'. Fitch praised Colombia's macroeconomic stability, much-improved growth performance, as well as its disciplined fiscal policies and deft liability management. But the agency noted a less robust monetary and exchange rate policy framework as well as relatively high fiscal and external solvency ratios represent credit weaknesses. Fitch also warned Colombia remains vulnerable to external shocks due to limited trade integration, high commodity dependence, and considerable trade exposure to Venezuela.

Mexico

Mexico's falling oil output may curb economic growth, and a proposal in Congress to revamp the energy industry has been ``diluted,'' Moody's Investors Service analyst Mauro Leos said. Moody's has no plans to raise the rating on Mexico's debt, Leos said during a conference in Mexico City.
Inflationary pressures in Mexico are abating and consumer price increases will peak by next year, central bank Governor Guillermo Ortiz said. ``We're seeing the end of the inflation theme and pressures because of supply shocks,'' Ortiz said today at a conference in Monterrey.

Peru

Peru on Friday posted a current account deficit of $1.57 billion in the second quarter versus a $368 million surplus a year earlier, marking its second straight deficit after seven consecutive quarters of surpluses. The current account deficit was equal to 4.5 percent of gross domestic product and was hit by a surge in imports that narrowed the trade surplus in one of the world's fastest-growing economies, the central bank said. In the first quarter, Peru's current account deficit totalled $655 million. Peru posted a public sector fiscal surplus of 5.6 percent of GDP in the second quarter, down from 8.2 percent in the same period of 2007, the bank said. Peru's economy grew some 9 percent last year and is expected to expand at a similar rate this year.

AFRICA & MIDDLE EAST

South Africa

South Africa's planned investment in large projects surged to 336 billion rand ($43.5 billion) in the first half of the year as state electricity company Eskom Holdings Ltd. stepped up spending on power plants, Nedbank Group Ltd. said. The value of announced projects increased from 194 billion rand for the whole of last year, the Johannesburg-based lender, the country's fourth-largest bank, said in a report released.
The cost of goods leaving South African factories and mines rose at the fastest pace in 22 years last month, buoyed by surging fuel and electricity prices. Producer-price inflation accelerated to 18.9 percent from 16.8 percent in June, Pretoria-based Statistics South Africa said.

Zambia

Copper production in Zambia, Africa's leading producer of the metal, climbed 3.1 percent in June, the Bank of Zambia said, without providing reasons for the increase. Output climbed to 45,115 metric tons, from 43,766 tons a year earlier, the Lusaka-based bank said in a statement. Exports climbed to 50,824 tons, from 45,027 tons.

ASIA

China

China may have overwhelmed the United States -- not to mention the rest of the world -- in its quest for Olympic gold, but when it comes to trade China may be losing its edge. A spate of factors including a weak dollar, sluggish U.S. demand and high commodity prices have started to rebalance the trade accounts of both Beijing and Washington. Experts agree that is not necessarily a bad thing. The question is whether China can do the rebalancing without a hard landing. The exports that have helped to fuel 30 years of China's growth need to be balanced by more domestic consumption in the future. And policymakers who have focused on keeping growth at a breakneck pace now need to pay more attention to sectors that are more energy-efficient and pollute less. "China's trade surplus might come down significantly if the government is serious about rebalancing the economy, and it is something that we would like to see," Bin Zhang, an economist at the research centre for international finance at the Chinese Academy of Social Sciences, said in a report. "Whether that will happen depends on the authorities' political wisdom and will in fighting against certain interest groups," he added. Exporters have been lobbying for export rebates and slower yuan appreciation. Local governments and the Ministry of Commerce are on their side because they count on the export sector to create jobs.

Malaysia

Malaysia's Prime Minister Abdullah Ahmad Badawi, facing challenges to his leadership amid slowing growth and faster inflation, may cut taxes and put more cash in the hands of consumers to bolster support in his 2009 budget. Abdullah, 68, may propose income tax reductions, lower employee contributions to the national pension fund and cash handouts or rebates to the poor in his budget speech, according to economists surveyed by Bloomberg News.

Philippines

The Philippine central bank raised its benchmark rate to tame inflation, saying the economy is ``strong enough'' to withstand a third increase in borrowing costs since June. Bangko Sentral ng Pilipinas increased the rate it pays banks for overnight deposits by 0.25 percentage point to 6 percent, Governor Amando Tetangco told reporters in Manila.

South Korea

Bank of Korea played down on Wednesday the potential threat of a massive capital outflow from the country due to an unusually high amount of bonds maturing next month, but pledged to strengthen capital market monitoring. The central bank said foreigners, who hold $6.7 billion worth of won bonds due in September, were unlikely to take all the money out of the country and instead would probably reinvest much of it in the domestic bond market. "We don't expect (the maturing bonds) will play a destabilising factor in the currency and other financial markets," it said in a statement. The comments sought to dispel fears that the won , already hit by the current account deficit and foreign selling of local stocks, would plunge if foreigners flocked to convert proceeds from the maturing bonds into dollars next month. The central bank listed higher investment returns on South Korean bonds after recent rises in yields and easing liquidity crunch at global financial firms as some of the factors that should help keep foreign investors in the country. Analysts agreed, saying the chances of South Korea falling into a full-blown crisis were very low.

Thailand

Thailand's economic growth slowed more than expected in the second quarter, increasing the likelihood the central bank will soon stop raising interest rates. Southeast Asia's second-biggest economy expanded 5.3 percent in the three months ended June 30 from a year earlier after a revised 6.1 percent gain in the first quarter, the government said in Bangkok.
Two thousand Thai police took up positions around Bangkok's Government House on Wednesday, tightening the noose on protesters camping outside the prime minister's office to try to oust him from power. Following are five facts about the People's Alliance for Democracy (PAD), the motley group of royalist businessmen, academics and a retired major-general behind the movement.

• Founded in September 2005 by media proprietor Sondhi Limthongkul, a disgruntled former business associate of then Prime Minister Thaskin Shinawatra. Sondhi appeared in a Bangkok park to rail against Thaksin, accusing him of abusing his large parliamentary majority to further the business interests of his family and friends.

• The PAD swelled into a major anti-Thaksin street movement, especially when it hooked up with Major- General Chamlong Srimuang, an ascetic Buddhist who led a successful "people power" uprising against military rule in 1992. Its protests were key to the political turmoil that led ultimately to the 2006 coup against Thaksin. It has been targeting the current government since May 25, saying the government is an illegitimate Thaksin proxy.

• The PADs main draw card has been defence of the monarchy and 80-year-old King Bhumibol Adulyadej, regarded as semi-divine by many Thais, in the face of what they say is a bid by the Thaksin camp to turn Thailand into a republic. PAD protesters are routinely clad in yellow. In Thailand every day is marked by a different colour and yellow is the colour for Monday, the day on which the King was born. Thaksin and his supporters deny any challenge to the throne.

• There are major question marks over the PAD's motives and backers. Its contempt for the results of three elections comfortably won by Thaksin or his allies has led to suggestions it represents neither the people nor democracy. PAD says 70 percent of MPs should be appointed rather than elected. The alliance says it is funded by public donations. Analysts suspect it is also bankrolled by anti-Thaksin business interests, parts of the army or even factions within the palace.

• It has become something of a social phenomenon, stretching way beyond the rock-concert-like stage where they hold their daily rallies on a major Bangkok intersection. The PAD has a radio station, satellite TV channel, several sympathetic newspaper titles and a slick, popular website. It has also shown an uncanny ability to keep itself in the public eye and drive the domestic political agenda, jumping on issues such as a dispute with Cambodia over a 900-year-old Hindu temple to whip up anger against the government.

Vietnam

Vietnam trade deficit widened, but a slower pace in Aug. This may suggest that measures to cut import are succeeding, and ease concern of BOP crisis. Vietnam trade deficit up to Aug reached USD 16 bln, up 2.2x of the USD 7.3 for similar period last yr according to the General Statistics Office (GSO). Vietnam trade deficit in fact has been widening but at slower pace in May from slew of measures. For mth of Aug exports rose of USD 43.32 bln or 39% an unchanged pace of growth from revised Jan-Jul rate. Imports rose +54%, to USD 59.29 bln, dn from revised 58%.

EMERGING EUROPE & CIS

Baltic States

Fitch Ratings says in a special report that the Baltic states face a challenging and uncertain 12 months as they undergo a rapid macroeconomic adjustment in a difficult global economic and financial environment. All three countries have Negative Outlooks on their Long-term foreign currency Issuer Default ratings (IDR) of 'A' for Estonia, 'BBB+' for Latvia and 'A' for Lithuania. The agency expects the Outlooks and ratings to be driven by the nature and cost of the adjustment underway in the Baltic economies. "After years of strong, and ultimately unsustainable, growth fuelled by massive capital inflows and rapid credit growth, a necessary slowdown is underway in the Baltic economies. However, the downturn is sharp in Estonia and Latvia and they are at risk of recession, heightening downward pressure on creditworthiness," says Eral Yilmaz, Associate Director in Fitch's sovereigns group. Real year-on-year GDP growth has plummeted to a negative 1.4% in Q208 in Estonia from 4.8% in Q407 and to just 0.2% in Latvia from 8.1%. The slowdown in Estonia and Latvia has been led by a fall in investment, particularly into real estate, and private consumption, which has also slowed import growth. Credit growth has weakened and property prices have fallen around 20% in the past year. Lithuania's economic boom was more modest and, consequently, its imbalances are less marked. It is also experiencing a slowdown in real GDP growth, although it started later in Q307 and growth was 5.5% in Q208. Furthermore, inflation rates are high, wage growth is robust and external finances remain over-stretched. At 16.5% in July 2008, Latvia's year-onyear inflation rate was the highest in the EU while, Lithuania's (12.4%) and Estonia's (11.2%) were the third- and fourth-highest, respectively. Fitch forecasts Latvia's current account deficit at 18.2% of GDP in 2008, the secondlargest in the EU, Lithuania's at 14.5% and Estonia's at 12.7%.

Georgia

Georgia sold $187.2 million, or 12.8 percent of its foreign reserves last month, to prevent the lari from tumbling as the conflict with Russia spurred investors to withdraw funds from the country. The National Bank of Georgia sold the most dollars in August since it started compiling foreign-exchange data in January 1999, according to its Web site. Russia invaded the former Soviet republic on Aug. 8, leading to five days of fighting with its neighbor over the breakaway region of South Ossetia. The central bank's action, which included the sale of $12.9 million on the day of the incursion, helped limit the lari's loss against the dollar to 0.1 percent last month, said Vladimir Osakovsky, an analyst in Moscow at UniCredit SpA. ``The ruble tanked during all this, so imagine what would have happened to the lari,'' he said in an interview. ``The stable currency provided an anchor of financial stability amid the crisis.''

Hungary

Hungary's conservative opposition Fidesz continued to hold a commanding lead over the ruling Socialists, a survey by pollster Szonda-Ipsos published in daily Nepszabadsag on Monday showed. Among all voters, support for Fidesz remained at 32 percent while support for the Socialists, who rule in a minority government, rose to 19 percent from 18 percent. Support for the liberal Free Democrats, who quit government in April, was well below the 5 percent threshold needed to get into parliament.

Romania

Romania's faster-than-expected economic growth in the second quarter confirms central bank concerns about overheating and prospects for inflation, an advisor to central bank governor said on Monday. "Economic growth is very big. It shows inflationary pressures are very high," Lucian Croitoru, an advisor to central bank governor Mugur Isarescu, told Reuters. "This is just a confirmation of a concern, which the central bank has expressed repeatedly, that the economy is overheating and ... inflationary pressures are high ... A lot of it comes from the harvest, but ... there is also aggregate demand." Data showed on Monday that the Romanian economy expanded by 9.3 percent on the year in the second quarter, its fastest rate in almost four years.

Russia

Russian manufacturing contracted in August for the first time in almost four years as businesses won fewer new orders and companies cut jobs. VTB Bank Europe's Purchasing Managers' Index fell to 49.4 from 50.4 in July, the fifth consecutive monthly decline and the first contraction since November 2004, the bank said in an e-mailed statement. A figure above 50 indicates growth. The bank surveyed 300 purchasing executives. ``The major factor underpinning the weakening in activity has been a decrease in new orders, which fell for the first time in almost 10 years,'' said Dmitri Fedotkin, an economist at VTB Bank Europe Research, in the statement. Economic growth this year may miss the Economy Ministry's forecast of 7.8 percent as foreign investors pull money out and corporate borrowing costs rise as a result of international tension over Georgia, said Alexander Morozov, chief economist at HSBC Bank in Moscow, on Aug. 29.

Turkey

Tensions between Turkey's government and its powerful generals will continue clouding the future of the European Union-applicant country, after the new military commander warned against the rising profile of Islam. General Ilker Basbug laid bare in his first speech as commander of NATO's second-biggest army on Thursday the battle lines of a power struggle between the Islamist-rooted AK Party and the military, which sees itself as the ultimate guarantor of Turkey's founding secular principles. While his words repeated the military's long-standing policies, analysts said they also served as a reminder that despite setbacks the military was still a bulwark against what it views as attempts to bring religion into public life. Basbug, a hawkish and calculating general, takes command as Turkey hopes to put behind it a long standoff pitting secularists, including generals and judges, against the AKP. "There is nothing new in his words. The old battle lines are all there," said Cengiz Aktar, a professor at Istanbul's Bahcesehir University. "He will play the role of the wise man after the storm but at the end of the day he is just repeating the well-established policy of Turkey's armed forces," Aktar said. Analysts say Basbug, promoted to the top job after rising through the ranks, is less confrontational than his predecessor.

Ukraine

Prime Minister Vladimir Putin rejected suggestions that Russia may target pro-Western Ukraine after recognizing Georgia's breakaway regions. Russia has ``long recognized'' Ukraine's borders, Putin said yesterday in an interview with Germany's ARD television. He also said Russia will honor its oil- and gas-export contracts, and he repeated criticism of U.S. involvement in Georgia. The Crimea in southern Ukraine on the Black Sea, with its Russian-speaking population and a Russian naval base, ``is not a disputed territory,'' and didn't have an ethnic conflict, as South Ossetia had, the former Russian president said. His comments were posted on the Russian government's Web site. French Foreign Minister Bernard Kouchner said Aug. 28 he assumes that Ukraine and Moldova are the next ``Russian targets'' after the Kremlin recognized the independence of Georgian breakaway regions South Ossetia and Abkhazia. Ukraine, like Georgia, has allied with the West and is seeking to join the North Atlantic Treaty Organization. The U.S. has long seen Georgia and Ukraine as counterweights to Russia's influence in the region.

INDUSTRIAL COUNTRIES

Iceland

Icelandic inflation accelerated in August, pushing the annual rate to its highest level in 18 years, data from Statistics Iceland showed Wednesday. Iceland's consumer price index increased 0.9% on a monthly basis, making the yearly rise 14.5% - the highest level since the 15.5% rate in July 1990. In July, the index also rose 0.9% on the month and was 13.6% higher on the year.

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Published on  Mon, Sep 1 2008, 11:21 GMT