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Emerging Markets Weekly

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China's inflation weakened to the slowest pace since June 2007 and export growth cooled

Mon, Sep 15 2008, 08:54 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

LATIN AMERICA

Argentina

Argentina will buy back up to 100 million pesos ($33 million) worth of local bonds tomorrow to shore up the debt, the Economy Ministry said in a statement. The buyback is part of the government's plan announced last month after bonds plunged on concern tax revenue growth is slowing and inflation is accelerating.

Brazil

Brazil's economy had its second fastest expansion in four years in the April-through-June period, cementing expectations policy makers will raise interest rates to the highest in two years when they meet later. Gross domestic product, the broadest measure of a country's production of goods and services, grew 6.1 percent from a year earlier, beating all forecasts in a Bloomberg survey of 36economists whose median estimate was 5.5 percent. Growth accelerated from the revised 5.9 percent pace in the first quarter, the national statistics agency said.

Chile

Chile's trade surplus narrowed less than economists expected last month as export growth accelerated. The surplus narrowed to $780 million in August from $1.7 billion in July, the central bank said. Exports rose 22 percent to from a year earlier to $6.3 billion, the fastest annual pace since last October, while imports rose 33 percent from a year ago to $5.5 billion, the slowest annual pace since March.
Chile's inflation rate will end 2008 at 8.5 percent, more than the 8.0 percent forecast last month, according to a monthly central bank survey of economists. The inflation rate will end 2009 at 4.9 percent, compared with a forecast of 4.5 percent made a month earlier, according to the median estimate of 31 economists in the Sept. 2-8 poll published on the central bank's Web site.

Colombia

Colombia's President Alvaro Uribe said economic growth could slow to under 4 percent this year, an ``unpleasant surprise,'' that cannot be ruled out. Uribe said that without an interest rate cut the economy could slow more than expected and hinder job creation, according to comments e-mailed last night. The unemployment data in July was ``a warning signal,'' Uribe said. The government forecasts economic growth of 5 percent for 2008. The central bank should consider cutting the overnight interbank rate, which stands at 10 percent after 16 increases since April 2006, Uribe said. Colombia's inflation rate is among the lowest in Latin America ``despite recent increases.'' Annual inflation quickened to 7.87 percent in August, above the central bank's target range of 3.5 percent to 4.5 percent.

Ecuador

Ecuador signed an accord with Iran for the middle-eastern country to help with the renovation and building of refineries and the construction of a petrochemical plant, the Iranian Oil Ministry said. Ecuador's Mines and Oil Minister Galo Chiriboga and Iranian Oil Minister Gholamhossein Nozari signed a letter of understanding to ``expand cooperation in the oil industry,'' the official news agency Shana reported on its website. In addition to the cooperation on refineries and the petrochemicals plant, Iran has also said it will help train Ecuador's oil industry employees, Shana said.
Ecuador's economy will likely expand 5.2 percent in 2008, central bank President Carlos Vallejo said. The county's economy will accelerate from the first quarter's 1.3 percent expansion, Vallejo said in Quito, and the economy may grow as much as 8 percent in 2009. The bank's president also said that the government wasn't considering dropping dollarization.

Peru

Peru had a $300.4 million trade surplus in July, the country's national statistics institute said in an e-mailed report. Exports rose 11.7 percent from a year earlier to $2.98 billion. Imports jumped 55.9 percent to $2.68 billion, the agency said. The trade balance was higher than the $250 million median estimate in a Bloomberg survey of 11 economists.
Peru's central bank President Julio Velarde raised the overnight lending rate for the seventh time in 12 months in a bid to slow the fastest inflation in a decade. The bank increased borrowing costs by a quarter percentage point to a seven-year high of 6.5 percent, as forecast by 14 of 16 economists in a Bloomberg survey. Annual inflation in Peru is more than double policy makers' target of no more than 3 percent.

Venezuela

Venezuelan President Hugo Chavez is welcome to fly on one of two Russian strategic bombers that landed in Venezuela yesterday, a Russian air force commander said. ``If they ask nicely, we'll ensure him a safe ride and give him a bird's eye view of the Caribbean,'' Gen. Pavel Androsov, the head of Russia's long-range air force, said in Moscow today in comments posted on the Web site of state broadcaster Vesti 24. The TU 160 planes will conduct training flights for several days over neutral waters, the Russian Defense Ministry said.

AFRICA & MIDDLE EAST

Egypt

Egypt's balance of payment surplus in the fiscal year that ended June 30 rose 1.9 percent to $5.4 billion, Al- Ahram newspaper reported, citing Central Bank Governor Farouk Okdah. The balance of payment was boosted by an increase in revenue from tourism, the Suez Canal and remittances from abroad, the Cairo-based state-run newspaper reported.
Egyptian inflation accelerated to an annual 23.6 percent in August, the fastest pace since 1992, putting pressure on the central bank to increase interest rates for a sixth time this year. Urban inflation accelerated from 22 percent in July, the Cairo-based Central Agency for Public Mobilization and Statistics said in a faxed statement.

Kenya

Kenya's inflation rate may drop below 20 percent by January and continue to fall next year, the central bank said. Inflation was being driven by ``supply-side shocks'' such as higher food and oil prices, and not growth in money supply, central bank Governor Njuguna Ndung'u said in an e-mailed statement from Nairobi. As a result, using ``central bank instruments'' to curb inflation won't be effective, he added. ``Inflation is not spiraling out of control and the economy is in robust shape,'' Ndung'u said. Kenya's inflation accelerated to 27.6 percent last month from 26.5 percent in July, mainly as a result of higher electricity tariffs and fuel prices. The Central Bank of Kenya left its benchmark interest rate unchanged at 9 percent on Aug. 6, after raising it by a quarter point in June.

Nigeria

Nigeria plans to sell sovereign bonds worth $500 million to provide funding for infrastructure projects, Information Minister John Odey said. Approval for the 10-year bonds, to be raised from the international capital market, was given yesterday by President Umaru Yar'Adua's government, Odey said on state-owned Nigerian Television. ``It would be a means of raising substantial capital needed to finance infrastructure,'' Odey said. ``Also, a sovereign bond issuance will serve as benchmark for subsequent issues by the federal government.''
Nigerian militants said they destroyed Royal Dutch Shell Plc's Soku gas plant and Chevron Corp.'s Kula oil pumping station in overnight attacks. The Movement for the Emancipation of the Niger Delta, or MEND, said in an e-mailed statement that it had also attacked other oil facilities.

South Africa

South African manufacturing growth slowed to an annual 3.3 percent in July as higher interest rates damped consumer spending. Growth in factory output, which accounts for 16 percent of the economy, eased from a revised 5.7 percent in June, Pretoria- based Statistics South Africa said on its Web site. Output fell a seasonally adjusted 0.4 percent in the month. Sales of cars and furniture have tumbled after the central bank began increasing the benchmark interest rate to cap inflation, raising it six times to 12 percent since June 2007.

ASIA

China

China's inflation weakened to the slowest pace since June 2007 and export growth cooled, adding to speculation the government will cut taxes and ease loan restrictions to spur the world's fourth-largest economy. Consumer prices rose 4.9 percent in August from a year earlier, less than economists estimated, after gaining 6.3 percent in July, the National Bureau of Statistics said. Exports rose 21.1 percent in August, down from July's 26.9 percent gain, the Customs Bureau said. Stocks rose on expectations China may lower taxes, slow the pace of the yuan's appreciation and ease lending restrictions to protect jobs at exporters and small businesses after four quarters of slowing economic growth. Cooling inflation also leaves more room to raise state-controlled energy prices and reduce subsidies. ``The good news is that the price pressures that have been bothering China over the past 18 months have been decisively subdued,'' said Tao Dong, chief Asia economist at Credit Suisse Group AG in Hong Kong. ``The bad news is that perhaps this reflects the economy has slowed more than the government bargained for.''

Philippines

The Philippines may likely opt not to issue more sovereign debt this year and cut its domestic borrowings for the rest of the year due to its healthy cash position, National Treasurer Roberto Tan said on Tuesday. "We will study our cash position," Tan told reporters. "Right now, we have healthy levels." Tan said the government would make a final decision on its overseas borrowings for the rest of 2008 by the end of the month or early October.
Remittances from Philippine citizens working overseas rose at a slower pace in July. Money sent back to the Philippines increased 24.6 percent from a year earlier to $1.37 billion, the central bank said in a statement in Manila. Remittances grew 30 percent in June.

South Korea

North Korean leader Kim Jong-il fell seriously ill in April, sometimes losing consciousness at work and unable to rule on important policy matters, the Mainichi daily reported on Sunday, citing a "reliable" Chinese source. The Japanese newspaper said Kim's poor health was apparently behind the lack of flexibility in North Korea's recent attitude towards the six-party dialogue over its nuclear programme. Kim, 66, had been making all decisions on the country's nuclear policy, the source told Mainichi, and after his health worsened there was no one who could make major diplomatic moves. This raised speculation that hard-line military figures had increased their clout in the leadership ranks. North Korea's official media had reported no public appearance by the reclusive "Dear Leader" since mid-August, but Kim's failure to attend last Tuesday's triumphal military parade marking the state's 60th anniversary made worldwide headlines. Speculation swirled that he had suffered a stroke, was gravely ill or even that he had been dead for years and replaced by lookalikes for state occasions.

Thailand

Following are five facts about Thailand's new Prime Minister-in-waiting, Somchai Wongsawat:

- Somchai, 61, is best known as the brother-in-law of former prime minister Thaksin Shinawatra, ousted in a coup two years ago. Somchai's wife, Yaowapa Wongsawasdi, was an influential MP in her older brother's Thai Rak Thai party before it was disbanded after the putsch.

- A law graduate and appeals court judge, most of his top government experience was as Permanent Secretary of the Justice Ministry from 1999 to 2006 and then briefly in the same position at the Labour Ministry. He served as Education Minister and Deputy Prime Minister in the cabinet of Samak Sundaravej, who was sacked last week by the Constitutional Court.

- His relationship with Thaksin has led to frequent cries of nepotism, especially when several justice ministers with whom he clashed lost their jobs. He countered such accusations by noting his Justice Ministry appointment came two years before Thaksin came to power.

- As well as his senior positions within the bureaucracy, he also sat on the board of several state-owned firms, including Airports of Thailand, national petroleum company PTT and Krung Thai Bank.

- Bespectacled and softly-spoken, Somchai has seldom had to endure the glare of the television cameras and appeared nervous and unsure of himself as he chaired a People Power Party (PPP) news conference last week.

EMERGING EUROPE & CIS

Hungary

Hungary's inflation slowed more than expected in August creating some room for the central bank to ease monetary policy but analysts said the bank will likely maintain its wait-and-see approach in the near term. Consumer price inflation slowed to 6.5 percent in August from 6.7 percent in July and came below analysts' forecast for 6.65 percent on falling food and car fuel prices. Hungary's data mirror Czech figures released on Monday which showed inflation slowed on a decline in food and fuel price rises, while prices rises in neighbouring Slovakia are also expected to have peaked after a surge. "In the upcoming months the central bank could stick to its wait-and-see approach, but if inflation data does not disappoint during the autumn months and markets remain stable, the first cut could come as early as November," CIB Bank analyst Mariann Trippon said.

Kazakhstan

Kazakhstan's government aims to double the size of the $100 billion economy through 2011, the Economy Ministry said today. Gross domestic product will rise to 24.13 trillion tenge ($201.8 billion) in 2011 from 12.85 trillion tenge last year, the ministry said in an e-mailed statement. The economy has grown an average 10 percent a year since 2000 as surging oil prices sparked a construction boom. GDP expanded 5.4 percent this year through June, half the pace of the same period last year, as banks curtailed lending because of the global tightening of credit. The expansion in Kazakhstan, which borders Russia, China and the Caspian Sea and holds 3.2 percent of the world's proven oil reserves, will be between 5 percent and 7 percent a year, taking into account a Brent crude oil price of $60 per barrel, the ministry said.

Romania

Romania's centrist opposition Democrat-Liberal Party (PD-L), front runner for the Nov. 30 general election, pledged on Friday to prepare the country for euro adoption by 2014 and keep its flat tax, while boosting welfare. Policy-makers in Romania struggle to shore up public finances and fight a vast trade gap and inflation, while easing poverty and improving ramshackle infrastructure and public services. All leading parties are promising to raise spending on the poorest, increase state pensions and oversee fast wage growth, despite economists' warnings that such measures could destabilise the overheated economy in the long-term. At the same time, there is little discussion over changing Romania's 16 percent tax rate or delaying euro entry targets, even though analysts say these goals will require additional fiscal austerity. "Our living standards are far behind the EU," said Theodor Stolojan, 64, a former prime minister and the PD-L candidate for premier. "And vulnerability is increased because of the imbalances in foreign trade and a pick-up in inflation." The PD-L, closely linked to centrist President Traian Basescu, is hoping to return to power after its coalition with the ruling Liberal Party of Prime Minister Calin Tariceanu collapsed last year amid policy disagreements. Opinion polls show its popularity at nearly 40 percent, which would allow the party to win the election by a narrow margin, but without gaining majority in parliament that would allow it to govern alone.

Russia

Russia could invest up to half of its National Wealth Fund (NWF) in shares plus a further 30 percent in corporate bonds, including ones from emerging markets, Deputy Finance Minister Dmitry Pankin said on Monday. "If the financial strategy will be adopted according to our proposal...we can see that we have a substantial amount of money for 10-15 years to be invested in long-term instruments. In that case, up to 40-50 percent could be invested in shares," Pankin said at the Reuters Russia Investment Summit. "And a substantial proportion could be invested in corporate bonds, maybe 30 percent," he said. The Finance Ministry must submit its proposals for NWF's investment strategy to the government by Oct. 1. It has already suggested that NWF will contribute 0.6 percent of GDP per year to support the pension system. Pankin said that over the long term, shares provided higher returns than government debt, and that income could further be boosted through geographical diversification. "My feeling is that it could be possible to include not only G8 shares and G8 currencies, but a wider area, including emerging market equity and currencies," he said. "If we have a portfolio with a huge variety of different instruments, it's possible to get the same level of risk...with a higher return. It would be reasonable to include a high variety of different instruments: maybe derivatives, why not." He did not exclude the possibility of some of the fund being used for direct rather than portfolio investments, but said that would not be more than five percent of the total cash pot. The NWF could grow to around $100 billion by year end, depending on the oil price, according to Pankin, from $31.9 billion at the start of this month. He said that the fund could start making its first purchases under the new investment strategy as soon as the first half of next year, and that it would likely take about six months to set up an agency to run the scheme. The agency would likely employ around 50 people, and will assess which Russian and international investment banks should be hired to manage the money.
Russia's economy expanded at a slower pace in the second quarter as high borrowing costs crimped industrial output and the strong ruble hurt domestic producers. Gross domestic product grew 7.5 percent, compared with 8.5 percent in the previous three-month period, the Moscow-based Federal Statistics Service reported in an emailed statement. The figure is not seasonally adjusted. The median forecast of 10 economists surveyed by Bloomberg was for growth of 7.6 percent. The economy grew 8.1 percent in the second quarter of 2007.
Investors in Russia have withdrawn about $35.3 billion since the country invaded neighboring Georgia and waged a five-day war, sending stocks, the ruble and government bonds lower, BNP Paribas SA said. Russia sent troops into the former Soviet republic on Aug. 8 after reports Georgian troops had attacked Russian peacekeepers and citizens in the breakaway region of South Ossetia. The ruble fell 5.2 percent against the dollar in August, its biggest monthly drop in more than nine years, and the dollar-denominated RTS stock index has tumbled 25 percent since the invasion.

Turkey

Turkey's economy grew at the slowest pace since the country emerged from a recession six years ago as higher interest rates and the threat of political instability hurt consumer spending. Gross domestic product growth slowed to 1.9 percent from a revised 6.7 percent in the previous quarter, the state statistics office in Ankara said on its Web site. The economy was expected to expand by 3.7 percent, according to the median estimate of 15 economists surveyed by Bloomberg. The pace of growth in the European Union membership candidate slowed as the global credit squeeze damped demand in export markets and the central bank added to the cost of borrowing.

Ukraine

The European Union pledged to tighten economic and political ties to Ukraine, while refusing to put the crisiswracked ex-Soviet republic on a path to join the bloc. French President Nicolas Sarkozy, representing the EU, made the offer to Ukrainian President Viktor Yushchenko, now locked in a power struggle with his own prime minister that may determine whether Ukraine embraces Western democracies or falls under Russia's sway. EU leaders said the outreach is designed to help create a western anchor for the country of 46 million people in the wake of Russia's efforts to recover regional influence that evaporated after the Cold War.
Ukraine has contracts in place to ship Caspian oil to domestic refineries and to European markets, a presidential aide said, rejecting government claims that the project is unworkable. ``Agreements have been reached between Ukrainian representatives and oil suppliers'' to send Caspian crude through the Odessa-Brody pipeline, Bohdan Sokolovskyi, the presidential official responsible for energy security, said at a press briefing in Kiev. Disputes in Ukraine over using the link are damaging the country's reputation as a reliable energy supplier, he said.

INDUSTRIAL COUNTRIES

Iceland

Iceland's central bank left interest rates steady at a record 15.5 percent on Thursday and said it would keep policy tight until it saw decisive signs soaring inflation had begun to fall towards target. Fresh growth figures, which showed the economy rebounded in the second quarter, gave support to the firm stance and the central bank said inflation -- at 14.5 percent in August -- could take longer to fall back than it had thought in July. Investors watch Iceland's economy closely because, although it is relatively small in global terms, its high interest rates attract volatile investment flows. "It is necessary to keep the policy rate high until inflation and inflation expectations have begun to move decisively toward the inflation target," the central bank, Sedlabanki, said in a statement.

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Published on  Mon, Sep 15 2008, 09:41 GMT