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Emerging Markets Weekly

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27

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China's export growth slowed as the global financial crisis cut demand

Mon, Nov 17 2008, 10:47 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

LATIN AMERICA

Brazil

Brazil's inflation expectations are rising as a ``sharp'' depreciation of the local currency fuels wholesale and industrial prices, according to Deutsche Bank AG. Deutsche economists cited recent government reports, including yesterday's weekly central bank survey of economists that showed inflation expectations for year-end 2009 rose to 5.20 percent, more than the 5.06 percent forecast last week.

Chile

Chile's central bank kept its benchmark interest rate unchanged, betting the ``drastic'' deterioration of the global economy will help tame the fastest inflation in 14 years. Policy makers, led by central bank President Jose De Gregorio, held the overnight rate at 8.25 percent, in line with forecasts from 19 of 25 economists in a Bloomberg survey.

Colombia

Peru and Colombia split from the Andean Community bloc to negotiate separate free-trade agreements with the European Union, Peruvian state news agency Andina reported. The countries decided to hold separate EU trade talks today after fellow Andean Community members Ecuador and Bolivia made little progress in negotiations, Andina said, citing Peru's Foreign Minister Jose Garcia Belaunde.

Ecuador

Standard & Poor's and Moody's on Friday downgraded Ecuador's credit ratings, saying the country's decision not to pay the coupon on its global 2012 bonds next week signals its unwillingness to keep servicing debt.
Ecuador President Rafael Correa's looming default on $510 million of bonds may hurt his biggest ally, Venezuela President Hugo Chavez, more than anyone else. Ecuador, hamstrung by a tumble in oil, its biggest export, said last week it will use a 30-day grace period to decide whether to make a $30 million interest payment that came due Nov. 15. Chavez's government owns structured notes tied to Ecuador's bonds that would force Venezuela to pay $800 million if Correa doesn't make the payment, according to estimates by Barclays Capital Inc.

Venezuela

Venezuela's benchmark oil price fell to its lowest since January 2007, adding pressure on an economy already suffering from slowing oil income. The Venezuela basket, an average of prices of oil and refined products exported by the South American country, dropped $6.61, or 13 percent, to $46.35 a barrel this week, the Ministry of Energy and Oil said on its Web site. The price has declined by more than half since the end of September. The country's 2009 budget is based on an average oil price of $60 a barrel and production of 3.6 million barrels a day next year.

AFRICA & MIDDLE EAST

Qatar

Qatar Investment Authority, the country's $60 billion sovereign wealth fund, plans to make more real estate acquisitions in 2009 as global prices decline and investors sell assets. ``We are looking for prime properties in major cities at distressed prices,'' said Navid Chamdia, the authority's head of real estate, in an interview at the Real Estate Investment World conference in Tokyo. ``We will continue to invest in attractive assets we are comfortable with.''

South Africa

Standard & Poor's cut its outlook for South African ratings to negative from stable on Tuesday on concerns about a large current account deficit and slowing world growth. The revision follows a similar move by Fitch on Monday as the impact of the credit crisis filters through to an emerging market sector that has already seen IMF bailouts for Hungary and Ukraine, with others set to follow. S&P said in a statement that South Africa's banks had limited exposure to the global financial crisis and should cope with an increase in bad debts as households struggle to cope with high interest rates and inflation. But the economy would feel the impact of a global slowdown. "The outlook revision reflects pressures on South Africa's balance of payments, which increase the risk of further currency depreciation and a sharper-than-anticipated correction in the current account deficit...," S&P analyst Remy Salters said. "The negative outlook reflects the increasing weight of short-term macroeconomic risks to our base case," Salters said. The ratings agency affirmed South Africa's "BBB+/A-2" foreign currency and "A+/A-1" local currency ratings.

ASIA

China

China's export growth slowed as the global financial crisis cut demand, adding to the risk of a slump in the world's fourth-largest economy. Exports climbed 19.2 percent in October from a year earlier after gaining 21.5 percent in September, the customs bureau said in a statement on its Web site. The trade surplus swelled to a record $35.2 billion as import growth weakened. China's economy, the biggest contributor to global growth, has slowed for five straight quarters, expanding 9 percent in the three months through September. The government has pledged 4 trillion yuan ($586 billion) of spending to sustain growth through 2010 and switched to a ``relatively loose'' monetary policy.
China's retail sales rose 22 percent, close to the fastest pace in nine years, signaling that domestic demand may help the fourth-biggest economy through the worst financial crisis since the Great Depression. Sales climbed to 1.008 trillion yuan ($148 billion) in October, the statistics bureau said, after gaining 23.2 percent in September from a year earlier.
China's inflation cooled to the slowest pace in 17 months, making further interest-rate cuts more likely as the world's fourth-biggest economy loses steam. Consumer prices rose 4 percent in October from a year earlier, the statistics bureau said today, after gaining 4.6 percent in September. Food rose 8.5 percent, the smallest increase since May 2007.

Indonesia

The Indonesian rupiah will fall to its lowest since 1998 in the next three months as a decline in foreign-exchange reserves limits central bank intervention, according to Credit Suisse Group AG. The rupiah, Asia's worstperforming currency in the past month, will slide 5.6 percent to 12,500 per dollar, as exports slump, Switzerland's second-biggest bank said in a report first published on Nov. 4 and also mentioned in a note to clients.
Indonesia's economy grew at the slowest pace in six quarters as declining prices of palm oil, rubber and coal reduced the value of exports. Southeast Asia's largest economy expanded 6.1 percent in the third quarter from a year earlier, after growing 6.4 percent in the preceding three months, the Central Statistics Bureau said in Jakarta.

Malaysia

Malaysia's industrial production fell for the first time in 18 months in September as a global economic slump hurt demand for manufactured goods. Production at factories, utilities and mines dropped 1.7 percent from a year earlier after a revised 1.2 percent gain in August, the Putrajaya-based Statistics Department said in a statement. Economists expected a 0.6 percent increase. Malaysia's government last week slashed its growth forecast for 2009 to an eight-year low of 3.5 percent and predicted a decline in exports next year as the worst financial crisis since the Great Depression pushes economies from Singapore to New Zealand into recession.

Pakistan

Standard & Poor's cut its sovereign ratings on Pakistan further into "junk" territory on Friday, highlighting the country's difficulty in raising the money that it badly needs to avoid defaulting on its debt obligations. It marks S&P's second downgrade of Pakistan's ratings in as many months. Friday's downgrade comes even after the country's top economic adviser said late on Thursday it expected the International Monetary Fund (IMF) and other lenders to provide billions of dollars in loans soon, and China to pitch in with $500 million. To debt investors Pakistan's most pressing obligation are $500 million in bonds maturing in February 2009. The risk of default on that and other obligations have sent the cost of insurance in Pakistani debt soaring this year.
The Pakistani rupee firmed slightly on Monday, following the government's agreement with the International Monetary Fund (IMF) for a $7.6 billion emergency loan, dealers said. The rupee was quoted at 79.90/80.00 to the dollar at 1:21 p.m. (0821 GMT), having opened little changed from Saturday's close of 80.15/25. Dealers said they expected the rupee to stabilise, at least in the short term, following the IMF accord, having already lost 23 percent against the dollar this year as a balance of payments crisis developed. "The rupee should be seen stabilising in the short term on improvement in sentiment," said a currency dealer. The IMF said on Saturday its executive board is expected to meet shortly on the 23-month standby credit after IMF and Pakistan agreed on a reform programme.

EMERGING EUROPE & CIS

Belarus

Belarus's central bank will scrap a recommendation limiting commercial banks' interest rates to no more than three percentage points above its key refinancing rate as of next year, the bank said on Tuesday. "This decision was taken so that banks could react to the changing situation faster ... The situation on financial markets is changing very quickly at the moment," Anatoly Drozdov, the central bank's chief spokesman, told Reuters. Although this had been only a recommendation, commercial banks never set interest rates above the limit. On Monday, the central bank raised its refinancing rate to 11 percent from 10.75 percent. Ex-Soviet Belarus is currently seeking an International Monetary Fund loan of about $2 billion as a "precautionary measure" against the impact of the global financial crisis.

Bosnia

Bosnia will discuss a possible stand-by loan with the IMF as a cushion against further economic troubles, one of the country's three finance ministers said on Tuesday. "In the talks with the IMF, they will help us in focusing on resources that are needed for the economy if we need it," Vjekoslav Bevanda, finance minister of the Muslim- Croat half of Bosnia, said in an interview in Vienna where he was attending an economic forum. The International Monetary Fund (IMF) mission will arrive on Wednesday on a one-week regular staff visit to Bosnia and talk to officials in the central government and the country's two regions, the Muslim-Croat federation and the Serb Republic. Bosnia was divided after its 1992-95 war into the two regions which are linked through a central government with limited powers.

Hungary

Hungary is ready to implement new spending cuts if they are necessary to defend its plan to slash the budget deficit and adopt the euro as soon as possible, Economy Minister Gordon Bajnai said on Thursday. As part of the $25.1 billion agreement with the IMF and the European Union, the Socialist government agreed to cut public sector spending by 320 billion forints ($1.52 billion), or over 1 percent of gross domestic product. Hungary launched an economic stimulus package Thursday to lift it out of recession but tight budget controls mean there will be no new spending. Bajnai said the spending cuts, affecting public sector wages and pensions, would not be reversed and could be followed by more if necessary. "We cannot let the grass grow back," he told Reuters in an interview. "We have to do what is necessary. If the situation is more severe (than currently anticipated), we need to go further," he said. The government believed, however, that the spending cuts together with the IMF package would be enough to stabilise the economy and protect the Hungarian currency, the forint, against capital outflows. "We believe we have produced quite a conservative plan... and (with the IMF loan) we have built a huge barrier against speculating on Hungary's failure," he said.

Kazakhstan

Kazakhstan's gross domestic product growth slowed to 3.9 percent year-on-year in January-September 2008 from 9.7 percent in the same period of 2007, the state statistics agency said on Friday. The figure was essentially in line with a previous government estimate of 4.0 percent for the period. The Central Asian state's government, which has blamed the slowdown on the global credit crunch, sees full-year GDP growth at 5.0 percent, half of the average rate recorded since 2000 thanks to booming prices for its exports, oil and metals.

Latvia

Fitch Ratings has downgraded Latvia-based Parex Banka's (Parex) Long-term Issuer Default Rating (IDR) to 'BB' from 'BB+' and Individual rating to 'F' from 'C/D'. In addition, Fitch has placed the Long-term IDR on Rating Watch Negative. The senior unsecured ratings are also downgraded to 'BB' and put on Rating Watch Negative. Fitch has affirmed the bank's Short-term IDR at 'B', Support rating at '3' and Support Rating Floor at 'BB'. The rating action follows the nationalisation of the bank (51% of total shares) after the bank's application for support from the government as a result of resident and non-resident deposit withdrawals between Oct. 1st and Nov. 7th that amounted to 12% of total customer deposits. It also follows the downgrade of the sovereign ratings of Latvia today to Long-term foreign IDR 'BBB-' (BBB minus) from 'BBB', Long-term local currency IDR 'BBB' from 'BBB+' and Country Ceiling to 'A-' (A minus) from 'A'. The ratings are now at the support rating floor and reflect the support Parex received from the government in the form of liquidity injection and guarantee of EUR775 million of syndication loans that are coming due in 2009 (EUR275 million in February 2009 and EUR500 million in June 2009). The government is also looking to sell the bank to a strategic investor; however, Fitch believes it will be difficult given the current global operating environment. The Individual rating reflects Fitch's opinion that if the bank had not received support from the government it would have defaulted.

Romania

Romania's centrist Liberal government on Wednesday unveiled measures meant to prop up economic growth but further loosen the fiscal policy it would pursue if it wins a Nov. 30 parliamentary election. "We will continue to cut taxes," Prime Minister Calin Tariceanu, whose party ranks third in opinion polls with 17-18 percent, told reporters after a cabinet meeting. The plan includes slashing social insurance contributions by 10 percentage points over a four-year horizon. It also envisages a 5 percent discount in income and profit tax for households and corporations that pay dues in time and a 1,000 euro payment for every jobless person a company hires. State aid would be up to 50 million euros for any investment of over 100 million euros that creates 500 jobs. For a smaller investment, aid could be up to 28 million euros. The plan includes subsidies for farming and social housing and envisages the creation of a state institution to monitor implementation of projects to absorb European Union funds.
Romania said it has endorsed a 250-million euro ($312.9 million) capital hike of the wholly state-owned CEC Bank to support small and medium-sized enterprises and farm producers. The hike is part of a 10 billion euro package of government measures to help the Romanian economy deal with the impact of the global financial crisis, Prime Minister Calin Popescu Tariceanu told journalists on Wednesday evening.

Serbia

The International Monetary Fund extended a $516 million lifeline to Serbia on Friday, but officials said the economy would slow to less half this year's clip in 2009 on the back of weaker exports and low savings. Serbia argues it is in a different situation from Ukraine and Hungary, rescued by the IMF last month, but its dinar currency and foreign exchange reserves have slumped as the economic crisis gathered speed and investors fled risky emerging markets. In response to the stand-by loan, which Belgrade says it will tap only if necessary, Serbia has pledged to slash its 2009 budget spending to better prepare itself to weather the global economic storm -- reforms the IMF said were vital.

Turkey

Turkey's current-account deficit narrowed in September for the first time in 16 months as a weaker lira helped push up exports and ease import growth. The deficit contracted to $900 million from $2.3 billion in September 2007, the central bank in Ankara said on its Web site.
Standard & Poor's Ratings Services said that it revised its outlook on the Republic of Turkey to negative from stable. Standard & Poor's also said that it affirmed its 'BB-/B' foreign currency and 'BB/B' local currency sovereign credit ratings and its 'BB+' transfer and convertibility assessment on the republic. In conjunction with the rating action on the sovereign, Standard & Poor's also revised its outlook on Export Credit Bank of Turkey to negative from stable and affirmed its 'BB-/B' foreign currency credit rating on the bank. "The outlook revision follows a shift in the balance of risks to the downside as external financing conditions remain difficult," explained Standard & Poor's credit analyst David T. Beers. "Although we expect Turkey's current account to narrow in 2009 from a projected deficit of 7.3% of GDP in 2008, 2009 gross external financing needs will exceed 140% of 2009 current account receipts plus usable international reserves. This is one of the higher ratios among emerging market countries." The bulk of this external funding requirement stems from banks and corporations.
The International Monetary Fund had not reached an agreement for a new loan deal to help Turkey weather a global credit crisis, but a package was close, Managing Director Dominique Strauss-Kahn said on Saturday. Strauss-Kahn told a press conference after a G20 summit of leaders here that he had met with the Turkish Prime Minister Tayyip Erdogan on Friday and emphasized that the country's situation required attention. "We still have some disagreement on the size of their adjustment, the consequences of the adjustment which is needed by the Turkish economy, and following that, the size of the package of the program that the Fund may finance," he said. "But I am confident that rather rapidly, it will be possible to find an agreement to stabilize the situation in Turkey. Turkey is a great economy with great prospects."

INDUSTRIAL COUNTRIES

Iceland

Iceland said on Sunday it had reached a deal with several European Union states on how to repay thousands of foreign savers with money in frozen Icelandic accounts, potentially unlocking billions of dollars in aid. Conflicts over the accounts between Iceland, which is not a member of the EU, and EU states Britain and the Netherlands have been delaying an International Monetary Fund-led package worth as much as $6 billion for the crisis-hit country. "What this means here and now is that the IMF will now discuss our case on Wednesday and, following that, we expect that our application will lead to release of the funds we have negotiated with them," Prime Minister Geir Haarde said according to a government website. "According to the agreed guidelines, the government of Iceland will cover deposits of insured depositors in the Icesave accounts in accordance with EEA (European Economic Area) law," the Icelandic government said in a statement, saying this "common understanding" would form the basis for more talks.

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Published on  Mon, Nov 17 2008, 10:59 GMT