Macro outlook
While the market’s attention is still firmly fixed on the European debt crisis and, in particular, tomorrow’s European Summit, the EMEA calendar for next week sees a number of economic data releases of interest scheduled.
In Turkey, we look for the economic activity levels to have remained robust in the third quarter of this year, though we expect the speed of expansion to have decelerated. We see domestic demand and credit growth both gradually slowing and allowing the economy to rebalance, albeit the signs of this rebalancing have been fairly moderate. In this light, we forecast the economy grew around 7% y/y in Q3, down from 8.8% y/y in Q2.
Next week also sees the release of headline inflation by three EMEA countries. In South Africa, we look for the CPI to have accelerated above the South African Reserve Bank’s (SARB) inflation target band of 3-6% and forecast the November print will come out at 6.2% y/y, up from September’s 6% y/y and thereby further reducing any probability of rate cuts by the SARB in the near future. Our estimate is near the consensus view of 6.3% y/y.
In Poland, we look for price growth to have accelerated in November, as the weak zloty begins to spur higher prices. In particular, we look for the month of November to show headline inflation growth of 4.3% y/y, just below consensus of 4.5% y/y.
Inflationary pressures are also becoming more visible in Hungary, where, similarly to Poland, a severely weaker forint is beginning to pass through to inflation. Our estimate is for prices to have grown by 4% y/y in November, up from 3.9% y/y a month earlier. The current consensus view is a little higher and stands at 4.2% y/y.
Special: Russian elections
How much can you cheat?
Parliamentary elections held in Russia last Sunday have had surprising consequences. Although we were not surprised by the result itself, with the ruling party United Russia losing a lot of support (see Flash Comment: Russia: United Russia loses support but secures a majority, 5 December), but we have been somewhat surprised by the general dissatisfaction with the electoral violations. Usually, Russians are more amused and frustrated than angry with the clumsy violations but this time the elections seem to have been seriously flawed in Moscow too. Whereas exit polls pointed at some 25-30% support for United Russia, the result was 47% of the vote for the ruling party. In Moscow oblast, the area surrounding the city, United Russia received 33% of the vote, while in St Petersburg the figure was 35% and in Leningrad oblast 34%, clearly a lot closer to the true support of the party.
The current regime has now crossed the line of how much cheating the people can tolerate. Some demonstrations have already been organised in Moscow and other big cities but we still do not expect this to spread to wide-ranging protests, as seen in the Middle East and North Africa this year. The similarities to the Arab Spring are few but the internet and social media play a significant role in Russia too. Several opposition websites have been inaccessible over the past few days but even the big newspapers report seriocomic figures from the elections including the active voters in Chechnya and mental hospitals, where everyone voted for United Russia.
We believe that Prime Minister Vladimir Putin was not quite expecting this big a challenge when his candidacy for the presidential elections in March 2012 was announced in September. We still think that Putin will be elected, as he is the only viable option, but he might not receive the majority of the vote in the first round. Even this would be a major loss for Putin, who was still extremely popular a year ago. However, Putin might find a proper scapegoat and escape the responsibility once again. To sum up, we may say “Кто виноват” or loosely translated “who is to be blamed?”.
Special: Baltic fiscal stance
Next year’s budget – a headache for Lithuania
Last week, the Estonian parliament approved next year’s budget, which sets a deficit of about 2.1% of GDP. According to Estonian officials, deterioration will occur in the fiscal position (this year it is expected to have a surplus), due mainly to changes in the pollution quota trade policy and the restoration of contributions to second pillar pension funds. The Estonian government does not intend to borrow on the financial markets and expects to finance the deficit from the state reserve, which was accumulated during the boom period. Thus, Estonia’s financial position remains relatively sound and the build-up reserves would avoid an unfavourable situation prevailing in the euro area bond market.
The Latvian government also submitted a draft budget for 2012, with a deficit of about 2.5% of GDP and assumptions of 2.5% growth. Latvia is continuing a broad-based budgetary consolidation, based on higher real estate taxes and lower social benefits and public investment. With IMF and EC support, Latvia does not need to borrow in the financial markets next year.
In Lithuania, due to a significant reduction in the official growth forecast for next year – from 4.7% to 2.5% – the government faces a real risk of missing its budget deficit target of 2.8% of GDP. Currently, politicians are desperately trying to find a solution. On the one hand, it is positive that it has decided not to increase value-added tax but it has refused higher expenditure cut options. The decision will probably be made to implement real estate taxes, taxes on expensive cars and large deposit interest rates. There are also plans to suspend payments to pillar pension funds.
Tax increases in an economic growth slowdown period are not the best option. In addition, Lithuania and Latvia have significant resources to generate additional revenue, by increasing business transparency (fight against the shadow economy) and the efficiency of tax collection. However, why this is not being targeted as a priority in Latvia or Lithuania remains unclear to us.
While the market’s attention is still firmly fixed on the European debt crisis and, in particular, tomorrow’s European Summit, the EMEA calendar for next week sees a number of economic data releases of interest scheduled.
In Turkey, we look for the economic activity levels to have remained robust in the third quarter of this year, though we expect the speed of expansion to have decelerated. We see domestic demand and credit growth both gradually slowing and allowing the economy to rebalance, albeit the signs of this rebalancing have been fairly moderate. In this light, we forecast the economy grew around 7% y/y in Q3, down from 8.8% y/y in Q2.
Next week also sees the release of headline inflation by three EMEA countries. In South Africa, we look for the CPI to have accelerated above the South African Reserve Bank’s (SARB) inflation target band of 3-6% and forecast the November print will come out at 6.2% y/y, up from September’s 6% y/y and thereby further reducing any probability of rate cuts by the SARB in the near future. Our estimate is near the consensus view of 6.3% y/y.
In Poland, we look for price growth to have accelerated in November, as the weak zloty begins to spur higher prices. In particular, we look for the month of November to show headline inflation growth of 4.3% y/y, just below consensus of 4.5% y/y.
Inflationary pressures are also becoming more visible in Hungary, where, similarly to Poland, a severely weaker forint is beginning to pass through to inflation. Our estimate is for prices to have grown by 4% y/y in November, up from 3.9% y/y a month earlier. The current consensus view is a little higher and stands at 4.2% y/y.
Special: Russian elections
How much can you cheat?
Parliamentary elections held in Russia last Sunday have had surprising consequences. Although we were not surprised by the result itself, with the ruling party United Russia losing a lot of support (see Flash Comment: Russia: United Russia loses support but secures a majority, 5 December), but we have been somewhat surprised by the general dissatisfaction with the electoral violations. Usually, Russians are more amused and frustrated than angry with the clumsy violations but this time the elections seem to have been seriously flawed in Moscow too. Whereas exit polls pointed at some 25-30% support for United Russia, the result was 47% of the vote for the ruling party. In Moscow oblast, the area surrounding the city, United Russia received 33% of the vote, while in St Petersburg the figure was 35% and in Leningrad oblast 34%, clearly a lot closer to the true support of the party.
The current regime has now crossed the line of how much cheating the people can tolerate. Some demonstrations have already been organised in Moscow and other big cities but we still do not expect this to spread to wide-ranging protests, as seen in the Middle East and North Africa this year. The similarities to the Arab Spring are few but the internet and social media play a significant role in Russia too. Several opposition websites have been inaccessible over the past few days but even the big newspapers report seriocomic figures from the elections including the active voters in Chechnya and mental hospitals, where everyone voted for United Russia.
We believe that Prime Minister Vladimir Putin was not quite expecting this big a challenge when his candidacy for the presidential elections in March 2012 was announced in September. We still think that Putin will be elected, as he is the only viable option, but he might not receive the majority of the vote in the first round. Even this would be a major loss for Putin, who was still extremely popular a year ago. However, Putin might find a proper scapegoat and escape the responsibility once again. To sum up, we may say “Кто виноват” or loosely translated “who is to be blamed?”.
Special: Baltic fiscal stance
Next year’s budget – a headache for Lithuania
Last week, the Estonian parliament approved next year’s budget, which sets a deficit of about 2.1% of GDP. According to Estonian officials, deterioration will occur in the fiscal position (this year it is expected to have a surplus), due mainly to changes in the pollution quota trade policy and the restoration of contributions to second pillar pension funds. The Estonian government does not intend to borrow on the financial markets and expects to finance the deficit from the state reserve, which was accumulated during the boom period. Thus, Estonia’s financial position remains relatively sound and the build-up reserves would avoid an unfavourable situation prevailing in the euro area bond market.
The Latvian government also submitted a draft budget for 2012, with a deficit of about 2.5% of GDP and assumptions of 2.5% growth. Latvia is continuing a broad-based budgetary consolidation, based on higher real estate taxes and lower social benefits and public investment. With IMF and EC support, Latvia does not need to borrow in the financial markets next year.
In Lithuania, due to a significant reduction in the official growth forecast for next year – from 4.7% to 2.5% – the government faces a real risk of missing its budget deficit target of 2.8% of GDP. Currently, politicians are desperately trying to find a solution. On the one hand, it is positive that it has decided not to increase value-added tax but it has refused higher expenditure cut options. The decision will probably be made to implement real estate taxes, taxes on expensive cars and large deposit interest rates. There are also plans to suspend payments to pillar pension funds.
Tax increases in an economic growth slowdown period are not the best option. In addition, Lithuania and Latvia have significant resources to generate additional revenue, by increasing business transparency (fight against the shadow economy) and the efficiency of tax collection. However, why this is not being targeted as a priority in Latvia or Lithuania remains unclear to us.