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Macro week ahead


This week is not as populated as last week, with the 1Q14 GDP reading from South Africa (the last in our CEMEEA coverage) and the monetary policy decision in Hungary in the spotlight. Otherwise, April’s retail sales in Poland and the weekly CPI report for 20-26 May in Russia might be of interest.

Since the beginning of this year, the South Africa economy has been suffering from an unprecedented strike in the platinum sector, which is still ongoing. In this context, SARB significantly lowered its FY14 growth forecast to 2.1% (vs. 2.6%).

Given that manufacturing and mining production dropped 1.6% and 6.8% SAAR in 1Q14, respectively, it would be somewhat aggressive to forecast even stagnant sequential growth in 1Q14 (consensus expects -0.2% SAAR). So, in terms of the economic prospects, the risks are tilted to the downside and there is still uncertainty over the next government’s ability to boost growth and ramp up investments.

In Hungary, there is a good chance that we shall see another rate cut this week. The external conditions look more beneficial for a further easing by the NBH: alongside relief in the EM universe, the forint has gained some strength and the deflation environment makes it more and more possible that the ECB is to launch some sort of QE-stimuli. The internal factors are also beneficial: i) negative inflation in April (albeit the medium-term inflation risks are on the upside, owing to the base effect after several rounds of state-driven utilities price cuts and expanding local demand) and ii) NBH governor György Matolcsy has explicitly signalled that they have room to manoeuvre on rates and there is a possibility of further small cuts.

So, we believe that the forthcoming cuts might mark the end of an almost two-year monetary easing cycle started from a 7% base rate.

In Russia, pork prices are in the spotlight as they remain the main inflation driver. For full-May, the CPI increase might be 0.8-0.9% (or 7.5-7.6% YoY).
Daria Isakova, Vladimir Kolychev
VTB Capital analyst


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