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Macro week ahead – 2Q14 GDP and July CPI data

The coming week will see an upturn in the flow of economic data, e.g. 2Q14 GDP releases and CPI reports from the three major CEE countries as well as Russia. Other statistics for July worth keeping an eye out for in Russia are on budget execution and possibly IP numbers.
A cross-country comparison of upcoming GDP and inflation prints might be interesting in order to compare what is going on in Russia and CEE3. The former presents a stagnant economy, where internal rebalancing prevented recession, with elevated consumer price growth, while the latter shows an example of reviving growth momentum on the back of improving external and now internal demand amid muted inflation pressure. At the same time, the monetary policy stance looks counter-intuitive with the very hawkish one in Russia and accommodative one in CEE3.

In Russia, even though it is seems that economic performance appeared stronger than expected in 2Q14, it remained paused, lingering on the edge of recession. MinEconomy guided for a 1.2% YoY gain, but we are more conservative, expecting a 0.5% YoY print. Component-wise, dampening local consumption will be offset by a smaller drop in FAI and a pick-up in net exports (led by both stronger exports (as Russian gas supply to the EU spiked on the escalation of tensions in Ukraine) and weaker imports).
Weekly inflation might be interesting in terms of the first reaction to the one-year food ban imposed on 7 August (meat, dairy, fruit and veg. prices are to be primarily watched). We expect to see, however, a meaningful impact with a 1-2 week delay, and thus the headline figure might well end the summer at the 7.2-7.3% YoY mark.

After an impressive 1Q14, CEE3 economies face a not so vibrant recovery on EU and Ukraine crisis related factors, such as worsening business confidence and trade restrictions for exports into Russia. Though our thinking is that these growth impediments are not critical (Poland stands to lose the most) and the recovery will continue (albeit at a slower pace), spurred not only by external demand but also by local demand, which is supported by the accommodative domestic policy mix.

CEE inflation is likely close to zero, well below respective targets.
Daria Isakova, Vladimir Kolychev
VTB Capital analyst


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