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Macro week ahead – August PMI might be a cue for a recovery in CEE3 and slowdown in Russia and Turkey

The autumn begins with fresh PMI Manufacturing readings for August across CEEMEA. In the middle of the week, the Polish central bank is set to decide on rates and Turkey is to unveil its August CPI. In Russia, there are also inflation-related reports expected as well as the set of early indicators for August (PMIs, rail cargo volumes, electricity output, etc).

The first week of September is likely to be quite intense in terms of economic data. As autumn begins, CEEMEA seems to have followed recent trends: a tepid recovery in CEE3, stumbling on the Ukrainian crisis and close-to-stagnant economic growth in Russia and Turkey.

In Poland, the central bank recently dropped its forward guidance for flat rates to the end of 3Q14 from its monthly statement and said inflation might stay very low in the coming months (it might even temporarily fall below zero). Governor Marek Belka recently said that the probability of a cut at the next meeting was very low as there was no risk of prolonged deflation in Poland. To recap, back in April he called inflation a ‘deadly sin’, but since early June the central bank has notably eased the tone of its comments on inflation. In the opinion of the Polish Monetary Policy Council in the following quarters, the ongoing economic recovery and improvement in the labour market are likely to support a gradual increase in inflation and see it approaching the target in the projection horizon. Nevertheless, we think there is a good chance that by the end of the year, the NBP might cut its policy rate in light of the recent ECB rate cuts, poor economic performance of late and prolonged deflation.

In Russia and Turkey, as opposed to the deflation scenarios in Europe, inflation is running at near multi-year highs. Russia’s inflation started to crawl up again after a short break in light of the recently imposed import ban and the headline figure seems to have ended the summer at the 7.5% YoY mark.

In Turkey, given the deterioration in the core CPI elements in July, the pressure of still high food prices and FX pass-through effect (all of which have an effect on CPI), the pace of headline inflation might have increased in August.

Daria Isakova, Vladimir Kolychev
VTB Capital analyst


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