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24 August 2018
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Emerging Markets
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24 August 2018
Latin America
Argentina
PUBLISHED REPORTS
Casey Reckman
Economic activity fell 1.3% mom (seasonally adjusted, non- 212 325 5570
annualized) in June. This was the third consecutive month of sequential casey.reckman@credit-suisse.com
contraction as well as the fourth out of the last five. Our seasonal adjustment Alberto J. Rojas
of the original data suggests that the primary sectors actually expanded 4.9% 52 55 5283 8975
mom in June following a 6.0% mom decline in May and a 27.4% mom drop in alberto.rojas@credit-suisse.com
April largely driven by the impact of the severe draught on the agricultural
sector. On the other hand, the industrial sectors fell 2.2% mom in June while
the services sectors retrenched at a 3.0% mom pace, indicating that financial
market turmoil also took a toll on the economy in June. In annual terms,
economic activity fell 6.7% in June, weaker than the median market
expectation of a 5.0% contraction. This result implies that real GDP fell 4.2%
yoy in the second quarter and 0.2% yoy during the first half of 2018.
Meanwhile, consumer confidence was unchanged in August versus
July, as per DiTella University’s survey. This followed a slight uptick last
month, which was the first increase since January. The headline index held
steady at 36.3 this month as improvements in consumers’ perception of their
personal situation (2.1%) and of the macroeconomic situation (1.0% mom)
offset a further deterioration in their assessment of their ability to purchase
durable goods (-5.9% mom). Consumers’ perception of present conditions
also worsened by another 3.5% mom in August, while sentiment about future
expectations rose 1.4% mom. Consumer confidence was stronger in the City
of Buenos Aires in August compared to July, virtually unchanged in Greater
Buenos Aires and weaker in the interior of the country.
Ecuador
NEWS COMMENTARY
Juan Lorenzo Maldonado
The government published the multiyear fiscal projections linked to its 212 325 4245
economic program; this year’s fiscal deficit target is 4.1% of GDP, and juanlorenzo.maldonado@credit-suisse.com
the 2021 global target is 0.7% of GDP. The primary balance is expected to
reach a surplus of 0.7% of GDP by 2020 and a surplus of 1.5% of GDP in
2021. Interestingly, the bulk of the convergence is expected to happen on the
back of higher oil revenues, which are expected to climb from 2.1% of GDP this
year to 3.5% of GDP in 2021. Tax collections are expected to remain stable at
14.6% of GDP, while transfers are expected to climb to 1.5% of GDP from
0.3% of GDP at present. On the expenditures side, total spending is expected
to fall to 23.1% of GDP by 2021 from 24.1% of GDP this year. Capital
expenditures are set to decline to 5.8% of GDP in 2019 from 6.7% of GDP in
2018, and stay at that level through 2021. Current spending, on the other hand,
is expected to increase to 18.2% of GDP next year from 17.5% of GDP this
year, and then converge back to 17.4% of GDP by 2021. We welcome the fact
that the government has published its official fiscal projections for upcoming
years. These projections, however, show that the bulk of the fiscal consolidation
strategy actually depends on higher oil revenues and higher revenues via
transfers, rather than from the spending cuts recently announced.
Mexico
NEWS COMMENTARY
Alonso Cervera
Consumer prices rose more than the market expected in the first half 52 55 5283 3845
of August. Headline inflation was 0.34% in the first half of July, compared to alonso.cervera@credit-suisse.com
market estimates of 0.27% and just under our estimate of 0.37%. Core Alberto J. Rojas
inflation was 0.18% compared to our consensus-matching estimate of 0.15%. 52 55 5283 8975
In annual terms, headline inflation was 4.8%, unchanged versus July, while alberto.rojas@credit-suisse.com
core inflation was 3.6%, also unchanged versus July. For the full month of
August, we anticipate annual headline and core inflation to be 4.8% and 3.6%
respectively. In the first half of August, core inflation was higher than we had
anticipated due to larger than expected increases in education prices. At the
non-core level, however, we overestimated the increase in agricultural prices,
as the actual print of 0.9% was clearly below our estimate of 1.6%. Most
other sub-indices were largely in line with our expectations. For the third
quarter, we project that annual headline inflation will average 4.9%, which is
clearly above the central bank’s prevailing forecast of 4.3%; for the fourth
quarter, average annual inflation will likely be about one percentage point
above the central bank’s forecast. We think that the central bank will make
significant upward revisions to its forecasts in its upcoming quarterly inflation
report due on 29 August.
The government will release the full supply-side real GDP report for
the second quarter today at 9:00am EST. A preliminary government
estimate in late July showed real GDP contracting 0.1% qoq (non-annualized,
seasonally adjusted) in the second quarter, below median market expectations
of 0.3% qoq growth and our estimate of a 0.2% qoq increase. According to
the preliminary report, the sequential contraction was explained by declines in
primary GDP (-2.1% qoq) and industrial GDP (-0.3% qoq), which more than
offset growth of 0.3% in services GDP. In annual terms, preliminary estimates
showed that the original real GDP series increased 2.7% in the second
quarter, below median market expectations of a 2.8% increase and above our
estimate of 2.2% growth.
Finally, the central bank will release balance of payment figures for the
second quarter today at 10:00am EST. As a reference, current account
balance posted a deficit of $6.9bn in the first quarter, wider than median
market expectations of a $4.7bn deficit. The capital and financial account
jointly posted $7.9bn surplus in the first quarter, more than fully covering the
current account deficit, with notable net inflows in FDI ($7.0bn) and portfolio
flows ($7.1bn). On a four-quarter rolling basis the current account deficit
narrowed to $15.9bn (1.3% of GDP) in the first quarter, from $19.4bn (1.7%
of GDP) at year-end 2017. We remain unconcerned about Mexico’s external
imbalances, and note that the recent record inflows of workers’ remittances
will likely be supportive of a moderate current account deficit of under 2.0% of
GDP this year, most of which will likely be financed by net foreign direct
investment flows.
Figure 1. Russia: Projected balance of payments flow in 2018 following the CBR’s decision to suspend its
regular FX purchases until the end of September
$ bn
5.3
5 5
3.5
1.9
0.9
0 0
-1.1 -1 -0.9
-2.9 -3.2
-3.6
-5 -5.6 -5
-10 -10
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
South Africa
NEWS COMMENTARY
Alexey Pogorelov
South African financial assets were under pressure yesterday on fears 44 20 7883 0396
of potential sanctions from the United States. In yesterday’s overnight alexey.pogorelov@credit-suisse.com
tweet, US President Trump asked US Secretary of State Pompeo “to closely
study the South Africa land and farm seizures and expropriations and the large
scale killing of farmers”. Investors have become more sensitive to these kinds
of comments, as apparently they may lead to real actions, like in the case of
Turkey, when Trump’s demand for the release of pastor Brunson turned into
the decision to raise import tariffs on metals from Turkey. However, we believe
at this stage investors should not overestimate the impact of Trump’s comment
on the financial markets, as they are most certainly targeted at US citizens,
whose support he’s trying to consolidate ahead of the US midterm elections.