1. society
2. work
3. unemployment

October 13, 2014
This is bne's Eastern Europe credit weekly newsletter, a list of the top credit stories
in the region last week. You can receive the list as a plain text or html email or as a
pdf file. To manage your delivery
options:http://businessneweurope.eu/users/subs.php
CREDIT TOP STORY
1. Poland slashes rates as worries grow about recovery
2. Central Europe shudders as Germany sneezes
3. IMF's Lagarde says additional funding for Ukraine needed
4. Russians starting to change rubles for dollars
5. Belarusians rush to buy up foreign exchange
6. CEE Eurobonds – The ‘Sweet Spot’
7. Cloudy Outlook for Growth in Emerging Europe and Central Asia
8. Eurozone stagnation: sanctions on Russia spectacularly backfire on Germany
9. Flood of Capital Outflow From Russia Slows Sharply in Third Quarter
10. Russia to show no growth for two years
11. Russia spends $980m reserves in one day to buoy ruble
12. Ukraine: No sovereign default risk so far
13. Ukraine one of worlds top ten inflation countries
14. Ukraine shadow economy growing as one-third working illegally
15. Why is the ruble weakening?
CREDIT NEWS
16. Oil Plunge Magnifies Russia’s Sanctions Pain: Chart of the Day
17. Brent extends slump to lowest since 2012 as WTI discount narrows
18. Euroglut: a new phase of global imbalances
19. Finance Minister Says Russia's Grand Rearmament Plans are Unaffordable
20. Foreign banks turn to ruble bonds in Russia
21. Naftogaz decides not to procrastinate with debt settlement
22. Structural changes for Russian government spending larger than scheduled
earlier
CREDIT OTHER NEWS
23. GDP levels in CEE revised up after introducing ESA2010 methodology
24. EM growth may well disappoint over next five years
25. New G7 with Russia emerges — Financial Times
26. Russia considers 'offshore amnesty' - report
27. Russia in world's top ten for current account surplus
28. Russian capital outflows slowing, but still high
29. Inflation-Racked Russia Considering Price Controls
CREDIT CE
30. Central Europe and Baltics set for gradual recovery despite Russian and
Ukrainian weakness
31. Hungary bond 2014-2015
32. IMF calls on Lithuania to build buffers against external shocks
33. Poland bond 2014-2015
34. Ukraine Economy: How Deep are the Waters?
35. Poland: NBP cuts more than expected but more is needed
CREDIT EA
36. Gold, currency reserves of Azerbaijan comparable to its GDP
37. Moody's assigns provisional senior unsecured (P)Baa2 rating to Kazakhstan's $10
billion MTN programme
CREDIT EE
38. Ruble facing depreciation pressures
39. Ban on European foods contunues to push up inflation
40. Belarusian inflation dips slightly year-on-year in September
41. IMF's Concluding Statement for September 2014 Staff Visit to Russia
42. Metinvest - Vulnerable in the midst of war
43. Russia Early Indicators - September; same morass
44. Russia's Reserve Fund may be used to cover budget shortfalls in 2015
45. Russian budget to be slightly affected by leaving all petroleum product export
duties on Belarusian budget - Siluanov
46. Sberbank CIB Ivanov update – food prices and import ban implications
47. Too early for common currency within Eurasian Economic Union — Belarusian
official
48. Ukraine plans compensating overpaid enterprise profit tax with state bonds
49. VAB Bank blames ForEx regulation in missed coupon, to pay by mid-October
CREDIT SE
50. Grey economy in Croatia much above European average
51. Romania bond 2014-2015
52. Ratings On Serbia Placed On CreditWatch Negative Pending Medium-Term Fiscal
Plans
CREDIT CE MACRO NEWS
53. Downward trend continues in Croatia's employment market, says RBA
54. Czech exports dip in August, but slowdown likely temporary
55. Czech retail sales driven by autos
56. Estonian CPI fell for the third consecutive month
57. Estonian external trade sinks in August
58. Eurozone retail trade up by 1.2% MoM in August
59. Hungarian industry sees August collapse
60. Hungary excels in receiving EU transfers
61. Hungary to launch biggest ever economic development program, says Orban
62. Latvia's Industrial Output Falls In August
63. Latvian CPI pushes to 1.0% in September
64. Latvian minister estimates Russian food embargo to cause 0.25 pp drop in GDP
65. Latvian shadow economy shrinks to 24.7% of GDP, claims study
66. Lithuania sees annual deflation of 0.1% in September
67. Poland: No budget revision pledges Poland's new FinMin
68. Slovakia Retail Sales Growth Slows In August
69. Slovakia Trade Surplus Rises In August
CREDIT SE MACRO NEWS
70. Bulgaria's Industrial Production Index Down 0.9% M/M in August 2014
71. Bulgarian Emigrants Send To Relatives BGN 2.3 B Per Year
72. Illegal activities contribute some EUR 400 mln to Romania's GDP
73. Moldova GDP increases 3.9 percent
74. Slovenia's budget deficit will rise by EUR 200m to EUR 1.2bn
CREDIT EA MACRO NEWS
75. Central bank says Armenian GDP grows 3.8% in Q3
76. Armenian national currency shows weakening trends
77. Armenias industrial output in eight months grows by 0.9% to AMD799.2bn
78. Azerbaijani state budget revenues exceed 1.2% - minister
79. IMF forecasts Azerbaijan's GDP growth in 2014 at 4.5 pct
80. Lowest deflation among CIS countries in Jan-Aug 2014 recorded in Armenia
81. Tajikistans inflation for Jan-Sept stands at 5.7%
82. Uzbek-Russian trade hits $2.69bn in January-August
CREDIT RUSSIA MACRO NEWS
83. Capital outflow from Russia might be lower than $100bn forecast in 2014 minister
84. Russian internal rebalancing strengthens, supporting RUB, non-CIS imports
shrank by 11% YoY in September
85. Net capital outflow from Russia nearly doubles to $85.2bn in Jan-Sept - Central
Bank estimate
86. Putin signs law to free Reserve fund money for budget spending
87. RenCap-NES Macro Monitor
88. Ruble weakness, high inflation, and slow growth to undermine consumer
confidence
89. Russia's BoP in 3Q14: Internal rebalancing at full speed, but oil drop requires
more
90. Russia's Current account improves due to weak ruble
91. Russia's manufacturing production: Small progress made but still weak
92. Russian CPI up 0.2% in first week of Oct
93. September was perfect storm for Russian CPI inflation
94. Ruble depreciation create windfall revenues for the government's budget
CREDIT UKRAINE MACRO NEWS
95. Ukraine's C/A issues remain despite heavy hryvnia depreciation
96. Ukraine CPI speeds up to 2.9% m/m in September
97. Ukraine's economy will dive in 2H14-1H15 before bottoming out
98. Ukraine's hryvna to remain under pressure
99. Ukraine's budget deficit to reach 4.8% of GDP, to be covered with IFI borrowings
100. Ukraine economic slide seen accelerating in Q3 to five-year low
101. Ukraine gross foreign reserves increase 1.7% m/m in September
102. Ukrainian Foreign Reserves Rise to $16.2bn in Sept.
103. Upward trend in Ukrainian inflation resumes in September
CREDIT KAZAKHSTAN MACRO NEWS
104. Kazakhstan to revise forecasts for GDP growth
CREDIT TURKISH MACRO NEWS
105. Turkey cuts growth estimates, raises inflation forecast
CREDIT EE - FROM THE DAILIES
106. Belarus' gold, forex reserves down to $6bn in September in IMF terms
107. Belarusian trade surplus at $653m in 8M compared with deficit last year
108. Default in Ukraine inevitable — Russian presidential advisor
109. Russia Could Freeze Prices For 'Vital Products' If Inflation Soars
110. Russia Spends Up to $1.75bn in Two Days to Buoy Ruble
CREDIT SE - FROM THE DAILIES
111. Albania's Growth Slumps in Second Quarter of 2014
112. Albania’s Growth Slumps in Second Quarter of 2014
113. Bulgarian Emigrants Send To Relatives BGN 2.3 B Per Year
114. Czech the Curve: Fixed more in favour than floaters
115. Croatia: GDP levels revised up after introducing ESA2010 methodology
116. Illegal activities contribute some EUR 400 mln to Romania’s GDP
117. Lithuania Affirmed At 'A-/A-2' On Strong Fiscal Position And Confirmation Of
Euro Adoption; Outlook Stable
118. Lithuania at 'A-'; Outlook Stable
119. Moldova GDP increases 3.9 percent
120. Poland Bond Bulls a Sales Forecast to Cheer
121. Poland's Energa at 'BBB'; Outlook Stable
122. Polish City of Gdansk at 'BBB+'; Outlook Stable
123. Romania chooses four banks for new euro bond
124. Romania cuts rates, eases reserve requirements as growth plummets
125. Romania posts steepest retail volume drop in the EU this August, says Eurostat
126. Serbia’s 23% Pile of Bad Loans Lures Distressed Debt Funds
127. Slovaks to Delay Sale of International Bond as Limit Near
128. Slovenia's budget deficit will rise by EUR 200m to EUR 1.2bn
129. Slovenia:corrective budget,likely to break deficit threshold
130. Turkey cuts growth estimates, raises inflation forecast
131. Turkey: Concluding Statement of the 2014 Article IV Mission
132. Turkey: Rating Action: Moody's assigns a (P)Baa3 senior unsecured foreigncurrency debt rating to Turkiye Sinai Kalkinma Bankasi
CREDIT EA - FROM THE DAILIES
133. Azerbaijan's creditworthiness supported by low government debt, sustained
fiscal surpluses and strong net creditor position
134. Azerbaijan sees almost fourfold increase in corporate securities market
135. Kazakh Eurobond set to provide new benchmark for corporate issues
136. Kazakhstan sells first overseas dollar bonds in 14 years
137. No tenge devaluation expected in Kazakhstan - National Economy Minister
138. Tajik central bank raises its refinancing rate
CREDIT TOP STORY
1. Poland slashes rates as worries grow about recovery
bne
October 10, 2014
The National Bank of Poland slashed rates by an unexpected 50 basis points on
October 8, dropping the bank's benchmark rate to a record low 2%, a sign of
concern that a less supportive external environment could stifle Poland's recovering
economy.
The bank's rate-setting Monetary Policy Council (MPC) had been expected to cut
rates, but markets were expecting a more conservative quarter-point reduction. "The
50bp cut, to 2.00%, was larger than we, the financial markets and the consensus
had all expected," wrote William Jackson, emerging markets economist with Capital
Economics.
On top of that, the cut may not be the last. In a statement announcing the decision,
the MPC said it "does not rule out further adjustment of monetary policy" if future
data show inflation remaining below target.
During a news conference, NBP governor Marek Belka made clear that the consensus
on the MPC was to concentrate rate cuts timewise, which leaves open the possibility
of another interest rate reduction next month. He also noted the rate decision was
not unanimous.
"Given the above arguments we expect one more rate cut by 25bps in November,"
writes Piotr Kalisz of Citi Research. After that, the economy is expected to pick up
steam, and inflation should track slightly higher as well.
Jackson was confused about what kind of signal the bank was trying to send with its
cut. "It's possible that the scale of today's rate cut means that the NBP is planning to
be more aggressive than anticipated. But it's difficult to square this with the sizeable
divisions on the MPC between doves and hawks. Given this, we suspect that a 50bp
cut may have been a compromise solution - the hawks may have preferred a larger
rate cut on the basis that it's a one-off to a gradual, but open-ended easing cycle,"
he wrote.
Poland's inflation has plummeted in recent months. After eight months it is coming in
at only 0.3% - far below the central bank's target rate of within 1 percentage point
of 2.5%. For July and August Poland actually fell into deflation for the first time in
decades.
Very low inflation is coupled with signs of slowing growth, with industrial production
slowing and analysts recalibrating their estimates for growth for the year. Most
estimates now call for an expansion of about 3%.
East and West
Part of the problem is increasing worry due to conditions outside of Poland. To the
west, the Eurozone, Poland's largest export market, has seen growth stall and there
are worries of a third recession since the onset of the global economic crisis. To the
east, Russia has imposed sanctions on some imports, hitting Polish agricultural
products. The severe in recession in Ukraine is also harming Polish business.
The cut will likely weaken the zloty, at least in the short term - the Polish currency
lost ground against both the dollar and the euro in trading on October 8, falling by
about 0.2%. That should help exporters, while business will probably benefit from
low interest rates, which could spur investment, says Malgorzata StarczewskaKrzysztoszek, chief economist for Lewiatan, the Polish employers confederation.
Easier access to cheap credit could also help boost domestic consumption.
"The key point is that irrespective of whether interest rates are lowered further or
not, monetary policy will remain extremely loose in order to support the economy,"
says Jackson.
2. Central Europe shudders as Germany sneezes
bne
October 10, 2014
Central Europe's recovery prospects took a hard hit on October 7, with the release of
figures showing that German industrial production fell sharply in August. Industrial
production in the Czech Republic also fell, while Hungary, also heavily dependent on
its role in the German supply chain, stagnated.
German industrial output fell 4% in August, according to the Federal Statistical
Office, with factory orders declining substantially, suggesting manufacturing is in the
midst of a slowdown. The drop was the sharpest since 2009. Excluding construction
and energy, manufacturing output dropped 4.7%, the largest monthly decline in well
over five years.
The German figures followed data released the previous day which showed that
factory orders dropped 5.7% in August, having increased 4.9% in July. Although the
numbers could recover somewhat in September, after the summer holidays, analysts
at Markit suggested the writing is on the wall.
"[T]here can be little doubt that Germany's mighty industrial sector (which accounts
for more than 20% of the economy) has lost considerable momentum since the start
of the year," they said. "The manufacturing PMI is currently tracking around seven
points lower than its January reading, slipping into slight contraction territory in
September as Russian sanctions and geopolitical uncertainties weighed on
performance."
The data hint that Germany will do well to avoid slipping into contraction. "This
weakening of the industrial sector is likely to act as a major drag on third quarter
GDP, which now looks set to rise by just 0.2%," Markit added. "Although this means
Germany may skirt recession after GDP fell 0.2% in the second quarter, a further
loss of momentum signalled by the business surveys in September suggests a
renewed downturn in the fourth quarter should not be ruled out."
Spillover
Data released the same day only added to the concern that Central Europe is facing
a severe drag because of the impact of the Eurozone slowdown.
Hungarian and Czech industrial production, as well as exports out of the latter,
sagged alarmingly in August, data out on October 7 showed. While analysts
suggested one-off closures for holidays at vital car plants were a factor - the auto
sector has driven much of the recent economic recovery in both countries - the
results are clearly worrying in the context of the German slowdown. The German
supply chain offers the biggest demand for exports in Central Europe, with cars again
a major force.
In Hungary, after three months of double-digit growth on an annual basis, "the
slowdown in August was evident", note analysts at KBC. Industrial output rose by
just 0.5%, a stunning fall compared with a reading of more than 12% in July.
Czech industrial production fell 5.2% year on year. "As in Hungary, the decline was
partly driven by lower number of working days," admits KBC. "Nevertheless even
[the] working-day adjusted number of minus 3.6% Y/Y remained below the market
consensus as well as our estimations."
"Both slowdowns likely have similar causes," the analysts wrote. "The biggest drop
was recorded in the car industry, which traditionally experiences fluctuations due to
company vacations. In Hungary, a big carmaker even stopped production for an
entire month in August, which is unusual."
At the same time, they add, "it would have been quite a surprise if deterioration in
Germany had not been at least partly reflected in the regional figures." Summing up
recent disappointing macro results in the Czech Republic, Commerzbank noted "the
data, so far, portray a discernibly slower economy during Q3 compared with H1."
Better than many
However, in the October update of its World Economic Outlook, released on October
7, the International Monetary Fund forecast Central Europe will still do better than
most of CEE.
Overall, the IMF expects the region to grow 2.7% in 2014, a downward revision of
0.1 percentage points from its July estimate, before expanding by 2.9% in 2015.
However, that growth will remain uneven, the international lender expects, with
countries to the south set to struggle most. The IMF called for continued support
from monetary policy and structural reforms.
Hungarian growth is projected to hit 2.8% in 2014. However, concern remains that
recent strong performance remains overwhelmingly state driven, and that a lack of
investment and bank lending threatens mid-term prospects. The IMF expects the
Hungarian economy to slow to 2.3% next year.
The Czech Republic, which the IMF does not include in CEE having promoted it to
"advanced Europe", logged a 0.9% contraction last year after emerging from a
record-long 18-month recession, but the IMF expects growth to push to 2.5% both
this year and next. Next door, Slovakia - also rated an advanced economy and
hugely dependent on the auto sector and German demand - is forecast to expand by
2.4% this year and 2.7% in 2015.
Poland, which is less exposed to export demand out of the Eurozone thanks to its
relatively strong domestic demand, is projected to grow 3.2% this year, and push to
3.3% next. Recent macro-economic data out of the country has surprisingly lagged
that of its neighbours, and the National Bank of Poland is widely expected to offer a
interest rate cut at its October 8 meeting, after months of calls from analysts.
Growth should remain relatively strong this year in the three Baltic states, with
forecasts of 3% for Lithuania, 2.7% in Latvia and 1.2% in Estonia. The economies
are expected to continue to expand in 2015, when they will all be Eurozone
members, with forecasts of 3.3%, 3.2% and 2.5% respectively.
"With downside risks remaining, monetary and exchange rate policies should be used
to support demand and manage the risks from market volatility," the IMF said in
summing up its recommendations for CEE. "Enhancing debt resolution frameworks
and advancing labor market reforms remain priorities for most countries in the
region."
3. IMF's Lagarde says additional funding for Ukraine needed
bne
October 10, 2014
The situation in Ukraine is serious and more funding will be needed, IMF Managing
Director Christine Lagarde said on October 8, reports Bloomberg.
Not all funding will come from the IMF, other lenders will need to participate,
Lagarde said without specifying who will lend the money or where it will come from,
she said speaking at an event in Washington.
Ukraine currently has a $18bn stand by programme that will be distributed over two
years, but this is far short of the $25bn-$35bn estimates made during the
negotiation process last year, that the government said it thinks it needs.
Just the Russian debts will eat up almost the entire IMF payments to date, before a
penny is spent on repairs, restructures or reforms.
The merged the third and fourth tranches of the programme in September worth
$2.8bn, but $1.6bn of that has already been spent on repaying the national gas
company's bond at the start of October.
Russia says it wont turn Ukraine's gas supplies off, which were cut in June, until it
settles a $5.3bn gas bill debt. Moreover, analysts say that Ukraine will need to
import another $2bn-odd of gas over this winter if it is not to run out of fuel.
Together these two bills are as much as the entire IMF tranche for this year.
Tim Ash of Standard Bank said in a note:
The programme was always too small - I think everyone knew that at the time. This
was a case of reverse engineering - how much money have we got (intl community)
and let's design a programme framework around that.
In the end the original macro assumptions were not realistic from the outset, and
after the annexation of Crimea and the conflict in Donbas, the recession has been
deeper and financing holes much bigger.
What worries me now is that Ukraine is facing a fundamental crisis of confidence and this is reflected in continued pressure on the UAH, and also on banks/bank
deposits. Simply put, the guy on the street does not believe the ceasefire in the east
will hold, that the NBU has enough cash, or the West will stump up more cash to ride
to the rescue.
They are voting with their feet by pulling cash from banks and buying FX. Lacking FX
reserves, the NBU is resorting to capital controls, in effect (export surrender
requirements, restrictions on dividend repatriation).
I understand why the NBU is doing it - they have no other options - but it just
creates other problems, killing trade and economic activity (deeper recession, bigger
budget deficit, re-widening of CAD), and perhaps even further driving capital flight.
I understand that it is now proving difficult to rollover trade credit, so rollover risk is
rising with the $60bn of ST external debt liabilities. This heaps even more pressure
on the UAH. I now fear systemic economic failure - unless there is a positive
confidence shock.
What was worrying is that the onset of the ceasefire, and then the Naftogas
repayment both good news stories but which have failed to narrow spreads or even
rally the UAH. What they need is for the IMF to come up with some bigger ticket cash
commitment and soon ($10bn+ extra - they need to pull the bazooka out). But
having been in DC I just dont see the impetus - lots of warm words for Ukraine, but
not many greenbacks. Talk is very, very cheap, both in DC and Brussels.
Poroshenko came to DC a couple of weeks ago and gave the speech of his life and
got $53m, which is small change - that funds the cost of the war in the East for 9
days, albeit I am sure it buys quite a few blankets.
The US is probably spending that on a daily basis now in terms of ordinance used in
Iraq/Syria against ISIS. The IMF is also working too slowly - just focusing on the
next review due in November/December - 2 months is a lifetime currently in Ukraine.
The reality is that even in the best case, combined IMF/EU/US new cash might be
$4-5bn, which is just not enough - it does not really touch the sides. With that in
mind, the Ukrainians might need to look nearer home - I have recommended a
windfall tax on oligarchs (a Maidan Bond/Tax) in exchange for pulling back from a
likely disruptive lustration process - a 10-15% windfall tax on Forbes' wealth, and to
draw a line against future investigations over past illicit gains, and maybe with a
truth/reconciliation committee. By so doing, oligarchs prove their "loyalty/patriotism"
and the Maidan likely cuts the new government some slack to get on with much
needed reform and stabilisation policies.
All told negative energy over re-privatisation is avoided. This could easily raise
$10bn+, and could bolster FX reserves, underpin the UAH/banks and instil
confidence of the population. I think oligarchs' willingness to help would also
encourage the West to further contribute to Ukraine's re-habitation as it would
suggest 'burden-sharing'.
Beyond the elections, and once Poroshenko gets his own government in place assuming his political party wins those elections - the president and his team need to
think big and ambitious, and give the population an ambitious and transformational
reform plan, eg, EU2025, I.e setting in place reforms which could get Ukraine to EUentry standards in a decade. It is possible, and the population have the desire, drive
and patriotism to buckle down. But Ukraine needs to find a positive confidence
shock, and soon to pull this around.
4. Russians starting to change rubles for dollars
bne
October 10, 2014
With the ruble continuing its slide against the dollar, as companies horde hard
currency to pay down foreign debt, analysts are waiting for the next bad thing to
happen: punters to make a rush to buy dollar cash.
According to business daily Vedomosti, the next step in the ongoing ruble meltdown
may be starting, with 8 out of 30 Moscow currency exchange booths visited lacking
any more dollars to sell after demand leapt since the start of the week.
"Demand for dollars has leapt by 10-15% over the least week and a half" Anton
Ivanov, head of SB Bank's department of retail currency sales told Vedomosti. "We
could probably sell more but don’t want to have such large stocks of cash stored on
the premises," he added. An employee at Lanta Bank told Vedomosti that demand
for dollars was at 2-3 times over the average September 9.
Such a spike in dollar demand mostly affects small banks, with Sberbank saying that
demand for dollars has been stable over the year, with the exception of days in
March when Russia launched its annexation of Ukraine's Crimea, according to
Vedomosti. Small banks specializing in operations such as changing money offer
better exchange rates than the larger banks and thus are more sensitive towards
shifts in demand, say analysts.
Macro analysts see demand for dollar cash on the part of the population in fact
dropping in September, from a $10.3bn net demand spike in the first quarter,
sparked by the Ukrainian Crimean crisis, to only $1.5bn net dollar cash purchase in
in the second quarter, according to VTB Capital analysts. "By the end of September
people were not in the mood to buy dollars in a rush," says VTB Capital.
But the rush may have now begun."Feverish demand from the average Russian for
foreign currency is the biggest challenge ahead for the ruble, and we believe that it
would be a red button for the CBR to draw a hard line for the Russian currency,
should this risk start to materialize," VTB Capital analysts warn.
5. Belarusians rush to buy up foreign exchange
Charter97
October 7, 2014
In September demand for foreign exchange has gone up sharply.
In Belarus the demand of the population for foreign exchange has grown by $75.1m
in September, as compared to August, the data of the National Bank shows.
As reported by BelaPAN, over the first autumn month the population of Belarus has
bought $862.8m of foreign exchange, and sold $896.3m. Thus, the net sales of
foreign exchange by the population were $33.5m.
It should be noted that as compared to August, the volume of foreign exchange sold
by the population increased insignificantly (by 16.3m). At the same time, the volume
of foreign exchange bought by the population in September increased as compared
to August by $75.1m.
As a result, the net sale of foreign exchange by the population in September as
compared to August has decreased considerably. While the volume of net sales of
foreign exchange by the population in August was $92.4m, in September it was
almost three times as little.
Read more here:
http://www.charter97.org/en/news/2014/10/7/119439/?utm_medium=twitter
6. CEE Eurobonds – The ‘Sweet Spot’
Erste
October 8, 2014
CEE sovereign bond market is fifth largest in Europe with approx. EUR 400bn total
market cap. CEE sovereign bonds outperform 5Y German and French counterparts.
Romania emerges as CEE regional champion among local currency bonds; Hungary
best regional performer among Eurobonds. Increasing investor interest in CEE bonds
due to more balanced distribution of upward/downward risks and attractive yields vs.
most Euro Area bonds. Cash position of CEE governments generally comfortable.
CEE bond markets continued to soar this year, in contrast with broader market
expectations at the beginning of 2014. Even geopolitical events could not stand in
the way of this development. We have introduced two Erste CEE bond indices, which
give a glance of the performance of government bonds in CEE. According to the Erste
CEE Eurobond Index, investments in a basket of Eurobonds of CEE countries have
generated higher returns this year (6.9%) than investments in CEE local currency
bonds measured in EUR (5.3%) via the Erste CEE Local Currency Bond Index. Both
indices show that that CEE bonds have been outperforming their 5Y German and
French counterparts, while an investment in a basket of CEE Eurobonds could
actually significantly reduce volatility without compromising too much on returns.
Our analysis shows that CEE is not a single bucket; fundamentals matter a lot in
spread development and investors can actually expand their profits if they assess
them properly.
In our view, the most important factor explaining the cross-country differences in
sovereign risk premium and their changes over time is the relative rating to the Euro
Area. Although the past crisis proved that ratings are imperfect and rating agencies
are often behind the curve, ratings remain the decisive element in the pricing of
sovereign risk premium. Throughout the last few years, we have seen an overall
improvement of the relative rating of CEE countries to the Euro Area, which partially
explains the continued spread compression. The rest of the rally can be explained by
the historically low market volatility (measured by VIX) and falling rates (5Y EUR
swap rate). However, when we analyzed different fundamental factors to explain
dispersions in sovereign risk premiums, we found Romania to be a huge outlier in its
rating. Romania is actually paying a high penalty for its relatively low rating, while
fundamentals point to the possibility of an upgrade. Romania’s net international
investment position on GDP, an indicator that correlates very well with rating (and
thus risk premium), is already at par with the much better rated Poland and
Slovakia. Fundamentally, we see potential for sovereign risk premium compression in
Romania, which is hindered just by the lack of a ranking action. Furthermore,
fundamentals seem to play an important role when market sentiment swings.
Countries with better relative ratings (like CZ, SK and PL) seem to be less responsive
to change in global risk aversion, while the reaction of countries with sub-investment
grade ratings (like HR and HU) is greater both in times of sell-offs and bond rallies.
An increase of the VIX that leads to a CDS increase for the Czech Republic or
Slovakia of 10bp triggers about a 60bp increase of Hungarian or Croatian CDS.
Taking a look at the deficit outlook and cash position of CEE governments, many
countries do not need to rush with new bond issuance. However, Croatia, Serbia,
Romania and Turkey can take advantage of the favorable market sentiment and do
some pre-financing in 4Q14. The Czech Republic, Hungary, Poland, Slovakia and
Slovenia will most likely abstain from issuing on international markets in 4Q14, with
Poland and Slovakia preferring to tap international markets only in 1Q15. Given that
the ECB is trying to inflate its balance sheet via asset purchases and liquidity
provision, the interest rate and yields in CEE should remain cemented at low levels,
with ‘some’ downward potential remaining. That should keep investments in CEE
bonds attractive for investors. That is also because many CEE bonds still offer a
more balanced distribution of upward/downward risks and associated reward in
terms of yield against most Euro Area counterparts.
CEE is the fifth largest government bond market in Europe
Apart from Poland, the bond markets of individual CEE countries are relatively small
in the international context. However, pooling them together creates the fifth largest
government bond market in continental Europe. The market capitalization of the CEE
government bond market is worth almost EUR 400bn and is larger than the Dutch,
Belgian or Austrian government bond markets. CEE bonds still provide a decent yield
relative to their fundamentals or ratings. Actually, the relative rating of CEE countries
vs. the euro area has improved in recent years. This is not only because of massive
downgrades in the euro area, but is also thanks to the fact that some countries have
been upgraded (i.e. Romania).
In order to better describe the performance of government bond markets in CEE, we
have introduced two Erste CEE Bond Indices. The first, the Erste CEE Local Currency
Bond Index, simulates investment in 5Y government bond paper issued in local
currency and calculates the total return in EUR including currency gain/loss. Given
that some investors do not want to take any currency risk, we also launched the
Erste CEE Eurobond Index, which calculates the performance of investments in eurodenominated Eurobonds with maturity of about five years. The CEE countries
included in those indices are Croatia, the Czech Republic, Hungary, Poland, Romania,
Slovenia and Slovakia, while the last two are omitted from the Erste CEE Local
Currency Bond Index, given that they are both euro area members.
Since the beginning of this year up to September 15, investments in CEE local
currency bonds and Eurobonds with a maturity of around 5Y were yielding a total
return measured in EUR of about 5.3% and 6.9%, respectively. The performance of
CEE local currency bonds was much more volatile and negatively affected by the
weakening of CEE currencies, in particular the Hungarian forint. But even taking the
negative exchange rate effect into account, CEE local currency bonds were
outperforming investments in the 5Y German Bund or French bond, which yielded in
the same time period just 3.8% and 4.6% (YTD, including capital gains),
respectively.
Among local currency bonds, Romanian 5Y bonds, with a 9.8% total return,
outperformed the whole region by far. This is mainly because its currency has not
weakened (as it has been well anchored by the central bank) and the liquidity
surplus brought yields downs. While HUF-denominated bonds were underperforming
our Erste CEE Local Currency Bond Index, Hungarian Eurobonds were the best
performers in broader terms, with their 10% annual return beating even Italian,
Spanish and Slovenian bonds. Hungarian Eurobonds have benefited most from the
further spread compression of
sovereign bonds in Europe. Later in this report, we analyze which factors influence
sovereign risk premiums and attempt to check the potential for further compression
or risks of reversal. For more on sovereign risk premium, please read ‘What
influences sovereign risk premium in CEE?’.
7. Cloudy Outlook for Growth in Emerging Europe and Central Asia
World Bank
--Ukraine Crisis has Impact, but Long-Term Reform Challenges also Remain
Growth in the Emerging Europe and Central Asia (ECA) region remains tepid, with
GDP growth for the region expected to be only 1.8 percent in 2014 and improving
slightly up to 2.1 percent for 2015, the World Bank said during the 2014 World
Bank/IMF Annual Meetings.
"The Emerging Europe and Central Asia region is facing some daunting challenges
amid a cloudy outlook for growth," said Laura Tuck, Vice-President for the World
Bank's Emerging Europe and Central Asia region. "The tensions in Ukraine have
clearly had an impact on the country's growth and have disrupted economic activity.
But many of the structural problems that confront countries in the region existed
before the crisis and still need to be urgently addressed."
Added Tuck, "While we monitor the impact of the Ukraine crisis on the region, it is
important not to lose sight of these longer-term issues that countries need to tackle
to boost growth and create badly needed jobs. In many countries of Central and
Eastern Europe, the challenge is to finally put the economic crisis behind ? to
kickstart the financial sector and improve the business climate. In the Balkans,
deepening institutional reforms and improving governance are crucial. In Russia and
many neighboring countries, key are reforms to enhance competitiveness and create
sources of growth beyond oil and gas."
Signs of recovery
Some signs of hope show through in the region. Central and East European (CEE)
countries are expected to see growth accelerate to 2.5 percent in 2014 and to 2.8
percent in 2015 ? a significant improvement from the previous two years when
growth was very modest (0.8 percent in 2012 and 1.3 percent in 2013). But
recovery in the new EU member states remains mixed and growth in Western Europe
is disappointing.
Unemployment rates in several countries have peaked and are now showing signs of
improvement. While they remain above 10 percent in several CEE countries, they are
declining the most in countries such as Estonia, Latvia, and Lithuania, where
structural reforms and prudent policies were implemented swiftly. Given past trends,
these positive developments are expected to be reflected in higher income growth
for the bottom 40 percent of the population.
In the Western Balkans, economic growth is expected to drop from 2.4 percent in
2013 to only 0.6 percent in 2014, due to its debt overhang that is reducing financing
for business and lack of reform momentum, and then recover modestly to a
projected 1.9 percent in 2015.
Ukraine crisis
Meanwhile, in Ukraine, geo-political tensions have developed into a deep crisis for
the country. Recent trends point to a sharper decline in Ukraine's real GDP in 2014
and continued retrenchment in 2015 compared to earlier projections. Ukraine's GDP
is expected to contract 8 percent in 2014 and 1 percent in 2015.
The conflict in the east has disrupted economic activity, made collection of taxes
difficult, adversely affected exports, and hurt investor confidence. Meanwhile, weak
revenue performance, rising spending pressures, and a growing Naftogaz deficit
make fiscal adjustment more challenging. The current account deficit has adjusted
because of the sharp depreciation, but balance of payments pressures remain high
due to large external debt refinancing needs, low FDI, and limited access to external
financing. A prolonged confrontation in the east, constrained credit supply due to
risks in the banking sector, constrained domestic consumption, and investment
demand all pose risks and affect prospects for recovery.
Russian stagnation
In Russia, the World Bank warned earlier this year of an unfinished transition,
including ongoing problems in the business environment and heavy reliance on oil
revenues. Currently, the Russian economy is slowing as its past growth drivers have
weakened. GDP growth in Russia was just 0.8 percent in the first half of 2014,
compared to 0.9 percent in the first half of 2013.
Economic activity was already hamstrung in 2013 by lingering structural problems
and a wait-and-see attitude on the part of both businesses and consumers. An
additional negative impact on the economy ? besides slow structural reforms ? came
from increased geopolitical tensions and an uncertain policy environment. It is policy
uncertainty about the economic course the country will take that is casting the
longest shadow on Russia's medium-term prospects. There is a greater need for
reforms to enhance the business climate to build avenues for growth and less
reliance on the energy sector.
The Commonwealth of Independent States (CIS) economies have faced headwinds
due to the crisis in Ukraine and ongoing stagnation in Russia, however broad spillovers to other countries have been limited so far. Immense reliance of the CIS
economies on energy exports persists, and progress on structural reforms has
slowed. Growth for these countries is expected to be a meager 1 percent in 2014 and
to rise only slightly to 1.3 percent in 2015.
In Turkey, growth has also slowed from over 4 percent in 2013, but is projected to
stabilize at about 3.5 percent in 2014 and 2015.
Going forward
"The forecast for the Emerging Europe and Central Asia region remains tepid because
of deferred structural reforms, as well as ongoing weak growth in Western Europe
and stagnation in Russia," noted Hans Timmer, Chief Economist in the World Bank's
Emerging Europe and Central Asia region. "Economic growth in the region remains
lower than in most other regions of the world. Going forward, the emphasis should
be on improving governance and the investment climate, strengthening
competitiveness, ensuring the stability of the financial sector, and maintaining a
sound macroeconomic framework."
"To be sustainable in the longer term, economic growth and shared prosperity need
to be fiscally affordable, environmentally responsible, and conducive to social
inclusion," said Timmer.
The World Bank, working jointly with other World Bank Group institutions, is helping
its client countries in Emerging Europe and Central Asia address these and other
challenges to reduce poverty and boost shared prosperity through policy dialogue,
analytical work, project funding, and reimbursable advisory services.
8. Eurozone stagnation: sanctions on Russia spectacularly backfire on
Germany
Neil MacKinnon, VTB Capital
October 7, 2014
The economic outlook for the Eurozone continues to look poor. Now the problems
facing the Eurozone seem to have rotated away from the peripheral to the core
economies. Rather than a sovereign debt crisis or problems with the banking sector,
the crisis has become one of economic dimensions in which the core economies are
stagnating and falling into recession. Germany is beset by declining business
confidence as domestic demand dries up and export growth falters. The impact of
the sanctions on Russia has spectacularly back-fired on Germany and the rest of the
Eurozone.
Yesterday’s economic data, which reported a slump in German factory orders, is
likely to be mirrored in today’s industrial production data. More broadly, it is
probable that Germany will now face two consecutive quarters of declining GDP
growth, which economists label as a sign of recession. Elsewhere, France faces
similar recessionary conditions – exacerbated by domestic economic policies that
appear to have undermined business and consumer confidence. French government
spending as a percentage of GDP stands at 55%, which is unusually high for an
advanced western economy. Italy is in a triple-dip recession and is lumbered with a
government debt/GDP ratio of 135%. Across-the-board persistent and severe fiscal
austerity has dented economic growth, created deflation and pushed government
debt/GDP ratios to levels higher than in 2010. Now there is a severe debtdeflation
cycle at work.
Last week’s ECB meeting disappointed the markets in that there was insufficient
detail as to the actual size of the ECB’s proposed monetary stimulus. The ECB has
previously said that it wants to expand the size of its balance sheet by EUR 1tn to
EUR 3tn. Over the past year, the ECB’s balance sheet has actually been declining as
Eurozone banks repay cheap loans back to the ECB. In contrast to the Fed’s balance
sheet, which mainly consists of US Treasuries and mortgage-backed securities, the
ECB’s balance sheet consists of loans to the banking sector. As Eurozone banks have
deleveraged their balance sheets and reduced lending, there is less need to be
dependent on the provision of ample liquidity from the ECB. Indeed, during the
process of the ECB’s Asset Quality Review, which finishes later this month and is
designed to examine the health or otherwise of banks’ balance sheets, the banks
have been careful to avoid any stigma that might be associated with dependence on
ECB funding.
For as long as the ECB’s balance sheet fails to expand, the markets will be uncertain
as to the effectiveness of the ECB’s policy measures. Already, the launch of the first
targeted LTRO programme was under-subscribed and the next TLTRO is not until
December. The ABS loan program might turn out to be not big enough to make
much of a material difference to either reviving credit demand or securing an
economic recovery. A recovery in credit demand and the economy requires a gearshift toward pro-growth policies, but as yet this is not happening.
9. Flood of Capital Outflow From Russia Slows Sharply in Third Quarter
Reuters
October 10, 2014
Net capital outflows from Russia halved in the third quarter of the year, compared
with the previous quarter, balance of payments data published by the Central Bank
showed.
The size of capital outflows from Russia is closely watched as an indicator of the
strain placed on the economy by international sanctions and tensions with Western
nations over the crisis in eastern Ukraine.
An acceleration of outflows this year has led to a sharp fall in the ruble, and is also
reflected in declining investment and economic growth.
The bank said the net capital outflow by banks and companies reached $77.5bn
in the first nine months of 2014 compared with $45.7bn for the same period a year
ago.
The $77.5bn figure includes a negative adjustment for currency swaps of $9.1bn,
and a positive adjustment of $1.4bn for changes in banks' correspondence accounts
at the central bank.
The bank said the adjusted outflow was $5.7bn in the third quarter, down
from $10.2bn in the second quarter and $61.7bn in the first quarter.
Russia's trade surplus was $151.2bn in January-September and the current account
surplus at $52.3bn, the bank said on its website Thursday.
Read more here: http://www.themoscowtimes.com/article/508789.html
10. Russia to show no growth for two years
UralSib
October 7, 2014
Sanctions and policy tightening will hurt Russian economy … Although the immediate
impact of Western sanctions is likely to be limited, the indirect effects could turn out
to be quite substantial in light of the acceleration in capital outflows and the
decrease in investment activity.
The tighter monetary policy, the decision to freeze the self-funded component of
pensions and the creeping tax increase could end up having a larger effect on the
Russian economy than the sanctions themselves.
In our view, Russia should refocus on domestic economic policy and avoid further
distancing itself from its global economic partners.
… which will continue to stagnate in 2014-15. Given the negative impact of recent
geopolitical events and the government’s tightening of economic policy, we believe
that Russia may not be able to achieve its long-term economic growth potential until
2017. Our base-case medium-term outlook for the Russian economy continues to
envisage stagnation. In this environment, industry should continue to grow at a
sluggish pace thanks to partial import substitution. Weak growth will likely remain in
the retail, real estate, transport and telecom sectors.
11. Russia spends $980m reserves in one day to buoy ruble
AzNews
October 7, 2014
Russia's central bank spent $980m on Oct. 3, the biggest intervention to stem the
ruble's slide since President Vladimir Putin's incursion into Ukraine in March.
The monetary authority shifted the upper boundary of the ruble trading band by 10
kopeks to 44.60 yesterday, according to a statement on its website today. That
signals it spent at least another $700m because, according to official guidelines, it
sells $350m before shifting the boundary by 5 kopeks. The ruble was little changed
against the target dollar-euro basket to 44.5099 by 11:55 a.m. in Moscow, having
slumped the most in the world versus the dollar in the past three months.
"This does not mean that further weakness is ruled out," Vladimir Osakovskiy, a
Moscow-based economist at Bank of America Corp., said in e-mailed comments
today. "The trading corridor will be adjusted in line with any potential future
interventions."
Read more here:
http://www.azernews.az/bloomberg/71639.html?utm_medium=twitter&utm_source
=twitterfeed
12. Ukraine: No sovereign default risk so far
SP Advisors
October 10, 14
The redemption of a state-guaranteed $1.6bn Naftogaz Eurobond in late September
put a full stop to debates over the Ukrainian government’s commitment to smooth
sovereign debt servicing. The government now faces a tough but manageable FX
debt redemption schedule, with c. $6.3bn due up until December 2015 (incl. $2.5bn
in local FX bonds). The redemption of the $3.0bn Russia Eurobond in December 2015
will be the next milestone. Unless the conflict escalates further and feeds into a
deterioration of macro fundamentals, we expect the government will remain
determined to keep current on debt servicing. A possible violation of a Eurobond
covenant that limits public debt-to-GDP to 60% for Ukraine may move the
redemption date forward, but that feature adds little to the story. In that case
Ukraine would apparently need to refinance the debt in full by tapping alternative
sources, presumably new long-term loans from the US or the EU.
13. Ukraine one of worlds top ten inflation countries
bne
October 8, 2014
Ukraine earns the dubious honour of ranking in top ten highest inflation countries in
the world, but only just.
Plus the talk concerning inflation is centred on Russia recently, which is suffering
from three-year high inflation of around 8%, driven largely by soaring food prices
following's decision in August to slap an import ban on European Union agricultural
goods.
However Ukraine is suffering from a much more traditional type of information driven
by the central bank printing hryvna and dishing out to the population without having
the hard-currency to back up the value of the national currency.
Renaissance Capital's Charlie Robinson released a series a charts on October 8,
including one looking at countries with the highest inflation in the world (see below).
According to Rencap Ukraine is 10th place with 11% inflation, which is still a bit
better than Belarus' 19% and way behind Venezuela's 64%. However, it looks like
Ukraine might move up the ranking as inflation is still rising.
"After a period of seasonal deceleration during the summer, prices began increasing
again in September, posting growth of 2.9% m-o-m. Monthly inflation was flat last
September, meaning the year-on-year tally has accelerated to 17.5% from 14.2% in
August," Sberbank CIB said in a note on October 8.
However, Robinson goes on to put this in context with a second chart (below) that
looks at who had the highest inflation in 1994 shortly after the socialist world
imploded.
Ukraine is still there, and still in 10th place, but at that time its inflation was 891%.
A lot more of the former soviet republics are on this list, including the biggest of the
'Stans. But the biscuit goes to Democratic Republic of Congo with 23,773%.
What a difference two decades makes.
14. Ukraine shadow economy growing as one-third working illegally
Concorde Capital
October 8, 2014
Ukraine’s shadow economy is growing drastically, said on Oct. 7 Hryhoriy Osoviy, the
head of the Trade Unions Federation of Ukraine. Every third worker is working
illegally in Ukraine, accounting for $15.5bn in undeclared wages received by fivem
laborers, he estimated. As a result, the state lacks funds to make pension and social
payments. “The tax burden increasingly is shifted onto legal workers, the number of
which declines every year and is already less than 10m,” Osoviy said, as reported by
the Ekonomichna Pravda news site. “That is to say, these 10m are practically
supposed to provide their sustenance and that of the remaining 35m population. No
other European country has such an economic burden.” Ihor Bilous, the head of the
State Fiscal Service, estimated shadow wages in Ukraine at about $1.55bn per
month, the news site reported.
Zenon Zawada: Nothing better exemplifies the failure of the current government to
conduct necessary reforms than these statistics offered. The government should
have long ago taken measures to reduce the shadow economy. Reducing the heavy
taxes on wages would encourage employers to declare them and in turn, generate
significant revenue for the budget. These statistics indicate that the Ukrainian
economy is utterly dysfunctional and requires the “tectonic changes” declared by
Ukrainian President Petro Poroshenko, who is testing the patience of the public by
claiming to be waiting until after the Oct. 26 vote to pursue reforms.
15. Why is the ruble weakening?
Danske Bank
October 10, 2014
The Russian ruble saw the worst loss at 2.1% against the euro since the start of this
week (13.5% loss YTD). Against the US dollar the Russian currency’s heaviest loss
was 1.3% since 6 October 2014 (22.5% YTD). We have seen that both macro
fundamentals and sentiment have been sharply turning against the ruble since
summer 2014 despite the central bank’s hawkish monetary policy .
As the $has strengthened significantly against the major and EM currencies since
summer 2014, the oil price has continuously fallen, diving under $100/bbl for Brent
early September 2014. Through 2012-2014 our view on the ruble and the oil price
has been the following: correlation disappears as Brent price which is moving close
to Urals stays between $100-120/bbl. At those levels other factors had a bigger
impact on RUB than just the oil price: dollar liquidity abundance, risk sentiment,
geopolitics and seasonality. However, the new old correlation has come back (see
Figure 1) .
Despite the rapid decline in the oil price since early summer 2014 (-20.4%) under
$91/bbl, Brent’s average price is around $105/bbl YTD, which allows the Russian
budget to run a comfortable surplus and the current account surplus to grow further
in 2014 as%age of GDP on weakening ruble and falling imports (see Figure 2). Yet,
we see Russian fiscal stability at a serious risk if the average oil price stays at
$90/bbl or goes lower over the next 12 months .
Weak macro weighs over geopolitics Geopolitical risks are still present for the ruble
and the Russian economy. This means that new sanctions against Russia and
Russia’s counter-sanctions can arise anytime. Such an environment keeps the largest
consumers of FX in Russia nervous as those cannot be sure FX is easily and cheaply
available on new possible financial sanctions. We have seen that local banks and
corporations have been actively squirreling foreign currency. We have estimated that
total external debt maturing by the end of 2015 exceeds $150bn. Yet, by the end of
2014 just sanctioned entities are due to pay $15bn of FX debt, but the amount is
rising considerably in 2015. Till now the increased demand for FX has been driven
through FX swaps pushing ruble swap rates quickly down. To cover the need,
Russia’s central bank has introduced an FX swap mechanism promising more FX
though FX repo (seven and 28-day) in the near future .
Another reason for the rapidly weakening ruble are RUB’s active shorters as
fundamentals of Russian economy are not supporting the currency. The economic
environment has been deteriorating as fixed investments have fallen 2.5% y/y in
January-August 2014 and private consumption growth is slowing down on
accelerated inflation after the food imports ban was introduced. The Russian
economy grew just 0.8% y/y in August 2014 and we expect GDP to shrink 0.3% y/y
already in 2014, posting -1.8% in 2015 as accelerated capital outflows and tight
monetary policy continue to weigh on both supply and demand side .
To mitigate the rouble’s fast devaluation Russia’s central bank has actively sold FX
this week (mostly USD we believe), shifting the trading band for the dual currency
basket further up (see Figure 4). The latest shift reported was executed on 8
October, moving the band to 35.85-44.85. The amount of FX sold in the last three
days climbed to USD1.8bn.
We believe that the central bank is not against a steadily weakening rouble as the
rouble’s real effective exchange rate remains strong, but what scares the central
bank is the speed at which devaluation is happening. Thus, further FX interventions
will weigh on the country’s gold and FX reserves. At the same time, the major rating
agencies do not see any bright future for Russian economic growth in the near
future. We continue to reiterate that further rating downgrades are possible in the
current environment of Western sanctions.
Overall, we remain bearish on the outlook for the Russian rouble and we expect it to
remain under some pressure going forward. We continue to expect the rouble to
weaken faster against the USD than against the EUR. We continue to recommend
keeping elevated short-run hedge levels, especially for the USDRUB.
CREDIT NEWS
16. Oil Plunge Magnifies Russia’s Sanctions Pain: Chart of the Day
Bloomberg
October 8, 2014
Save
Oil prices that have plunged to a 27-month low are inflicting damage on a Russian
economy already contending with escalating sanctions from the and European Union
over its role in Ukraine.
Bloomberg's chart of the day shows how an average oil price of $90 a barrel, close to
where prices are now, would give Russia a budget deficit of 1.2% of gross domestic
product next year, according to Sberbank CIB, the investment bank of Russia’s
biggest lender. The right axis shows the budget balance as a percentage of GDP
under different oil-price scenarios. The left axis measures spending and revenues in
trillions of rubles.
Russia will require an oil price of about $104 to balance its budget in 2015, Sberbank
estimates. Brent crude, a benchmark for more than half the world’s oil including
Urals, Russia’s main export blend, declined more than $20 since its 2014 peak in
June and traded at about $92 a barrel today. It closed at $92.31 on Oct. 3, the
lowest since June 2012. The futures curve for Brent crude shows prices ranging from
$93 to $96 a barrel next year, having averaged $107 so far in 2014.
17. Brent extends slump to lowest since 2012 as WTI discount narrows
AzerNews
October 7, 2014
Brent crude extended its slump to its lowest price since 2012 and West Texas
Intermediate traded below $90 for a second day amid speculation that OPEC won't
cut production to reduce oversupply.
Futures slid as much as 0.6 percent in London, dropping for a fifth day and
narrowing the premium to the U.S. benchmark to the least in more than a year. The
Organization of Petroleum Exporting Countries is unlikely to reduce output before its
Nov. 27 meeting, even as supply exceeds demand, according to a person familiar
with OPEC policy. There is little to prevent a further sell-off in prices, even though
fundamentals didn't deteriorate in the past week, Morgan Stanley said in a report.
"Crude production is pushing oil prices down, while demand is kept low due to
slowing global economic growth," Hong Sung Ki, a senior commodities analyst at
Samsung Futures Inc., said by phone from Seoul today.
Brent for November settlement fell as much as 53 cents to $91.78 a barrel on the
London-based ICE Futures Europe exchange and was at $91.89 at 3:54 p.m. Sydney
time. The contract slid 1.2 percent on Oct. 3 to $92.31, the lowest settlement since
June 2012. Prices are down 17 percent this year.
WTI for November delivery fell 18 cents to $89.56 a barrel in electronic trading on
the New York Mercantile Exchange. The volume of all futures traded was about 17
percent below the 100- day average.
Read more here:
http://www.azernews.az/bloomberg/71589.html?utm_medium=twitter&utm_source
=twitterfeed
18. Euroglut: a new phase of global imbalances
bne
October 10, 2014
This report argues that both "secular stagnation" and "normalization" are incomplete
frameworks for understanding the post-crisis world. Instead, "Euroglut" - the global
imbalance created by Europe's massive current account surplus will be the defining
variable for the rest of this decade. Euroglut implies three things: a significantly
weaker euro (we forecast 0.95 in EUR/USD by end- 2017), low long-end yields and
exceptionally flat global yield curves, and ongoing inflows into "good" EM assets. In
other words, we expect Europe's huge excess savings combined with aggressive ECB
easing to lead to some of the largest capital outflows in the history of financial
markets.
Introducing Euroglut
The dust is settling on the Global Financial Crisis, and markets are now focusing on
the future. One prominent line of thinking is that the new normal is "secular
stagnation" - weak trend growth and very low neutral rates. Another view is that
"normalization" is around the corner - growth will soon return, and policy will
inevitably normalize faster, particularly in the US. In this piece, we argue that both
the "normalization" and "secular stagnation" frameworks are incomplete. Instead, it
is Europe's huge savings glut - what we call euroglut - that will drive global trends
for the foreseeable future. While euroglut seems similar to "secular stagnation", the
asset price conclusions are very different and far more powerful.
What is Euroglut?
Euroglut is a global imbalances problem. It refers to the lack of European domestic
demand caused by the Eurozone crisis. The clearest evidence of Euroglut is Europe's
high unemployment rate combined with a record current account surplus. Both are a
reflection of the same problem: an excess of savings over investment opportunities.
Euroglut is special for one and only reason: it is very, very big. At around 400bn USD
each year, Europe's current account surplus is bigger than China's in the 2000s. If
sustained, it would be the largest surplus ever generated in the history of global
financial markets. This matters.
Domestic policy implications
A domestic implication of euroglut is that FX weakening will not be an effective policy
response. Does the euro-area need an even bigger trade surplus? Europe faces a
problem of domestic, not external demand. The global environment is hardly
conducive to export-led growth either. Japan has engineered a close to 50%
appreciation in USD/JPY yet exports have failed to recover.1 This lack of FX
responsiveness does not mean that the ECB doesn't care. Absent fiscal policy or
other "animal spirit"-boosting initiatives, there is very little left for the central bank
than to push yields and the currency lower. QE in Europe will be ineffective, but it
will happen anyway - it is the only tool the ECB has to protect its mandate.
Global impact
Euroglut means that as the world's biggest savers, Europeans will drive international
capital flow trends for the rest of this decade. Europe will become the 21st century's
largest capital exporter. This statement is close to an accounting identity - a surplus
on the current account implies capital outflows elsewhere. Our premise is that the
next few years will mark the beginning of very large European purchases of foreign
assets. The ECB plays a fundamental role here: by pushing down real yields and
creating a domestic "asset shortage", it is incentivizing European reach for yield
abroad. Think about policy over the next few years: at least 500bn-1trio of excess
cash will be sitting in European bank accounts "earning" a negative rate of 20bps. In
the meantime, asset-purchases will drive yields down across the board - there will be
nothing with yield left to buy. The asset implications are huge:
1. Currency weakness. As equity, fixed income and FDI outflows pick up, the euro
should face broad-based weakening pressure. Our end-2017 forecast for EUR/USD is
95cents.
2. Very flat fixed income curves. What will Europeans buy? With the US Treasury bund yield spread at record highs, US fixed income should be a primary beneficiary
of European demand. "Secular stagnation" implies a low terminal Fed rate resulting
in low long-end yields. "Euroglut" suggests that the level of neutral Fed funds doesn't
matter. If there is sufficient demand for long- dated instruments, the US 10-yr yield
could easily trade below terminal Fed funds. It happened during the 2000s "bond
conundrum", it is even more likely now - global imbalances are bigger.
3. Good EM could survive. The Global Financial Crisis has seen a rotation of current
account surpluses away from EM to Europe. At face value, this makes EM more
vulnerable. But the sum of countries' current account surpluses is larger now than
before 2008, so there is more spare capital around. European current account
recycling should mean that the marginal demand for EM assets is likely to go up, not
down.
Beyond the Eurozone
Just like China's surplus drove most Asia policy in the 2000s, Euroglut will drive
policy across Europe. Two economies are already imposing currency floors to fight off
euro weakness (Switzerland and Czech Republic) and one more has imposed
negative rates (Denmark). Scandinavia, Switzerland and the CE3 economies are
likely to face continued pressure to ease more. All these countries are running
current account surpluses, meaning the potential for European capital outflows is
even larger. We could see an amplification of Euroglut: most of the European
continent could end up with negative rates or FX managed-regimes.
Conclusion
"Secular stagnation" and "normalization" rely on views around trend growth but
ignore global imbalances. It is these that remain the most important feature of the
global financial system. Europe is the new China, and via large demand for foreign
assets, it will play a dominant role in driving global asset price trends for the
remainder of this decade.
Read more here: http://www.bne.eu/page/bnecentral-europe-daily-list/euroglutnew-phase-global-imbalances
19. Finance Minister Says Russia's Grand Rearmament Plans are
Unaffordable
The Moscow Times
October 8, 2014
<i>bne: Siluanov is playing with fire here. This was exactly the issue there got
former Finance Minister Alex Kudrin sacked in 2011. It also highlights the division
between the liberals in government and Putin's political agenda. The liberal camp,
headed by Kudrin, is keen to reform Russia and put it on a sensible economic basis.
However, Putin has put aside economic concerns while he pursues his geopolitical
goals, which is getting the rest of the world to treat Russia as an equal. This clash in
priorities is manifest in the over defence spending. Russia can't really afford to
upgrade its army as much and as fast as Putin is demanding, however in order for
Putin's threats to the rest of the world to be taken seriously he wants to see the
army reformed as rapidly as possible to the detriment of the rest of the economy.
Putin's calculus has to be based on the assumption that Russia has enough reserves
and can earn enough money going forward to stave off any real disaster, even if
growth is subpar in the meantime. END</i>
Russian Finance Minister Anton Siluanov says that Russia will not be able to afford its
current level of military spending in the long term, as an economic slowdown amid
declining oil prices and Western sanctions forces Moscow to drastically alter
the expected funding environment.
Russia is currently pursuing a 20 trillion ruble ($500bn) rearmament program
through 2020, and announced last month that another defence program with
comparable spending is in the works for 2016-25.
The 2016-25 rearmament plans, however, may not enjoy the same lavish level
of funding as the ongoing program. "We want to reconsider the amount of resources
devoted in the course of this new program, so that they are more realistic," Siluanov
was quoted by RIA Novosti as saying Tuesday.
Siluanov explained that the current proposals for the program were formulated when
Russia's economic outlook was brighter.
Read more here: http://www.themoscowtimes.com/article/508569.html
20. Foreign banks turn to ruble bonds in Russia
FT
October 6, 2014
The two biggest foreign banks in Russia have been heavily tapping the rouble bond
market to replace funding from their parent companies in Europe as they rush to
reduce their exposure to the country.
Austria’s Raiffeisen Bank International and France’s Société Générale, which operate
the two biggest foreign-owned bank branch networks in Russia, have both issued
large amounts of rouble bonds for their Moscow-based operations in recent weeks.
They also illustrate how foreign banks with large operations in Russia are pushing
their offshoots in the country to finance themselves on a standalone basis, rather
than relying on credit lines from their western parents.
SocGen has issued about Rbs30bn ($750m) of bonds in the past two weeks, helping
to repay some of the €1.9bn in funding from the French parent group, according to
people familiar with the matter. The Russian bonds are a more expensive form of
finance for SocGen, costing it 10-11 per cent, against a coupon of about 4-5 per cent
it usually pays on its bonds.
At the end of last year, the French bank’s Russian operation had €8.5bn of deposits
and €13.5bn of loans.
Read more here: http://www.ft.com/cms/s/0/7c2926d4-4b2e-11e4-8a0e00144feab7de.html#ixzz3FLGNKDk9
21. Naftogaz decides not to procrastinate with debt settlement
Kyiv Post
October 10, 2014
Some investment analysts and policy advisers criticized the Ukrainian government’s
move to cover Naftogaz’s $1.67bn eurobond obligation on Oct. 1. The payment was
part of the state-owned energy giant’s $4.8bn debt servicing schedule for the year.
Since the hryvnia is at its weakest against the dollar, all payments in the American
currency are extremely expensive these days.
The eurobond settlement should have been postponed – or “restructured” in financial
jargon, said Viktor Kryvenko, a policy advisor at the Finance Ministry and
parliamentary candidate with Samopomich, a party that is betting on a younger
generation of politicians.
The logic is, according to Kryvenko, local demand for the dollar should be satisfied
and the budget is in a critical state.
“It may have been easier to restructure,” said an Oct. 3 note to investors by the
London branch of South Africa’s Standard Bank. “Difficult choices had to be made in
terms of spending priorities – debt service over public spending and higher taxes on
the energy sector. The price has likely been deeper recession, and less energy
security.”
Meanwhile, Oleksandr Valchyshen, head of research at Investment Capital Ukraine, a
major bond trader, says restructuring would be “suicide”. Maintaining the confidence
of foreign institutional investors is more important for the Ukrainian government
than saving $1.67bn.
Read more here: http://www.kyivpost.com/content/business/naftogaz-decides-notto-procrastinate-with-debt-settlement-367567.html
22. Structural changes for Russian government spending larger than
scheduled earlier
BOFIT
October 10, 2014
The government last week submitted to the Duma its drafts of the federal budget
and state social funds for 2015, along with the budget frameworks for 2016–2017 as
well as the finance ministry’s projection of consolidated government budget revenue
and spending (including regional budgets). The finance ministry sees consolidated
government spending rising over 11 % in nominal terms next year, slightly faster
than its previous estimate this summer. The ministry also expects a slight rise in
revenue growth to over 7 %. The deficit forecast remains at over 2 % of GDP.
Defence spending, of which virtually all comes from the federal budget, will rise next
year to even higher levels than planned earlier. In nominal terms, spending will rise
33 % from this year, will constitute 11 % of overall government spending and
correspond to over 4 % of GDP. As another change to earlier plans, however, the
finance ministry now foresees that defence spending will fall considerably after 2015.
Government spending policies have also been adjusted to reflect the fact that the
estimated spending on the various sectors of the economy will be notably larger in
2015–2017 than estimated this summer – even if the growth in spending will remain
much below the projected rate of inflation. The biggest spending increases have to
do with the transport sector and spending on the road network (e.g. Crimea
projects).
The finance ministry also expects spending on pensions and other social entitlements
to increase faster in coming years than foreseen in the summer plan. Spending
should rise fairly sharply next year (16 %). On the other hand, much of the increase
is due to pension savings included in the social spending figures. A return to this
pension savings scheme policy begins next year. Running social costs will grow at a
more modest rate (next year about 10 %). Social spending will rise to about 35 % of
government spending and to over 13 % of GDP.
The finance ministry sees other core government spending areas slightly more
squeezed in the years ahead than earlier. Growth in spending on education will at
best match the predicted inflation rate. Spending on healthcare will grow a couple of
percentage points faster than the inflation rate.
To ease the situation in the country’s different regions, the government will break
from earlier plans by increasing transfers of federal budget funds to regional
budgets, starting already this year.
Main areas of government spending, % of GDP
CREDIT OTHER NEWS
23. GDP levels in CEE revised up after introducing ESA2010 methodology
Erste
Croatia: For Croatia, there are two key indicators influenced by the new ESA2010
implementation - GDP and public debt figures. While the new methodology had a
minimal impact on the GDP figures, reshuffling on the average +/- 0.2pp from
historical data, public debt stock will be faced with a stronger adjustment, as the
figure should take a hit from the inclusion of the CBRD and highway related debt.
Bottom line, this implies the public debt figure increasing by approx. 10pp of GDP,
i.e. heading towards the 85+% of GDP region.
Czech Republic: As a result of a shift to the new ESA2010 methodology, Czech
nominal GDP went up 5% (LCY 203bn, EUR 7.4bn) in 2013, due largely to an
increase in the total amount of fixed capital formation (up 15.7%, LCY 161bn in
2013), which now includes (most importantly) R&D expenditure and smaller assets
like tablets and smartphones. Regarding the impact of the ESA2010 standard on
both nominal GDP and delimitation of the general government sector, the Czech
general government debt-to-GDP ratio came down marginally to 45.7%, from 46%
in 2013.
Hungary: Due to the new ESA2010 methodology, nominal GDP data has been
increased significantly, by 1.2-2.7% in 1995-2013. 2013 FY avg. real GDP growth
has been revised to 1.5%, from 1.1%, while the nominal GDP has been increased by
2.7% to HUF 29,900bn. As the accounting of R&D expenditures changed the most,
the gross fixed capital formation figures were heavily affected. Last year's
investment ratio is lifted to 19.9%, from 18.1% earlier. Our investment figure
expectation will likely be elevated by some 2pp this year, from 19.3%. Furthermore,
all of the GDP proportional ratios (public debt, external debt, C/A and trade balance,
FDI, etc.) figures are reduced. Public debt to GDP was 77.4% vs. 79.2% in 2013,
according to ESA2010. We are about to modify all of these forecasts soon.
Nonetheless, real GDP growth and CPI figures will likely be unchanged, as well as
market (forint, bond yield) forecasts.
Poland: One of the biggest impacts of the ESA2010 revision is an upward shift in
nominal GDP figures by around 1.5%, driven in part by an increase in the investment
level (due to including R&D expenses in that category). Despite higher GDP levels,
the growth dynamics have not changed much and do not affect our growth forecast
(3.1% this year and 3% in 2015). Moreover, we think that the latest revision may
help public finance figures, i.e. the debt-to-GDP ratio and general government deficit
(GDP%) may be slightly lower.
Romania: The ESA2010 methodology, which - apart from military expenditures and
R&D - will incorporate illegal activities, should nudge Romanian GDP by up to 1%.
According to some preliminary estimates by the National Institute of Statistics (INS),
the contribution of illegal activities to GDP should be to the tune of 0.1-0.2%. The
shadow economy is already included in the GDP calculation and it has averaged 2223% of the total economy over the last few years.
Serbia: On September 30, we should have already seen the final data on 2Q GDP,
but the release was postponed due to harmonization with the new ESA2010 and
revision of the system of national accounts. We still do not have information on when
we could expect this release, but we do not expect severe deviations from the flash
estimate of the -1.1% y/y growth figure, as the experience of other countries shows
that harmonization with ESA mostly affects levels of gross domestic product and not
yearly growth rates.
Slovakia: The new ESA2010 methodology is likely to lead to an upward revision of
2011-12 nominal GDP to between 1.2% and 2%. General government debt-to-GDP
is likely to be revised downwards by 0.3% to 0.4% of GDP for 2012, whereas its
2011 value should only change by -0.1% to - 0.2% of GDP. The budget deficit
(expressed as a percentage of GDP) is not expected to be revised much, with a 2011
revision of -0.2% to -0.1% and a very small (-0.1%) or zero revision in 2012.
According to the National Bank of Slovakia, government debt for 2013 is likely to be
slightly below 55% of GDP under the new methodology. Despite the fact that the
country owes more, this lower figure would mean that Slovakia has not passed its
own internal threshold under the so-called Debt Brake procedure. Lower government
debt in 2013 would be a result of the positive impact of ESA2010 on GDP. The
National Bank also outlined the possibility that the budget deficit for 2013 could be
higher under ESA2010, but still below the threshold of 3% of GDP.
Slovenia: According to official estimates of the Slovenian statistical office,
implementation of ESA2010 methodology increased 2013 GDP by 2%, while nominal
levels of the deficit and debt were not changed. Thus, fiscal figures were revised
downwards, with the deficit landing at 14.6% of GDP (vs. the previous -14.7%) and
public debt at 70% (vs. the previous 71.7%). As the 2013 changes were relatively
mild, we do not see stronger effects in 2014 and thus we are keeping our 2014
estimates unchanged at -4.5% of GDP for the deficit figure and 80.8% for the public
debt figure.
24. EM growth may well disappoint over next five years
George Magnus, FT
October 8, 2014
Serial disappointments in emerging country growth rates since 2011 has forced the
International Monetary Fund (IMF) to cut its five-year-ahead forecasts for a group of
153 emerging and low-income developing countries on six occasions since late 2011
(see chart).
However, in its latest World Economic Outlook, the IMF again assumes that current
disappointments will give way to restored equilibrium growth rates over the next five
years. But what if there is no equilibrium and emerging market (EM) growth
continues to disappoint?
It is now clear clear that the exceptional acceleration in emerging market growth
between 2006-2012 is over.
Even if the IMF predictions from 2015-2019 turn out to be correct (see chart below),
the Middle East and North Africa, and Sub-Sahara Africa would be the only
geographic regions where growth in those five years would be comparable with the
period from the mid-1990s to 2012, according to IMF statistics.
Read more here: http://blogs.ft.com/beyond-brics/2014/10/08/guest-post-emgrowth-may-well-disappoint-over-next-five-years/
25. New G7 with Russia emerges — Financial Times
TASS
October 9, 2014
A new G7 emerges, the Financial Times said on Wednesday.
The International Monetary Fund on Tuesday released its latest World Economic
Outlook. A striking new finding emerges: the seven largest emerging markets are
now bigger, in gross domestic product terms, than the long established G7 group of
industrialized nations, when measured at purchasing power parity (PPP), the British
daily said.
BRICS has no ideology, hidden agenda — Russian deputy FM
A hypothetical new G7, comprising the BRICS' Brazil, Russia, India and China and
three of the so-called MINT economies Mexico, Indonesia and Turkey — has a
combined GDP of $37.8 trillion (at purchasing power parity) compared to $34.5
trillion for the old G7 Canada, France, Germany, Italy, Japan, the UK and the US.
The new attempts to measure GDP also confirm that, in PPP terms, China is now the
world's largest economy, overtaking the US (as revealed by the FT in April). At
market exchange rates, the US economy is worth $17.4 trillion and the Chinese
stands at $10.4 trillion. With an adjustment for relative prices, China’s economy
moves up to first place, with a GDP of $17.6 trillion.
Russia is the sixth among the new top 10, ahead of France and the UK. “The new
estimates point to a dramatically changed world: half of the twenty largest
economies are now emerging markets and half are from the established rich world,”
the Financial Times said.
Read more here:
http://en.itar-tass.com/economy/753405
26. Russia considers 'offshore amnesty' - report
RAPSI
October 9, 2014
Russian authorities are considering amnesty aimed at moving assets from tax havens
to the country, Izvestia newspaper reports on Thursday, citing an undisclosed source
with direct knowledge of the matter.
State Duma lawmaker Mikhail Serdyuk (A Just Russia party) reportedly came up with
an idea which was supported by speaker of the parliament's upper house Valentina
Matviyenko.
Several solutions to the capital flight problem linked to tax havens are discussed at
the moment, according to the newspaper. Some suggest to exempt businesses from
paying taxes on assets which are moved back to Russia. Others reportedly suggest
to reduce taxes for such businesses.
President Vladimir Putin called in December 2013 for a renewed crackdown on
Russian companies that dodge taxes by registering in offshore jurisdictions. Over
$110bn of Russian money passed through offshore companies in 2012, equivalent to
one-fifth of the nation’s exports, Putin said during his annual State of the Nation
address.
As a result, Russian senators and the Finance Ministry have proposed their bills.
Upper house members proposed denying the offshore companies access to state
support via Vnesheconombank, state guarantees, and government contracts.
The Finance Ministry’s bill would bind Russian citizens and legal entities to tax
liabilities related to the revenue of the foreign companies they own.
27. Russia in world's top ten for current account surplus
bne
October 8, 2014
Russia makes it into the top 10 countries with the largest current-account surpluses
in the world, according to a chart released on October 8 by Renaissance Capital's
chief economist Charlie Robinson.
Russia comes in 10th place with $56 billion in 2014 so far. The surprises that China
is without United $5 billion is beaten smartly by Germany with $237 billion.
Unsurprisingly half the countries of the list are oil exporters, however more
interesting amongst the non-oil exporters include countries such as Switzerland and
then the Netherlands, who must make their money from financial services.
The size of Russia's current account surpluses benefiting from the recent devaluation
of the ruble which is depressing imports and making the surplus bigger. This extra
cash will help and go along way to offsetting the $100bn-plus of capital flight that
Russia is expected to lose this year.
28. Russian capital outflows slowing, but still high
S&P
October 8, 2014
Private capital flows were very volatile in the first half of the year. After a surge in
Q1, when net capital outflows reached $50bn, the pace of outflows slowed in the
second quarter to $25bn.
Excluding the transactions between the central bank and commercial banks (foreign
currency swaps and corresponding accounts of resident banks with the Central Bank
of Russia), the slowdown was even more pronounced, to $12bn of net outflows from
$62bn. However, the total for the first half of the year was still more than double
that in the same period of 2013 on both measures.
The Central Bank of Russia is very optimistic about the slowing of capital flight next
year and even thinks the flows will reverse in the coming couple of years.
The much slower pace of net capital outflows in Q2 was attributable to a decrease in
outflows by Russian residents, while foreign flows turned negative in the second
quarter (there was still some positive inflow of foreign capital in Q1).
These developments were in line with our expectations of slowing cross-border flows
in both directions.
In our March report we noted that Russian investment abroad may decrease, in part
because investors may become more cautious about investing in foreign assets in
light of potential sanctions (see "Russia-Ukraine: An Unfolding Crisis," published on
March 28, 2014).
Another reason for lower outflows by Russian residents was the slowdown in the
"internal capital flight," which accounted for a significant part of capital outflows in
Q1. In the first quarter, Russian households responded to the increased uncertainty
and the depreciation trend by converting rubles into foreign currency, acquiring more
than $10 billion dollars in cash. In Q2, households purchased less than $2 billion
dollars.
Also, domestic banks improved their net foreign asset position by $34 billion in Q1
(excluding the transactions with the central bank), compared to only by $3.6 billion
in Q2.
Given heightened tensions between Russia and Ukraine in the third quarter, we
believe that net capital outflows will have increased further over the quarter, and
expect them to remain volatile over the forecasting horizon.
29. Inflation-Racked Russia Considering Price Controls
WSJ
October 10, 2014
Russia’s government is considering freezing prices for some “socially important”
goods as inflation nears a four-year high, the government newspaper Rossiyskaya
Gazeta reported on Thursday.
Russia had been aiming to bring inflation to a post-Soviet low of 5% this year, but
the annexation of Ukraine’s region of Crimea ruined the plan. The annexation and
the subsequent sanctions imposed by Western countries have put pressure on the
ruble, making imports more expensive. The Kremlin’s decision to ban food imports
from states that have sanctioned Russia has further spurred already burgeoning
inflation.
Russia’s Industry and Trade Minister Denis Manturov said in an interview with
Rossiyskaya Gazeta that the government may artificially stabilize prices for some 40
vital goods if a price jumps by more than 30%. He did not say what these goods
were or when the price freeze may happen.
Inflation was expected to subside in August and September thanks to a solid harvest.
But food inflation failed to slow in the past two months after Moscow banned imports
of fruit, vegetables, dairy products, fish, meat and poultry from the European Union,
the U.S., Australia, Canada and Norway. The ban was imposed in early August and is
set to last for one year.
After the imports ban, annual consumer inflation rose to 8% in September from
7.6% in August. Prices for meat and poultry jumped 16.8% on the year in
September, while prices for fish and seafood rose 14.1%. Growth in food prices has
continued, with prices of cucumbers increasing by 7.6% in just one week to Oct. 6.
Read more here: http://online.wsj.com/articles/inflation-racked-russia-consideringprice-controls-1412852539
CREDIT CE
30. Central Europe and Baltics set for gradual recovery despite Russian and
Ukrainian weakness
bne
October 10, 2014
Gradual economic recovery will continue in Poland/Central Europe and the Baltic
countries in 2015-2016 despite the Russia-Ukraine conflict, which is making Russia
start to stagnate and causing Ukraine's GDP to plunge this year. But growth in
Poland, Latvia and Lithuania will be moderate. In Estonia - which is also squeezed by
Finland's stagnation - it will remain weak. Short-term growth will also be squeezed
by a temporary economic slump in Germany and the euro zone. Zero growth can be
expected in the euro zone during the second half of 2014, partly due to uncertainty
about the Ukraine crisis, writes SEB in the latest issue of its twice-yearly Eastern
European Outlook.
Growing private consumption and a resumed German/euro zone upturn in 2015 will
offset lost exports to Russia and Ukraine as well as plummeting investments due to
geopolitical worries. Households are benefiting from continued good real incomes
(especially in the Baltics) and low interest rates: both largely due to continued very
low inflation. Direct trade ties between conflict-hit countries and individual Central
and Eastern European countries are also relatively small, except for the Baltics and a
number of other former Soviet republics.
SEB expects the Russia-Ukraine conflict to be long-lasting. The growth forecasts
presented in Eastern European Outlook are based on the key assumptions that the
conflict will not escalate militarily, no serious disruptions to Russian energy deliveries
to Europe will occur and trade sanctions between the West and Russia will not be
tightened. The current sanctions - which SEB believes will have a relatively small
direct impact - will presumably remain in place during most of 2015.
"We are sticking to last spring's assessment that the conflict will have only minor
negative effects at the global level. Direct exports to Russia from individual countries
are relatively small, except for the Baltics, Finland and nearby former Soviet
republics. But geopolitical uncertainty will also blunt investment appetite, at least in
the short term, not only in the vicinity of the crisis area but broadly across Europe,"
says Mikael Johansson, Head of Eastern European Research at SEB and Chief Editor
of Eastern European Outlook.
Read more here: http://www.bne.eu/page/bnecentral-europe-daily-list/centraleurope-and-baltics-set-gradual-recovery-despite-russian
31. Hungary bond 2014-2015
Erste
October 8, 2014
Local currency bond supply is expected to be strong, as the budget deficit is
expected to grow next year, given the already known fiscal loosening measures (e.g.
further tax relief for 2-child families, tax deductions for banks on FX Mortgage Relief,
etc.). Furthermore, the government plans no FX issue next year; FX redemptions
should thus be covered by HUF issues as well.
This year, Hungary has to cover a total of EUR 5.4bn in FX redemptions. Next year,
FX redemptions will only amount to EUR 2.4bn. However, the government plans no
Eurobond issues for the whole year, and the demand for local EUR-denominated
bonds will drop significantly, as only retail investors will be eligible for them. The
demand for local currency bonds, however, could fall notably next year. On one
hand, foreigners have built up a massive position in HUF bonds, while the
depreciation of the forint may discourage these investors from renewing the
maturing bonds. On the other hand, local demand may drop as well, as the ample
forint liquidity of banks could drop significantly next year. Firstly, the conversion of
FX mortgages (EUR 12bn, HUF ~3800bn) will swipe a substantial amount of the HUF
4800bn in extra liquidity of banks (two-week deposits at the central bank). Secondly,
the signs of intensifying lending activity after a few years of coma should also reduce
bank demand for government bonds.
The importance of pension funds is still very low after the destruction of the
mandatory private pension fund system. The remaining voluntary pension funds also
lack strong fund inflows. As for mutual funds, the fund inflow was rather strong in
the last few years, as their ex-post returns were far more attractive than the ex-ante
interest rates of bank deposits. However, this process will likely turn back, as the
central bank rate cuts have finished and the banks will need more liquidity.
These factors will likely lead to increasing bond yields next year, in spite of the
extremely loose monetary policy and QE measures by the ECB. We expect 10-year
bond yields to stay at 4.8% by end-2014, while they may increase to 5.0% by end2015.
Other factors
Besides these factors, we have to note that the central bank’s so-called SelfFinancing Plan was quite successful in increasing the demand for local bonds and
decreasing long-term bond yields. However, the flow effect (shift from two-week bills
to govies) of this measure ended in August, so the additional demand is declining
significantly. This has already resulted in a correction of long-term bond yields.
It is also an important factor that many foreign investors in Hungary consider dollar
bonds as a benchmark for HUF bonds. The increasing expectations of a Fed rate hike
in 1H15 have already resulted in an upward shift in the 10-year US bond yield
(2.56% vs. the 1.04% Bund yield). A further increase in US rates could force
Hungary’s long-term bond yields higher, in spite of the record-low German rates.
32. IMF calls on Lithuania to build buffers against external shocks
bne
October 10, 2014
An International Monetary Fund (IMF) mission visited Vilnius during September 30 October 6, 2014, to discuss economic developments and government policies with
the Lithuanian authorities. At the conclusion of the visit, Mr. Christoph Klingen, IMF
mission chief for Lithuania, made the following statement:
"Economic performance has held up well in a difficult external environment. Despite
some softening in the second half of 2014, momentum in domestic demand and
favorable external competitiveness should ensure growth of 2.9 percent this year. A
moderate pickup to 3.1 percent is expected for 2015 as external and credit
conditions improve and as the reform efforts of the past few years bear fruit. But
better external conditions are far from assured, putting a premium on policies that
emphasize preserving and building buffers.
"Euro adoption in 2015 is testimony to Lithuania's economic success and a welcome
boon to the economy that will further cement Lithuania's firm place in Europe. Policy
frameworks critical for long-term success in the currency union are being
established: a broad macroprudential mandate for the Bank of Lithuania is now in
place; and legislation for prudent fiscal policy over the business cycle is well
advanced. In practice, a strong fiscal council will be needed to guard against procyclical fiscal policy in upswings. Successful euro area membership also requires
close alignment of wage and productivity developments, together with continued
economic flexibility.
Read more here: http://www.bne.eu/page/bnecentral-europe-daily-list/imf-callslithuania-build-buffers-against-external-shocks
33. Poland bond 2014-2015
Erste
October 8, 2014
Poland has already finished financing this year’s borrowing needs and in 4Q14 it
should start to pre-finance next year’s financing needs. The Ministry of Finance plans
an increase of next year’s gross borrowing needs to PLN 154.8bn, i.e. around 9% of
GDP (from PLN 127bn this year). This includes PLN 100.8bn in maturing debt, while
net borrowing needs constitute roughly one third (PLN 54bn vs. PLN 47bn in 2014).
The increase mainly reflects the setting of the maximum level of the budget deficit in
the amount of PLN 48bn (vs. a budget deficit of PLN 34bn this year) and the budget
deficit of European funds at EUR 3.5bn (EUR 391mn in 2014). Although we see some
downward risk to the economic growth and inflation rate assumptions of the Ministry
of Finance (3.4% and 1.2% on average, respectively), in our view, the expected
revenues and expenditures are planned cautiously, and we see overshooting of the
planned deficit as unlikely. As there is little maneuvering space left to increase
government spending (if Poland wants to exit EDP in 2016), the supply of bonds
should remain limited.
Foreign investors are the main buyers of Polish papers (they hold almost two thirds
of debt) and we expect them to keep that role in the near future. These are mostly
stable and long-term investors (such as central banks, pension and investment
funds) looking for attractive - but still safe - returns. The Polish bond market should
continue to offer these conditions. The high share of foreign investors, however,
bears a risk of capital withdrawal in the case of market turbulence, but their longterm character (roughly half of the securities held have an average maturity above
seven years) reduces the roll-over risk compared to short-term maturity papers.
Thus, the strategy to extend the average maturity (T-bills are already withdrawn)
attracts such investors and may discourage domestic banks from buying, as they
prefer shorter maturity. Other buyers include investment funds and insurance
companies (non-banking sector) and we expect their share to increase only in the
long-term perspective.
Other factors
Despite the expected increase of borrowing needs for the next year, the overall
supply of bonds dropped when the pension system reform was introduced earlier this
year, which should support a lower level of yields. Moreover, the reform changed the
currency and debt-holder structure of the debt. First, the share of debt denominated
in foreign currency increased from 32% to 35%. The strategy, however, assumes a
targeted share of 30%, which implies lower net issuance of Eurobonds in the near
future. Further, the absence of Open Pension Funds that had played the role of
‘market stabilizer’ could make the Polish bond market more sensitive to global trends
and core markets’ behavior. If German Bunds remain stable until the end of the
year, as we currently expect, we should not see any major upward move on the long
end, as domestic factors (expectations for rate cuts in Poland) favor a low level for
yields as well. All in all, we currently see 10Y yields close to 3% at the end of the
year, which makes the market conditions attractive for pre-financing. We expect the
Ministry of Finance to have around 15% of next year’s borrowing needs pre-financed
by the end of the year. In particular, for the medium term, we expect 10Y yields to
moderately increase toward 3.2% in 1H14, as we presume a steepening of the
curve, due to the improving economic outlook (both in the Eurozone and Poland).
34. Ukraine Economy: How Deep are the Waters?
SP Advisors
October 8, 2014
The Ukrainian economy is facing its most difficult challenge since the transition
period of the 1990s. The annexation of Crimea and the occupation of industrialized
Eastern Ukraine by Russian troops and local terrorists have reshaped economic ties
within the country. We estimate it will take up to one year for the full economic
adjustment to take place. The current war zone is likely to remain out of Kyiv’s
control for some time to come, in our view, meaning part of the economy will
effectively come to a complete stop, which will weigh on overall economic
performance. We now see Ukraine’s GDP continuing to contract through 1H15. The
decline in exports from eastern industrial companies will keep Ukraine’s C/A balance
in negative territory even though a strong adjustment in imports is also taking place
on the back of the hryvnia depreciation. The currency will remain under pressure,
but the current shadow market exchange rate of UAH 14.0-14.5/USD looks
somewhat high. NBU reserves are likely to remain largely flat thanks to generous
IMF funding. The state budget deficit will widen to 4.8% of GDP in 2014 and will be
covered mainly with IFI money.
The economy will dive in 2H14-1H15 before bottoming out
This economic crisis will be comparable to the 2008/09 downturn in terms of the
depth of the GDP decline (GDP fell 14.8% yoy in 2009) but it will be longer lasting
and with the prospects for a reversal entirely unclear.
What is clear is that the war zone wasn’t shaped haphazardly – it accurately cuts the
key industrial companies of the region out from Kyiv-governed territory. The
terrorist-controlled region apparently lacks an important element – the Azov
seacoast city of Mariupol with its cargo sea port and two of Ukraine’s top-3
metallurgical plants. The seizure of Mariupol was fortunately prevented by Ukrainian
military forces, which continue to stand ready to defend the city at all costs.
Industrial production in Donetsk Oblast slumped 59% yoy and in Luhansk Oblast by
a whopping 85% in August. By contrast, industry fell 21% yoy overall in Ukraine.
The August industrial production data clearly show where the bottom could be for the
Ukrainian economy – output in key sectors of the economy is unlikely to be much
better than the August data for the next 6-9 months. Monthly production of coal fell
60% yoy, metallurgy cut output 30%, and production in the machinery sector shrank
31%. Retail trade contracted 17% yoy. A part of the decline is due to the inability to
collect statistics in the war zone, but that’s just a small part of the explanation.
The war in the east, combined with banking sector vulnerabilities, and Russia’s
aggressive trade policy trigger more fundamental problems:
- A major deterioration in business sentiment, which has led to a full halt in
investment activities in Ukraine. We expect fixed capital investment will fall 30-35%
yoy in 2014 as companies cut expenses to the bare minimum maintenance CAPEX.
- A worsening of the consumer mood on the back of high inflation and the ongoing
reduction in real incomes. According to GFK, the consumer confidence index fell a
remarkable 10.4 points from July to 54.7 in August.
- Exports are falling as many key exporters from the war zone have scaled down
operations. Russia’s aggressive trade war is another concern as the politically
motivated non-tariff barriers continue to bite. Trade preferences from the EU should
compensate for the loss of the Russian market, but that will require time.
Overall, we see the economic decline deepening substantially in 2H14. GDP growth
numbers will remain deep in the red at least though 1H15 due to a relatively high
comparison base. If no major shocks emerge politically, militarily, or economically
we expect the trend to flatten out only in 3Q15, while any return to growth is
possible no earlier than 4Q15. We project a 9.5% yoy GDP decline for 2014 and a
further 4.3% contraction in 2015.
C/A issues remain despite heavy hryvnia depreciation
The deep hryvnia depreciation narrowed the C/A deficit to USD 2.7 bln in 8M14 from
USD 9.0 bln in 8M13. In August alone the C/A was fully balanced – a sharp contrast
to the USD 1.8 bln monthly deficit a year previous. The improvement was mainly
helped by a drastic decline in the import of goods, which reached 42% yoy in August
and 22% in 8M14. While the trend is apparently positive, some concerns remain:
(i) The decline in goods exports (-17% yoy in August, -8% in 8M14) will accelerate
through the year-end due to interruptions to key exporters’ operations in the Donbas
– this would require an even stronger adjustment in imports if the C/A were to
remain balanced.
(ii) Imports of natural gas declined 86% yoy in volume terms in August since Ukraine
isn’t purchasing gas from Gazprom due to the gas price dispute. Once Ukraine
returns to a normal gas purchase schedule, the C/A deficit will reemerge.
We forecast Ukraine’s C/A deficit at close to 3.0% of GDP in 2014 and we expect it
will narrow slightly to 2.9% in 2015 as a weaker hryvnia and falling real household
incomes keep imports on a downward trend in the coming months.
Financial account hurt by debt, FDI outflows
Ukraine continues to see capital outflows as companies and banks have lost access
to international credit markets and are having real difficulty refinancing maturing
obligations. Moreover, Ukraine is on course to post annual net FDI outflows (-USD
0.6 bln in 8M14) for the first time in its history. Another major source of concern is
FX outflows to the cash market, which will persist at least through end-1Q15. IFI
money to the state sector is the only source of foreign money inflows that is
preventing a further deterioration of the financial account. Ukraine’s financial account
will see a major one-off decline when Naftogaz repays the USD 3.1 bln debt due to
Gazprom, but this will seemingly – as of right now – take place no sooner than in
2015.
The C/A and financial account deficits will have to be covered with NBU reserves.
NBU injections will mainly be done through direct FX sales to Naftogaz and via FX
auctions to commercial banks. We nonetheless expect central bank reserves to
remain at current levels through end-2015 thanks to an active IMF-Ukraine program.
Net IMF funding is scheduled at USD 8.9 bln through end-2015, split between the
NBU and the government.
Hryvnia to remain under pressure
The negative market sentiment will keep the local FX market nervous in the coming
months. The NBU has thus far failed to bring the market exchange rate close to the
“indicative” rate of UAH 12.95/USD using administrative tools. The equilibrium rate
in the shadow cash market is currently range-bound near UAH 14.0-14.5/USD. In
our view, it is only a matter of time before the NBU admits the “indicative” dollar
rate is too low and sanctions another wave of official depreciation. At this time we
see the exchange rate appreciating slightly to UAH 13.7/USD through end-1H15, and
further to UAH 13.3/USD in 2H15.
Budget deficit to reach 4.8% of GDP, to be covered with IFI borrowings
Tax revenues are holding up fairly well, supported by a combination of high inflation,
hikes in excise taxes and royalty rates, the elimination of some tax avoidance
schemes, and (unfortunately) persistent strong fiscal pressures on companies. In
September, state budget proceeds declined 9.3% yoy, but the decline was purely
technical as a sizable transfer by the NBU to the budget last year pumped up the
comparison base. Net of NBU transfers, the budget saw a 7.0% increase in revenues
– quite a decent result given that a large part of the Donbas economy contributes
practically nothing to the state budget. On the other hand, the potential to offset the
cutoff in tax inflows from the war zone via compensatory measures like tax rate
hikes is limited. We forecast 5% growth in state budget revenues in 2014, below the
13% projected by the budget law.
On the expenditures side, a tiny 5% increase in budget outlays in 8M14 was fully
utilized to cover depreciation-inflated state debt servicing needs and boost military
spending (+37% yoy, 4% of budget spending). Nearly all other key expenditure
items declined yoy. An unfortunate factor that keeps expenditure growth in check is
the inability to deliver social payments to recipients and to fund healthcare/education
infrastructure in the war zone. Those payment interruptions will apparently result in
huge accumulated arrears that will weigh on the central government budget in the
coming years.
We see the state budget deficit at 4.8% of GDP, above last year’s 4.4%. The
projected budget shortfall doesn’t include UAH 6.7 bln (0.4% of GDP) in
compensation for VAT arrears, contributions to Naftogaz’s share capital (UAH 96 bln,
or 6.4% of GDP) that facilitated the redemption of the company’s Eurobond, and
possible bank recapitalization costs – all of these are non-cash expenses covered via
T-bill transfers. The sources of cash to cover the state budget gap are at present
limited solely to borrowings from IFIs. The government has thus far received c. USD
6.3 bln in external loans and at least USD 2.0 bln will come in 4Q14. This is entirely
sufficient to keep government liquid through 2014. Meanwhile, domestic borrowings
are stagnating as liquidity issues have kept commercial banks’ interest in T-bills
subdued.
The fiscal deficit will remain in the range of 4.5-5.0% of GDP for at least the next
two years, by our estimates. The government will seek to compensate an inflationdriven decline in households’ living standards via higher salaries for public
employees, social payments, and pensions. The need for a further increase in
military spending is also apparent. We therefore see no chance of a narrowing of the
fiscal gap any time soon. Consequently, raising money from IFIs and foreign
governments will be a key agenda item in the coming years.
No sovereign default risk so far
The redemption of a state-guaranteed USD 1.6 bln Naftogaz Eurobond in late
September put a full stop to debates over the Ukrainian government’s commitment
to smooth sovereign debt servicing. The government now faces a reasonable debt
redemption schedule, with c. USD 6.3 bln due up until December 2015. The
redemption of the USD 3.0 bln Russia Eurobond in December 2015 will be the next
milestone. Unless the conflict escalates further and feeds into a deterioration of
macro fundamentals, we expect the government will remain determined to keep
current on debt servicing. A possible violation of a Eurobond covenant that limits
public debt-to-GDP to 60% for Ukraine may move the redemption date forward, but
that feature adds little to the story. In that case Ukraine would apparently need to
refinance the debt in full by tapping alternative sources, presumably new long-term
loans from the US or the EU.
35. Poland: NBP cuts more than expected but more is needed
Danske Bank
October 8, 2014
At its Monetary Policy Council meeting (RPP) today, the Polish central bank (NBP) in
a
fairly surprising move decided to cut interest rates more than expected. It cut the
key
policy rate by 50bp bringing it down to 2.00%. Also, it cut the Lombard rate by
100bp
from 4.00% to 3.00% while it left the deposit rate unchanged at 1.00%.
Polish rates and yields dropped on the decision while the Polish zloty has lost a bit;
however, the move in the zloty was quite limited, in our view.
We have been calling for monetary easing in Poland for a long time. There were clear
signs that the economy has been slowing down while inflation dropped below zero
and
Poland faces the deepest deflation pressures among other CEE countries. Despite the
NBP being very reluctant to acknowledge that further easing is needed, the dovish
wording has strengthened within the RPP over the past two months and after the
September RPP meeting, the central bank clearly signalled that it is ready to cut in
October.
Even though a rate cut today was a done deal, a cut of 50bp was more aggressive
than
most market participants expected.
Should we expect more?
We think that more easing is needed and we expect the NBP to ease monetary policy
further in the coming months. However, given the larger rate cut today, the NBP
might
take a breather before it cuts again. Hence, the NBP might pause in November but it
might deliver 25bp in December and more next year. When we look at our inflation
model, we expect deflation to deepen further in the coming months while economic
growth should slow further. This clearly strengthens the case for further easing.
On our outlook for monetary policy in Poland, we remain bearish on the Polish zloty
in
all forecast horizons. Our bearish outlook on the PLN is reflected in our FX Strategy –
Corporate Hedger: hedging PLN, HUF and CZK exposures, 23 September 2014. We
forecast the EUR/PLN at 4.30, 4.30 and 4.35 in three, six and 12 months.
CREDIT EA
36. Gold, currency reserves of Azerbaijan comparable to its GDP
AzerNews
October 10, 2014
Gold and currency reserves of Azerbaijan are comparable to the GDP of the country.
Vice-Speaker of the Parliament Valeh Aleskerov made the remark at a meeting of the
Standing Commission of the CIS Interparliamentary Assembly on culture,
information, tourism and sport in Baku.
"Azerbaijan is an independent state in all respects," Aleskerov said. "It is a small
country, but a great power. Gold and currency reserves of Azerbaijan are
comparable to the country's GDP, and public external debt is only 8 percent of GDP."
He also noted that Azerbaijan is a country of the highest tolerance, which is proved
by a large number of international events held in the country.
Read more here:
http://www.azernews.az/business/71806.html?utm_medium=twitter&utm_source=t
witterfeed
37. Moody's assigns provisional senior unsecured (P)Baa2 rating to
Kazakhstan's $10 billion MTN programme
Moody's
October 8, 2014
Provisional senior unsecured (P)Baa2 rating also assigned to first two sovereign
eurobonds issued under this programme
Frankfurt am Main, October 08, 2014 -- Moody's Investors Service has today
assigned a provisional senior unsecured (SU) (P)Baa2 rating to the Government of
Kazakhstan's $10 billion medium term note (MTN) programme. Concurrently,
Moody's also assigned a preliminary SU (P)Baa2 rating to the first two sovereign
eurobonds issued under this MTN programme, a 10-year Eurobond in amount of $1.5
billion due in 2024 and a 30-year Eurobond in amount of $1 billion due in 2044.
These ratings mirror the Baa2 issuer rating assigned to the Government of
Kazakhstan, last affirmed at Baa2 on 16 August 2013.
RATINGS RATIONALE
Kazakhstan's key credit strengths include strong economic growth, the relatively
large size of the economy, very low public debt and correspondingly high debt
affordability. Its rating is also supported by its very sizable foreign-exchange
reserves, which provide a significant buffer against external shocks. Kazakhstan's
key credit constraint is its low institutional strength, as reflected in a high level of
corruption, low government effectiveness and a weak rule of law. In addition,
Kazakhstan's economy remains highly vulnerable to shocks from the oil sector, and
susceptible to domestic political event risk related to the uncertainty over
presidential succession.
The positive outlook on Kazakhstan's Baa2 rating reflects (1) the country's
favourable GDP growth outlook, driven by the expected increase in oil production
from the Kashagan oil field; (2) the reduction in recent years in the contingent
liabilities arising from the banking sector; and (3) the diminution of external risks in
view of the elevated external assets in the National Oil Fund and the decline in
external debt-to-GDP.
WHAT COULD CHANGE THE RATING UP/DOWN
Upward pressure on the rating could develop if the country's institutional strength
(e.g., the rule of law and the level of corruption) were to improve, and/or economic
diversification were to broaden beyond commodities and consequently reduce
economic volatility. In the short term, accelerating output from the Kashagan oil
field, increasing FX reserves and greater clarity on presidential succession could
exert upward pressure on the rating.
Kazakhstan's government bond rating would come under downward pressure as a
result of a prolonged period of low commodity prices, assuming unchanged economic
diversification levels. The rating would also come under pressure from a material
deterioration in the government's net worth (higher debt, lower assets), since this
would erode its main advantage over similarly rated governments that have more
robust institutional strength. Furthermore, a political crisis (e.g., related to the
presidential succession) could also put downward pressure on the rating.
GDP per capita (PPP basis, US$): 14,391 (2013 Actual) (also known as Per Capita
Income)
Real GDP growth (% change): 6% (2013 Actual) (also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 4.8% (2013 Actual)
Gen. Gov. Financial Balance/GDP: 5% (2013 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -0.1% (2013 Actual) (also known as External
Balance)
External debt/GDP: 68.5 (2013 Actual)
Level of economic development: Moderate level of economic resilience
Default history: No default events (on bonds or loans) have been recorded since
1983.
On 25 September 2014, a rating committee was called to discuss the rating of the
Government of Kazakhstan's new $10 billion Medium Term Note (MTN) Programme
as well as the forthcoming Sovereign Eurobond in the amount of $2.5 billion, which
will be the first drawdown of the MTN Programme. The main points raised during the
discussion were: The issuer's economic fundamentals, including its economic
strength, have not materially changed. The issuer's institutional strength/
framework, have not materially changed. The issuer's fiscal or financial strength,
including its debt profile, has not materially changed. The issuer's susceptibility to
event risks has not materially changed. The committee also reviewed the
documentation presented on the Medium Term Note (MTN) Program .
This rating action concerns a new rating solicited by the issuer for a programme that
was not in existence at the time that the sovereign release calendar was first
published in December 2013, and is therefore being released on a date not listed in
that publication.
The principal methodology used in this rating was Sovereign Bond Ratings published
in September 2013. Please see the Credit Policy page on www.moodys.com for a
copy of this methodology.
The weighting of all rating factors is described in the methodology used in this rating
action, if applicable.
CREDIT EE
38. Ruble facing depreciation pressures
BOFIT
October 10, 2014
The ruble’s exchange rate has declined about 4 % over the past two weeks and over
10 % since the end of June. Responding to the ruble’s on-going slide, Bank of Russia
(CBR) this week lowered the floor of the ruble’s fluctuation range and following its
policy aimed at a flexible exchange rate widened the fluctuation band.
On the other hand, the CBR also bought rubles on domestic forex markets for the
first time since midsummer and started currency swaps to help banks meet their
overnight currency liquidity demands. CBR chairwoman Elvira Nabiullina reports the
central bank further plans to provide foreign-currency repo credits of one to four
weeks to help banks with their currency liquidity.
The immediate devaluation pressures on the ruble‘s exchange rate are caused by the
long-standing trend of more capital flowing out of Russia than into Russia. The
situation has been made more difficult now that access of Russian banks and
corporations to foreign lenders has diminished very significantly due to uncertainties
relating to Russia, which, in turn, has made it even harder to service their existing
loans.
Ruble exchange rate in US cents and euro cents (left) and CBR forex market
interventions in EUR billion per day (right)
39. Ban on European foods contunues to push up inflation
UralSib
October 6, 2014
Inflation continues to grow … Yesterday, Rosstat reported that consumer prices grew
0.7% MoM in September after 0.2% MoM growth in August and growth accelerated
to 8% YoY in September from 7.6% YoY growth in August. The figure was slightly
above market expectations, as the Interfax consensus expected 0.6% MoM growth.
Core inflation grew 0.9% MoM in September after 0.6% MoM growth in August and
accelerated to 8.2% YoY in September from 8% YoY growth in August.
… due to food items. Food items grew 1% MoM in September after contracting 0.3%
MoM in August and growth accelerated to 11.4% YoY in September from 10.3% YoY
in August. The price of food items excluding fruit & vegetables grew 1.2% MoM in
September versus 0.9% MoM in August and growth accelerated to 12% YoY in
September from 11.5% YoY in August. Deflation in fruit & vegetables persisted for
the fourth consecutive month as prices declined 1.2% MoM after dropping 10.7%
MoM in August. However, food import restrictions continued to push up other food
prices, including meat, poultry, fish, seafood, eggs, and domestically produced
cheese. The price of non-food items grew 0.6% MoM after 0.5% MoM growth in
August, but remained flat at 5.5% YoY. Prices for services grew 0.3% MoM in
September after 0.7% MoM growth in August but growth accelerated to 6.9% YoY
from 6.7% YoY in August.
Inflation will drop sharply next year. Inflation clearly continues to grow due to the
imposed import restrictions on some food items from the EU. According to the
Federal Customs Agency, imports of restricted food items contracted 20-70% YoY in
August, which means that key food importers failed to find alternative supplies in
Asia and Latin America. We think that it may take a few months before new food
supply chains are found. After that normalization in domestic food markets, the
growth caps on regulated tariffs, and the CBR’s tight monetary policy will lead to a
sharp drop in inflation. We believe that inflation is likely to reach 8% this year and
see significant upside risks to our current medium-term inflation forecast.
40. Belarusian inflation dips slightly year-on-year in September
Sberbank CIB
October 10, 2014
Inflation in Belarus returned to a downward trajectory, slowing from 20.6% year-onyear in August to 20.1% in September as m-o-m inflation decelerated to 1.2%
(1.7% in September 2013). The index measuring food prices added 1.1% m-o-m to
reach 22.9% year-on-year. The largest price increase in food came in vegetables
(surged 10.1% m- o-m) and fruits (up 4%). Meanwhile, prices on nonfood items and
services grew 1.3% and 1.6% m-o-m, respectively. Equally important, the aggregate
price index for services grew a solid 34.5% in year-on-year terms, the key reason for
which was regulated tariff hikes – gas prices for home heating more than doubled
from last September.
Overall, YTD inflation has reached 13.4%, although we do not anticipate further
significant acceleration in price growth and expect the full-year number to reach
around 18%.
Evgeny-Gavrilenkov
41. IMF's Concluding Statement for September 2014 Staff Visit to Russia
IMF
October 8, 2014
Geopolitical tensions are slowing the economy already weakened by structural
bottlenecks. In this environment, maintaining sound macroeconomic policies and
frameworks would help limit downside risks. The Central Bank of Russia (CBR)
should tighten policy rates further to reduce inflation and continue its path towards
inflation targeting underpinned by a fully-flexible exchange rate. While the projected
overall fiscal stance is appropriately neutral in 2015, the needed fiscal consolidation
should resume in the following years. The operational independence of the CBR
should be safeguarded and adherence to the fiscal rule should continue. Enhancing
Russia’s growth potential requires bold structural reforms and further global
integration.
The economic outlook appears bleak. GDP is expected to grow by only 0.2 percent in
2014 and 0.5 percent in 2015. Consumption is expected to weaken as real wages
and consumer credit growth moderate. Geopolitical tensions—including sanctions,
counter-sanctions, and fear of their further escalation—are amplifying uncertainty,
depressing confidence and investment. Capital outflows are expected to reach USD
100 billion in 2014 and moderate somewhat but remain high in 2015. Inflation is
projected to remain over 8 percent by the end of 2014 mostly due to an increase in
food prices, caused by import restrictions, and depreciation of the ruble. In the
absence of further policy actions, inflation is expected to stay above target in 2015.
Despite the slowdown, the economy is expected to have limited excess capacity
owing to structural impediments to growth.
Risks are tilted to the downside. Current projections assume a gradual resolution of
geopolitical tensions over the next year. Deterioration of confidence, or an escalation
or prolongation of geopolitical tensions, could lead to larger capital outflows, greater
exchange rate pressure, higher inflation, and lower growth. A reduction in world oil
prices could amplify this impact.
Maintaining a stable and predictable macroeconomic framework is essential to
underpin confidence, especially in the current environment. This includes following
the fiscal rule, pursuing the inflation targeting agenda underpinned by a fully-flexible
exchange rate regime, and investing the resources of the National Wealth Fund only
with appropriate safeguards. Russia has substantial buffers: a large level of reserves,
a positive net international investment position, low public debt, and a small general
government deficit. However, given the uncertainties about the duration of
geopolitical tensions and underlying structural weaknesses, using these buffers
wisely is key to providing resilience to the economy.
A tighter monetary stance is required to reduce inflation. The CBR has appropriately
raised its policy rates in recent months while resuming the path to greater exchange
rate flexibility. However, core inflation has accelerated, implying that monetary
tightening is necessary to anchor inflation expectations. Higher interest rates would
also help limit capital outflows-especially in an environment of tightening global
liquidity-and reduce the bank funding gap by bringing real policy rates firmly into the
positive territory.
The CBR’s operational independence should be safeguarded. While broad ownership
is desirable in setting medium-term inflation goals, the implementation of policies to
reach the target should be the exclusive domain of the CBR. A clear mandate will be
critical to ensure a credible transition to inflation targeting.
Increased oversight and heightened financial stability remain a priority. Banks and
the corporate sector are facing a challenging environment due to the weak economy,
limited access to external financing, and higher financing costs. Existing financial
buffers together with appropriate policy responses by the CBR have limited financial
instability thus far. Nonetheless, the current uncertain environment could create
difficulties in individual banks and businesses, even in the near term. In case of
acute liquidity pressures, emergency facilities should be temporarily offered to
eligible counterparties, against appropriate collateral, priced to be solely attractive
during stress periods. In the event of market dysfunctions and excessive currency
volatility, foreign exchange interventions should also be used without targeting a
certain level of the exchange rate
The fiscal stance envisioned for 2015 is appropriately neutral. The proposed federal
budget, which is consistent with the fiscal rule, envisions a loosening in 2015.
However, this is offset by a tightening at the sub-federal levels. This strikes an
appropriate balance between the need to consolidate in the medium term, with the
non-oil deficit remaining near historical high, and the need for supportive fiscal policy
in the face of the current downturn.
Adherence to the fiscal framework is essential. The fiscal rule should become a
cornerstone of the credibility of macroeconomic institutions. Russia should resist
mounting spending pressures and preserve fiscal space for public investment to meet
its large infrastructure needs. The use of the National Wealth Fund for domestic
infrastructure projects may be appropriate to consider if done in the context of the
budget process and subject to appropriate safeguards. The diversion of contributions
from the fully-funded pillar weakens the viability of the pension system, creates
disincentives to save, and dilutes the credibility of the fiscal rule.
Structural reforms are essential in the face of growing uncertainty. Sanctions,
counter-sanctions, and heightened uncertainty are leading to additional state
interventions in the economy, slowdown in the structural reform agenda, and
decreased global integration. Measures to mitigate the impact of geopolitical
uncertainties should avoid amplifying existing distortions in the economy. Even if
uncertainty dissipates next year, domestic demand and potential growth are
projected to remain weak in the medium term due to insufficient investment and
deterioration in productivity. Potential growth is projected to be about 1.2 percent in
2015, reaching 1.8 percent in 2019, with downside risks. Structural reforms are
needed to provide appropriate incentives to expand investment and allocate
resources to enhance efficiency. Protecting investors, reducing trade barriers,
fighting corruption, reinvigorating the privatization agenda, improving competition
and the business climate, and continuing efforts at global integration remain crucial
to revive growth.
42. Metinvest - Vulnerable in the midst of war
Concorde Capital
October 10, 2014
Metinvest’s Eurobond yields reached historic highs in August as an ongoing war has
intensified in certain regions that are sensitive to the holding. The company’s key
enterprises have suffered damage, turned idle or reduced their capacity load. Should
logistics and production volumes normalize, Metinvest will be able to generate
sufficient cash flow to cover its capital needs in 2014-15, we estimate. However, the
risk of further war-related damage to Metinvest’s enterprises is high. We recommend
that investors reduce, or at least not increase, exposure to Metinvest’s Eurobonds
until the military conflict in the Donbas region de-escalates or concludes altogether.
43. Russia Early Indicators - September; same morass
Sberbank CIB
October 6, 2014
News: On Friday, we published our regular Russia Early Indicators, in which we
summarised the results of the PMIs and the first statistics for September. We provide
key extracts from the report below.
Our View: Autumn began with muted colours. Although the ‘cash-for-clunkers’
programme and the better performance of coal, chemicals and metals industries (as
seen in their rail cargo volumes) might have lent some support to the economy in
September, stalled electricity consumption coupled with a 15% plunge in gas output
as well as erosion in manufacturers’ sentiment paint an opposing picture. On top of
this, inflation has continued to creep up, reflecting not only the ban on food imports
but also the weaker ruble, thereby impeding the private spending outlook.
PMIs gravitate to no-change mark. Since June, economic activity has stood at a
standstill with insignificant fluctuations around zero, according to survey-based PMIs.
Interestingly, SA capacity utilisation in mining and manufacturing has stuck to a
downward trend and approached 1H11 levels, signalling a widening negative output
gap.
Business sentiment worsening. Manufacturers do not anticipate a recovery anytime
soon, given that their expectations have hit the lowest marks since early 2010,
according to a Rosstat poll. Thus, lingering uncertainty related to geopolitics, oil
prices and internal policy persuaded companies to optimise costs, creating cushions
for external shocks and high local rates, and to postpone investments for the time
being.
Relief in car sales unlikely to be sustainable. Last month, the decline in Lada sales
returned into the single-digit area (-8.7% vs. -32.3% year-on-year in August),
underpinned by the renewed ‘cash-for-clunkers’ initiative to encourage consumers to
get rid of their older vehicles. Hence, consumer orders might register a healthier
growth pace this autumn (in particular, the respective PMI sub-index for September
signalled slightly faster order inflows in consumer-related industries), though it has
little chance of translating into a sustainable trend reversal unless general income
growth improves, we believe.
Electricity consumption vs. rail cargo volumes. Rail cargo transportation volumes
added 0.2% year-on-year in September, returning to the black after a 7-month
contraction, thanks to an advance in the growth of coal, chemicals and metals
cargos. The latter, however, looks inconsistent with the persistent decline in export
orders (sub-index PMI manufacturing) as well as the pause in electricity consumption
growth. It is our thinking that general conditions in manufacturing remain tough,
which is sweetened by support from import substitution and the build-up of pipes
production. For now, we are comfortable with our zero full-year GDP growth forecast
this year, suggesting that the risks are more or less balanced.
Upward inflation trend strengthens on weaker ruble. Both Services and
Manufacturing PMIs kept pencilling stronger cost pressure in September, at least
matching their 12-month averages. Respondents mentioned the exchange rate and
labour costs among the major inflation drivers.
Vladimir Kolychev
44. Russia's Reserve Fund may be used to cover budget shortfalls in 2015
UralSib
October 7, 2014
Government ready to spend money from the Reserve Fund. Yesterday President
Putin signed a law that will allow extra oil and gas revenues to be used to cover
shortfalls in the budget rather than replenishing the Reserve Fund, effective in 2015.
The law will allow for the Reserve Fund to be used to compensate for shortfalls in
non-oil and gas revenues instead of borrowings. The use of extra oil and gas
revenues rather than borrowings may take place not only during the implementation
of the budget, but also during budget planning. Around RUB344.3 bln from the Fund
may be used instead of borrowings in 2015, RUB355.8 bln in 2016 and RUB359.7 bln
in 2017. According to the fiscal rule, 2015 federal budget revenues will be projected
on the basis of the average price of oil over the past several years. All extra oil and
gas revenues were expected to be transferred to the Reserve Fund.
Preparing for the worst-case scenario. Because of the Western sanctions, Russia has
effectively been shut out of the external debt markets. Russia has not been able to
tap the external markets and has borrowed only RUB150 bln in the domestic market
so far this year (compared to RUB540 bln for the same period last year). Russia’s
refinancing needs for 2014 are estimated at RUB320 bln. Given that the federal
budget is running a surplus due to the weak ruble, the Finance Ministry should be
able to meet its obligations, even though it will most likely come up short of its
borrowing goal. Next year the Finance Ministry will need to raise RUB520 bln to meet
its refinancing needs. There is still a chance that the sanctions will remain in place in
2015, resulting in a weaker ruble, high inflation and market volatility. Under these
conditions, the ministry will likely be unable to borrow enough funds to cover its
refinancing needs and will need to look for additional sources to meet its obligations.
While we believe that the worst-case scenario is quite unlikely, the government is
ready to spend some money from the Reserve Fund in the event of a shortfall in
budget revenues.
Alexei Devyatov
45. Russian budget to be slightly affected by leaving all petroleum product
export duties on Belarusian budget - Siluanov
Interfax
October 10, 2014
Placing all export duties for petroleum products made from Russian oil in Belarus on
the republican budget in 2015 will not have a significant impact on the parameters of
Russia's budget, Finance Minister Anton Siluanov told journalists.
"An agreement was reached for the export duties Belarus will receive from exporting
its petroleum products in 2015 to remain in the republic. This norm is partially
included in the Russian budget for 2015, and we will partially look for additional
revenues to compensate what we did not factor into the budget," he said.
Siluanov added that the budget accounted for a $1.5bn lack of duties from Belarus.
The remaining amount not factored into the budget was substantially less, he said.
Commenting on the possibility of replacing the revenue shortfalls from duties with
other revenues, he said budgetary revenues were fairly flexible. "The price of oil has
soared. Due to the exchange rate, we'll have additional revenues because 37.7
rubles has been put [in the budget], and now it's already 40 rubles. Everything
balances out, somewhere has a little more, somewhere a little less. So whatever
remains in Belarus and doesn't return to us, like last year, will insignificantly affect
the parameters of the federal budget," Siluanov said.
Read more here: http://www.interfax.com/newsinf.asp?id=542933
46. Sberbank CIB Ivanov update – food prices and import ban implications
Sberbank CIB
October 6, 2014
Today, we are publishing the Sberbank CIB Ivanov Consumer Confidence Tracker, a
quarterly publication covering consumer spending, savings and confidence across the
country. The latest tracker indicates a dip in the consumer confidence index from the
revised 2Q14 level of –6% to –7% in 3Q14 as inflation, unemployment and ruble
depreciation concerns have risen amid geopolitical tension and the stuttering
economy.
The main findings of our survey are shown below: ? The index of country wealth over
the past 12 months slid from –16% in June to –19% in September, which we
associate with rising concerns about inflation, unemployment and the ruble. The
number of respondents who said that their employer was firing staff rose from 23%
to 24%. The country wealth index over the next 12 months also showed a decline, as
Ivanovs have become less upbeat on the prospects for their employers.
? The big-ticket purchases index was the sole index component showing
improvement, from –14% in June to –12% in September, probably mirroring the
population’s inflation and ruble depreciation fears and overall shaky state of the
economy.
However, this was not reflected in the State Statistics Service’s recent statistics
showing on average 2.5% real growth in non-food retail turnover in June-August,
versus 4.9% in 5m14. This dampens excitement over the outlook for non-food sales
in 2H14 given the stalling economy and slower wage growth.
? The share of price-sensitive customers rose to 69% in September, from 68% in
June.
That said, apart from a drop in consumption among food categories affected by the
import ban, we saw no signs of trading down. The share of respondents that had cut
discretionary spending did not change from 2Q14.
? Overall food inflation was running at 11.5%, based on the Ivanovs’ observations,
though price increases at public retail chains were significantly lower at just 6.26.7% y-o-y. This suggests that the value proposition of the largest chains has
improved 4-5% and explains the redirection of customers to public retailers that
have maintained elevated LFL sales growth. In our opinion, this trend can only
intensify in light of the food import ban.
? Some 52% of respondents have felt the impact of the ban, either in higher prices
or product shortages. Thus, 38% of Ivanovs have had to adjust their food spending
patterns: either reducing consumption of banned products or switching to cheaper
alternatives.
Ivanovs singled out meat and fish as the products with the fastest price growth
(10.8% and 10.6%, respectively) followed by fruit (7.1%), dairy (6.6%) and
vegetables (5.4%).
? The apparent scale of promotions fell across the board: 45% of respondents
thought that food stores were featuring more promotions in September, compared
with 50% in June. We could therefore see decent margins in 3Q14.
47. Too early for common currency within Eurasian Economic Union —
Belarusian official
TASS
October 10, 2014
It is too early to speak about a common currency unit within the Eurasian Economic
Union or about any political aspects of this union, speaker of the Council of the
Republic /upper house of the Belarusian parliament/ Anatoly Rubinov said on
Thursday.
“I have no doubts that in the course of the development of this union there will be
the need in a common currency. But so far, it is too early to speak about it. It is
likewise premature to speak about a political alliance, about introducing political
elements into the union,” he said after both houses of the Belarusian parliament had
ratified the Eurasian Economic Union Treaty.
Read more here: http://en.tass.ru/economy/753604
48. Ukraine plans compensating overpaid enterprise profit tax with state
bonds
Concorde Capital
October 7, 2014
Ukrainian authorities and the IMF agreed on possibly issuing state bonds that will be
used to redeem UAH 9.7bn in overpayments on the enterprise profit tax, the
Interfax-Ukrayina news agency reported on Oct. 6 citing the State Fiscal Service
release.
Total overpayments on the enterprise profit tax have already reached UAH 26bn and
authorities are looking for ways to compensate the enterprises in the 2015 budget,
according to the State Fiscal Service. As its proposal, the IMF stated in a recent
memorandum that the Ukrainian government can issue UAH 16.7bn in state bonds
for VAT debt repayment. So far, the authorities have issued only UAH 6.7bn out of
the agreed-upon bonds amount, with the rest to be potentially issued to cover state’s
debt for overpaid enterprise profit tax advances.
Alexander Paraschiy: The intention of the authorities to repay finally tax advances
that businesses contributed to state coffers in previous years is commendable. The
only problem is that such redemptions will only add to the stock of state debt, which
had already exceeded 60% of GDP by August. So in this process, the role of the IMF
in limiting such issues at a safe level will be very important. All in all, the enterprise
profit tax overpayment redemption coupled with further Naftogaz refunding and
extra foreign loans should bring the state debt to at least 65% of GDP by the end of
2014.
49. VAB Bank blames ForEx regulation in missed coupon, to pay by midOctober
Concorde Capital
October 6, 2014
Ukraine’s 15th biggest bank by total assets, VAB Bank (VABANK), failed to pay its
quarterly coupon on its $88m Eurobond as it was not able to purchase enough
foreign currency for this payment due to toughened ForEx regulations in Ukraine,
numerous media reported on Oct. 2, citing phone interview with the bank CEO Denis
Maltsev. The payment of about $2.0m was due on Sept. 14. “Our ability to purchase
foreign currency is limited due to new limitations on foreign currency transactions,”
said the bank’s CEO, as cited by Interfax. The bank is planning to accumulate
enough foreign currency to repay the coupon “in week or two,” said Maltsev, as cited
by Bloomberg.
Alexander Paraschiy: Foreign currency regulations indeed have become unusually
tough over the last month. At the same time, no single regulation prevented the
bank from explaining this to its bondholders three weeks ago, when the coupon was
due. Moreover, it’s unclear why a bank with total end-1H14 assets equivalent to
$2.0bn (of which $0.5bn is denominated in foreign currency) should spend three-tofive weeks accumulating $0.002bn for servicing its external obligations.
All these uncertainties cannot but influence the other assets of majority the bank’s
shareholder Oleh Bakhmatyuk like Ukrlandfarming (UKRLAN) and Avangardco (AVGR
LI, AVINPU). He controls about 90.0% of the stake in VAB Bank after a recent capital
increase.
CREDIT SE
50. Grey economy in Croatia much above European average
Dalje
Grey economy in Croatia amounts to 13 billion euros or about 28% of GDP, which is
around the average in eastern European countries but much above the European
average of 18.5%.
This is shown by a survey on the grey economy and its connection to electronic
payment conducted by Visa Europe, the consulting firm A.T. Kearney and expert
Friedrich Schneider.
Read more here: http://dalje.com/en-croatia/grey-economy-in-croatia-much-aboveeuropean-average/524342
51. Romania bond 2014-2015
Erste
October 8, 2014
Although the international context, especially that on the eastern border of Romania,
has been anything but calm this year, the country has enjoyed a visible rally of its
asset prices. Being a NATO and an EU member counted significantly in its favor when
investors fleeing the East were making the decision whether or not to invest. The
uptrend in prices was reinforced by the S&P agency decision to increase Romania to
investment grade in mid-May, and by the JP Morgan announcement in mid- to lateJuly that new Romanian benchmark bonds were being added to their investment
grade emerging market index. However, no one could contend that Romania is
immune to the external environment, all the more so as the escalating conflict in
neighboring Ukraine has every now and then clearly sent shivers down investors’
spines (see the upper chart on the left-hand side). 5-year ROGB yields hit their
lowest in early- and late-July (3.2%) on the secondary market; yields have been
drifting up and down ever since, without reaching their all-time low.
Supply factors
As of end-September, the MinFin had covered around 82% of its total funding needs
for this year, thanks to the three outings in January and April (22% of FY14 funding
needs). They have also helped local yields remain, in general, on a downtrend up
until now, as the MinFin borrowed less from the local market (the average yield on
the primary market fell to 3.7% in the first eight months of 2014, from 4.7% in
2013). True to its strategy, the MinFin has managed to lengthen maturities, which is
why gross funding needs for 2015 have dropped to around RON 50bn; around 2223% thereof could be tapped from abroad, while the balance will be sourced
domestically.
Demand factors
Local banks, investment and pension funds will be the main buyers of government
notes in 2015, with an increase in net exposure of around RON 6bn. Although a
fledgling industry in Romania, private pension funds have in only a few years become
one of the main investors in state bonds, accounting for more than 9% of the total
market. Although European quantitative easing may spill over some money into
Romania and drive assets prices slightly higher, we see rather limited growth
potential for non-resident exposure in 2015 (especially after the stuffing of their
fixed income portfolios in 2013 and to a lesser extent in 2014). Non-residents started
to vigorously bulk up their portfolios in early 2013 and are now claiming more than
20% of the total local bond market.
Other factors
The central bank cut the key rate further to 3% this fall, and it has already signaled
that it is ready to bring money market rates closer to the key rate, adding that local
banks need to work in a more stable interest rate environment (interest rates have
been strikingly lower than the key rate since early 2014). The 3M ROBOR rose to
2.8% from less than 2.1% less than a month ago. Presidential elections are around
the corner (early November) and the whiff of populist measures is growing stronger
and stronger. On the European front, the QE which is expected to fire up lending
could be thwarted by the spillover effects in other type of assets and by the lack of
fiscal reforms in some big European economies. This, combined with an already
slowing Eurozone and smothering conflict on the Easter borders, could make
investors contemplate higher return investments across the pond. We see 5-year
ROGB drifting up to 4.1% in December 2014 and then gradually nudging lower
towards 3.7% as of end-2015.
52. Ratings On Serbia Placed On CreditWatch Negative Pending MediumTerm Fiscal Plans
Standard & Poor's
October 10, 2014
•
Serbia's public finances have continued to deteriorate in 2014.
•
Despite a strong mandate following the April elections, the government has
not yet launched meaningful medium-term fiscal reform. In our view, the 2015
budget will indicate the credibility of its fiscal consolidation.
•
We have placed our 'BB-' ratings on Serbia on CreditWatch with negative
implications ahead of the government's 2015 budget and pending details of its
medium-term fiscal consolidation plan.
•
We will resolve the CreditWatch in early 2015 once we have assessed whether
the budgetary laws passed by the end of 2014 offer a credible consolidation of public
finances.
Standard & Poor's Ratings Services placed its 'BB-' long-term sovereign credit ratings
on the Republic of Serbia on CreditWatch with negative implications.
RATIONALE Our CreditWatch placement reflects Serbia's deteriorating general
government debt metrics. Favorable market access is currently masking the potential
for refinancing risks, which are exacerbated by the high share of foreign currency
borrowing and a structural current account deficit that remains elevated, despite
narrowing substantially in recent years.
The ratings are constrained by Serbia's moderate GDP per capita and limited
monetary policy flexibility, owing to the high euroization of the economy. Serbia's
long-term economic growth potential remains supportive of the ratings.
Serbia's political situation is more stable than in most post-Yugoslavia republics. The
Serbian Progressive Party (SNS) not only has a comfortable majority of 63% in
parliament, it also enjoys widespread popular support and has a coalition partner
supporting a broader consensus. This has helped increase public acceptance of
difficult and politically sensitive reforms and austerity measures, which had been on
previous governments' agendas.
Major policy initiatives have been delayed again so far this year, partly due to severe
flooding in May and also the resignation of the finance minister and the government's
hesitation over which austerity measures to implement. That said, we note the
recent passage of laws regarding pensions, the labor market, bankruptcy,
privatization, and the restructuring of state-owned enterprises (SOEs). The sell-off or
dissolution of 502 non-strategic SOEs will free up assets for better economic use by
private-sector actors, and reduce indirect burdens on the state. Together with
expected public administration reforms, this could reduce the distorting use of
resources across the economy and promote competitive businesses that could, in
turn, generate sustainable employment. Serbia's challenges are comparable to other
post-Communist Central and Eastern European states. The difference is that Serbia
now faces a weaker global economy and has a dual legacy as a state and federal
center.
The government's main challenge is fiscal consolidation. We remain doubtful whether
consolidation will occur unless there is an IMF agreement acting as a policy anchor.
In its absence, the government has only announced partial steps toward reducing
the budget deficit. Notably, these have included various cuts to pensions and public
wages for those earning more than Serbian dinar 25,000. These cuts should
generate the approximate savings needed for the total fiscal adjustment: a headline
figure of €1.5 billion over three years has been mentioned in the context of an IMF
agreement. The remaining measures are supposed to be drawn from a mix of
subsidy cuts, public expenditure savings, and revenue enhancements. To date, we
have no details about this portion of the consolidation plan.
The credibility of these saving measures will be key to our overall view of Serbia's
medium-term fiscal framework. If the majority of the fiscal adjustment succeeded,
we calculate it would reduce the general government deficit to 6.0% of GDP in 2015
and 4.5% in 2016, from an estimated 8.1% in 2014.
Failed SOEs have forced the government to service large chunks of its guaranteed
debt portfolio, which we now consider equal to general government debt. As a result,
net general government debt (gross debt minus liquid assets) has soared to above
60% of GDP from just 25% in 2009. Consequently, general government interest
payments as a share of general government revenues have jumped to nearly 9% in
2015 from less than 2% in 2009. We forecast full fiscal consolidation to lead public
debt to gradually stabilize at these high levels by 2016-2017.
By then, some of the structural reforms should have helped revive growth even if
there is a recession. We estimate Serbia's economy will contract by 0.7% in real
terms this year, but grow again by 1.2% in 2015 before accelerating to an average
of 2.7% annually thereafter. In per capita terms, this equates to an average of 2.0%
growth over 2014-2017, though this figure is flattered by the population shrinking at
an estimated 0.5% per year. Given the current strength of the U.S. dollar, this
translates into GDP per capita of roughly $6,000, lower than any EU neighbors and
Montenegro.
Serbia's economic potential could lie in the recent development of new export
facilities. The growth in automotive production shows that foreign investment can be
channeled into transforming industrial assets formerly belonging to the state and
leveraging Serbia's lower cost structures to build competitive industries. As an EU
accession country, Serbia's expected public- and private-investment inflows will be
channeled into exports, in particular. Together with compressed import demand due
to the weak economy, we believe the current account deficit will remain roughly flat,
averaging 5.5% of GDP in 2014-2017.
Our conservative assumption is that FDI inflows should finance at least half of
Serbia's annual current account deficit. This should limit the need to raise large
external debts. Given the already high gross external debt stock (90% of GDP in
2015), however, external financing remains a key vulnerability to Serbia's
creditworthiness. Gross external financing needs should remain roughly equal to
100% of current account receipts (CARs) plus usable reserves. In dollar terms, we
estimate Serbia's 2015 gross external financing need at $11.5 billion (44% of CARs).
We project that 85% ($6.2 billion) of the current portion of external debt will be
refinanced, all short-term external debt ($2.0 billion) will be rolled over, and FDI will
remain at 2013-2014 levels ($1.5 billion). We forecast that the public sector will
raise the remaining requirement ($1.8 billion), half through official borrowing and
half via Eurobond issuance, portfolio flows to the domestic government bond market,
and, if needed, a drawdown of external fiscal assets.
Another external vulnerability is that 77% of the general government debt is
denominated in foreign currency, and about 60% of commercial debt is held by
nonresidents. This makes the fiscal debt-to-GDP ratio sensitive to exchange-rate
fluctuations. Such fluctuations have prompted the National Bank of Serbia to pursue
a more restrictive monetary policy than its inflation targeting would suggest. As a
floating currency, the dinar provides a flexible adjustment mechanism. Recent
inflation at the lower end of the central bank's target range (2.5%-5.5%) should not
detract from Serbia's history of exceeding its inflation targets. Furthermore, political
challenges to central bank independence limit the credibility of monetary policy, in
our opinion.
CREDITWATCH We will resolve the CreditWatch in early 2015 once we have assessed
whether the budgetary laws passed by the end of 2014 offer a credible consolidation
of public finances.
In the absence of legislated fiscal plans leading to the stabilization of the
government's debt burden, we would lower the ratings to 'B+/B'. We could also
lower the ratings further if external financing becomes more costly, either because
bank rollover rates fall below our expectations or because the public sector's access
to markets weakens, or if the central bank adopts a significantly more interventionist
foreign exchange policy.
CREDIT CE MACRO NEWS
53. Downward trend continues in Croatia's employment market, says RBA
Dalje
A downward trend in employment in Croatia, which began in September 2009
resumed in August 2014, as a result of the protracted recession and bad conditions
on the labour market, Raiffeisenbank Austria (RBA) analysts have said in their
comment.
Read more here: http://dalje.com/en-croatia/downward-trend-continues-in-croatiasemployment-market-says-rba/524204
54. Czech exports dip in August, but slowdown likely temporary
bne
October 10, 2014
While July's external trade brought new records, August's results strongly
disappointed. Although August's data from industry and external trade seem poor at
first glance, that doesn't mean the Czech economy is heading toward a recession.
Some companies announced company-wide holidays in August this year (for
example, Skoda), and this noise in the data is not perfectly removed by procedures
on seasonal and working-day adjustments.
The external trade balance according to the national methodology (NM) posted a
surplus of CZK 1.5bn while the market expected 6.0bn. After adjustment (SWDA),
the trade balance worsened CZK 5.2bn mom to 10bn. During the summer, the trade
balance posted an average surplus of CZK 12.6bn, which is only slightly lower in
comparison with the average between January and June 2014.
Unfortunately, exports and import growth disappointed, as well. Nominal exports
(NM) fell 5.3% mom (SWDA), and imports fell 3.5%. These results were affected by
lower car production (the number of cars produced dropped 9.2% mom SWDA in
August). However, we think the August outcome cannot be overestimated. We
expect car factories will increase their output again in the coming months. During
July and August, exports fell 3.1%, and imports fell 2.4%.
Although the situation in Ukraine has calmed down to some extent, it is still a major
risk for the Czech export-oriented industrial sector (e.g. further rounds of sanctions
between Russia and the EU, which may affect domestic car exports to Russia). So
far, the share of exports impacted by the already-announced sanctions is relatively
small. Before sanctions, the share of food exports in total exports to Russia was
0.5%; it reached 0.1% in the case of arms and ammunition and 1.3% for dual-use
goods. Total exports to Russia fell as expected 5.3% yoy in August, while total Czech
exports increased 2.3% yoy. The ratio of exports to Russia to total exports has been
decreasing gradually since the second quarter of last year and reached 3.3% in
August.
Exporters have already perceived the positive impact of the weaker Czech crown
thanks to FX intervention. Also in the coming months, the higher price
competitiveness and continuous recovery of Czech business partners will be
supportive for export growth. The high import dependency of exports is one of the
factors pushing imports upward. The propensity for spending by domestic consumers
will contribute, as well. Behind higher consumer spending is the improving situation
on the labour market and favourable fiscal policy. We also expect companies to
invest, which is another factor for import acceleration. This year, nominal exports
should add a solid 13.6% and imports 11.9%. The external trade surplus (CBM)
should improve again to a new record high of CZK 451.4bn (CZK 350.6bn last year).
55. Czech retail sales driven by autos
bne
October 10, 2014
August's retail sales slowed down in yoy growth to 2.7 %. Nevertheless, this
slowdown was mainly due to calendar effects, as this August had one less working
day than last year. After adjusting for seasonal and calendar effects (SWDA), yoy
growth remained virtually unchanged compared with July, recording 4.4%. In mom
terms, retailers added 0.6%. The fastest yoy growth was again recorded in the
automotive sector, which increased 13.3% yoy (SWDA) and thus maintained doubledigit growth from the previous two months. In mom terms, the sales and repairs of
motor vehicles increased 0.5%. Even higher growth was recorded in sales adjusted
for car sales, which increased 1.2% mom and thus offset almost all of July's
decrease.
According to the CSO, yoy growth in retail trade was the most contributed to by
retail sales via mail-order houses or the Internet (+24.9%) and retail sales of
clothing and footwear in specialised stores (+11.7%). Higher growth was recorded
also by retail sales of information and communication equipment at specialised
stores (+12.7%), retail sales of cultural and recreational goods at specialised stores
(+9.8%), and retail sales of other household equipment at specialised stores
(+2.3%). On the contrary, a decrease was reported by dispensing chemist, medical
and orthopaedic goods at specialised stores (-6.4%), retail sales of food, beverages
and tobacco at specialised stores and retail sales at non-specialised stores with food,
beverages and tobacco predominating (-2.1% and -1.6%, respectively).
Household consumption's growth will be the strongest this year since 2010, which
also translates into the dynamics of retail sales. In the first eight months of the year,
retail sales increased 5.3% (SWDA), mostly due to the performance of the
automotive sector, where sales went up 12.7% (SWDA). This figure, however, is
affected also by purchases in the corporate sector. The dynamics of retail trade after
adjustment of the automotive sector were 2.4% for the January-August period. High
consumer confidence reflects the willingness of households to spend. It stays at a
relatively high level despite the slight move downward in the past two months when
the Ukrainian crisis caused some uncertainty. However, confidence is supported by
several factors: Low inflation boosts real wage growth, the unemployment rate has
declined since the beginning of the year, and fiscal expansion is coming, which
should become evident mostly in 2015. This year, we expect retail sales to grow
3.3%, after last year's 1.1%, while household consumption should increase 1.5%
after its de facto stagnation in 2013.
56. Estonian CPI fell for the third consecutive month
bne
October 10, 2014
According to Statistics Estonia, the change of the consumer price index in September
2014 was -0.2% compared to August 2014 and -0.6% compared to September of
the previous year.
Compared to September 2013, goods were 0.3% and services 1.0% cheaper.
Regulated prices of goods and services have fallen by 1.1% and non-regulated prices
by 0.4% compared to September of the previous year.
Compared to September 2013, the consumer price index was influenced the most by
electricity, heat energy and fuels, whereas the electricity that arrived at homes was
7.6% cheaper and heat energy was 4.1% cheaper. Compared to the same period of
the previous year, 4.5% cheaper motor fuel, 1.8% more expensive alcoholic
beverages and 7.2% more expensive tobacco also had a bigger impact on the index.
Compared to September 2013, of food products, the prices of conserved milk have
increased the most (18%) and the prices of sugar and apples have decreased the
most (39% and 30%, respectively).
In September compared to August, the consumer price index was mainly influenced
by the implementation of the higher education reform, which ensures free higher
education for all first- and second-year full-time students who enrolled in higher
education programmes taught in Estonian. The end of sales of clothing and footwear,
2.1% price increase of electricity and 12% cheaper plane tickets also had a bigger
impact on the index. Compared to August, of food products, the prices of tomatoes
increased the most (98%) and the prices of potatoes decreased the most (23%).
57. Estonian external trade sinks in August
Statistics Estonia
According to Statistics Estonia, in August 2014, exports of goods decreased by 3%
and imports by 6% at current prices compared to August of the previous year. The
decrease in exports and imports was mostly influenced by the trade of mechanical
appliances, electrical equipment and agricultural products and food preparations.
In August, exports from Estonia amounted to nearly 1 billion euros and imports to
Estonia to 1.1 billion euros at current prices. The trade deficit was 80 million euros
and it decreased by 31 million euros compared to August 2013.
The biggest share in Estonia's exports was held by electrical equipment (22% of
Estonia's total exports), followed by mineral products (11%), wood and products
thereof and agricultural products and food preparations (9%). The fall in exports
compared to August 2013 was due to the significant decrease in the exports of
mechanical appliances (down by 20 million euros), textiles and products thereof
(down by 8 million euros), electrical equipment, and agricultural products and food
preparations (both down by 6 million euros). The biggest increase occurred in the
exports of mineral products.
In August, the main commodities imported were electrical equipment (18% of
Estonia's total imports), mineral products (13%) and agricultural products and food
preparations (11%). Compared to August 2013, the biggest decrease occurred in the
imports of mechanical appliances (down by 18 million euros), electrical equipment
(down by 17 million euros) and agricultural products and food preparations (down by
10 million euros). At the same time, the imports of textiles and products thereof
increased the most.
58. Eurozone retail trade up by 1.2% MoM in August
bne
October 10, 2014
In August 2014 compared with July 2014, the seasonally adjusted volume of retail
trade, rose by 1.2% in the euro area (EA18) and by 1.4% in the EU28, according to
estimates from Eurostat, the statistical office of the European Union. In July retail
trade fell by 0.4% in both zones.
In August 2014 compared with August 20134 the retail sales index increased by
1.9% in the euro area and by 2.5% in the EU28.
Monthly comparison by retail sector and by Member State
The 1.2% increase in the volume of retail trade in the euro area in August 2014,
compared with July 2014, is due to rises of 1.7% for automotive fuel, of 1.5% for the
non-food sector and of 0.6% for "Food, drinks and tobacco". In the EU28, the 1.4%
increase in retail trade is due to rises of 2.1% for the non-food sector, of 1.4% for
automotive fuel and of 0.3% for "Food, drinks and tobacco".
The highest increases in total retail trade were registered in Germany and
Luxembourg (both +2.5%), Portugal and Sweden (both +2.3%) and Poland
(+2.2%), and the largest decreases in Romania and Slovakia (both - 0.6%).
Annual comparison by retail sector and by Member State
The 1.9% increase in the volume of retail trade in the euro area in August 2014,
compared with August 2013, is due to a rise of 3.6% for the non-food sector, while
both "Food, drinks and tobacco" and automotive fuel fell by 0.2%. In the EU28, the
2.5% increase in retail trade is due to a rise of 4.9% for the non-food sector, while
"Food, drinks and tobacco" remained stable and automotive fuel decreased by 0.5%.
Total retail trade rose in all Member States for which data are available, with the
highest increases observed in Luxembourg (+12.5%), Estonia (+6.7%) and the
United Kingdom (+5.6%).
59. Hungarian industry sees August collapse
bne
October 10, 2014
August brought 3-year negative record in industry despite the third shift introduced
in Audi factory this month. The significant German decline in output and one-off
effects may be in connection with the weak data. Details will be published on 14
October.
The Statistics Office published the preliminary industrial output figure of August this
morning. The production dropped by 5.7% m/m (seasonally adjusted) during the
month, pushing down the y/y index to 0.5% from 12.3% in July. This missed our
forecast of 10.5% and analysts' consensus of 11.1% significantly. The wda figure
was 2.9% vs. our 13.2% expectation.
Please note that the CSO has revised the m/m data of last August from 0.6% to
2.3% that gave a higher comparable base. Thus the y/y index was also hit by this as
well as from the calendar effect in August. Also note that the industry was near its
historic high in July.
Nonetheless, the data is still a surprise, especially as the Audi finished its newest
capacity increase in August, which must have contributed positively to the
production. We suspect that there could have been a one-off effect dragging down
the industry. The weak German production figure could also have a negative effect
on Hungarian industry In line with this weak figure, we decrease our 2014 output
expectation to 8.9% from 10.8%. The YTD output growth decreased to 8.6% y/y
from 9.8%. In spite of the weak figure, the industry may be the most important
driver of the economy this year.
Read more here: http://www.bne.eu/page/bnecentral-europe-daily-list/hungarianindustry-sees-august-collapse-0
60. Hungary excels in receiving EU transfers
bne
October 10, 2014
We have spotted an exciting chart in one of the latest EMEA research and strategy
note released by J.P. Morgan on 2 October. This shows that Hungary has been
receiving by far the largest EU transfers as a percent of GDP. Another interesting
chart shows Poland's funding situation, indicating that EU capital transfers remain
the most significant source of financing for the largest country of the region.
Read more here:
http://www.portfolio.hu/en/economy/hungary_excels_in_receiving_eu_transfers.284
77.html
61. Hungary to launch biggest ever economic development program, says
Orban
bne
October 10, 2014
Hungary will launch the biggest economic development programme in the country's
history at the start of next year, the prime minister said on Saturday.
Viktor Orban said that, in exchange, Hungarian businesses were expected to grow
stronger, expand, undergo renewal and contribute to making the goal of creating five
million jobs a reality.
He said the coming period would be the time for companies who want to expand and
present new opportunity.
Read more here: http://www.politics.hu/20141005/hungary-to-launch-biggest-evereconomic-development-program-says-orban/
62. Latvia's Industrial Output Falls In August
bne
October 10, 2014
Latvia's industrial production declined in August after recovering a month ago,
figures from the Central Statistical Bureau showed Monday.
Industrial production decreased 0.2 percent in August from July, when it was up by
1.4 percent. This was the third monthly fall in production so far this year.
On a yearly basis, industrial output fell 0.4 percent, but it was slower than the 1.5
percent drop seen in July.
Read more here: http://www.rttnews.com/2393338/latvia-s-industrial-output-fallsin-august.aspx?type=alleco
63. Latvian CPI pushes to 1.0% in September
bne
October 10, 2014
In September, consumer prices in Latvia increased by 0.5% compared to August,
which is a little bit above our expectations. Annual inflation was at still modest 1%.
Seasonal inflation in clothing and footwear by and large drove the monthly inflation.
In annual terms, the inflation was supported by more expensive hotels and
restaurants (by 5.9%), culture and recreation (2.3%), as well as housing tariffs
(1.6%) and housing equipment (1.6%). Clothing and footwear (3.4%) contributed to
annual growth as well. Excise tax hike earlier this year still contributed to price raise
of tobacco products (8.3%). Education prices grew by 1.5%, health care by 1.3%.
Food prices were lower by 0.1% than a year ago, transport - by 1.5% (fuel prices by
3.9%), and communications by 1.0%.
In terms of hindering price growth, external prices pressures are at play. For
instance, oil prices are declining globally, thus affecting fuel prices, as well as gas
and heating tariffs in Latvia. The decrease, however, is at least partially offset by still
weakening euro, which has reached the low levels of 2012. September data most
likely also partially reflects the 7th August Russian embargo of some food products
from the EU, which increased the supply of those products in local market. During
the month prices of dairy products in Latvia dropped by unusually high 7.3%.
Domestically, prices of services are supported by gradually growing labour costs. In
annual terms, prices of services have increased by 3.4% (despite lower gas and
heating tariffs than a year ago) while prices of goods were by modest 0.2% more
expensive.
We keep our forecast that average consumer price growth will be at 0.8% this year.
64. Latvian minister estimates Russian food embargo to cause 0.25 pp drop
in GDP
bne
October 10, 2014
The food embargo imposed by Russia in response to sanctions by the European
Union and the United States, has caused Latvia's GDP to drop by 0.25 percent,
Latvian Economy Minister Vjaceslavs Dombrovskis told RIA Novosti.
"According to our estimates, the total loss is 0.25 percent of GDP. The damages
totaled about 52 million euros [$ 65.6 million]. There are three industry branches
that have suffered the most - the dairy industry, haulage firms, who work with
customers in Russia, and farmers engaged in dairy production," the minister said.
Among the three Baltic countries, Latvia is not the worst hit by Russia's food
embargo, Dombrovskis said.
"Latvia has not been the worst hit by the Russian sanctions. For instance, we export
far fewer fruit and vegetables to Russia than Lithuania," the minister said.
Read more here: http://www.bne.eu/page/bnecentral-europe-daily-list/latvianminister-estimates-russian-food-embargo-cause-025-pp-drop
65. Latvian shadow economy shrinks to 24.7% of GDP, claims study
Leta
Currently, the shadow economy in Latvia is at approximately 24.7% of gross
domestic product (GDP), according to calculations by Dr. Friedrich Schneider from
the Johannes Kepler University of Linz, reports LETA.
According to the calculations, shadow economy in Latvia has reduced during the past
couple of years. The study reveals that shadow economy in Latvia in 2014 was
24.7% of GDP, in 2013 - 25.5%, in 2009 - 27.1% of GDP.
Schneider's study indicates that shadow economy in Latvia is slightly lower than in
Lithuania and Estonia, where it is said to be 27.1% of GDP. The average level of
shadow economy in Europe (based on calculations for 25 countries) is 18.5% of GDP.
The lowest shadow economy is in Austria - 7.8% of GDP, followed by Netherlands 9.2% of GDP, and Great Britain - 9.6% of GDP.
Read more here: http://www.baltic-course.com/eng/analytics/?doc=97400
66. Lithuania sees annual deflation of 0.1% in September
bne
October 10, 2014
Prices of consumer goods and services increased by 0.4% in September, compared
with August, while consumer prices declined by 0.1% in annual terms. Average
annual inflation remained at 0.2% in September and was 1.5 percentage points
lower than a year ago.
Consumer prices were pushed down the most by lower prices of heating (-17.7%),
gas (-11.2%), electricity, and fuels, resulted by declining global energy prices, the
modernization of the heating sector and lower gas prices by Gazprom. Due to the
Russian embargo of food products the prices of vegetables declined by 7.8% in
annual terms, but the prices of milk, cheese and eggs were 3.5% and those of fruit
11% higher than a year ago. The prices of solid fuels, restaurant services, sewerage
and refuse collection services, rentals for housing, and tobacco products increased as
well from last year's September.
In general, prices of goods in Lithuania declined by 0.8%, while prices of services
increased by 2.2%, in annual terms.
In September producer prices in the Lithuanian market continued to trend
downwards and were 5.6% lower than last year. Due to weak commodity markets
and still little pressure on prices from rising labor costs, producer prices have been
declining for 15 months now and thus have been having a negative effect on the
consumer price inflation.
Declining global prices of oil are likely to continue to contribute negatively to
consumer price inflation. However, the effect of lower energy prices on consumer
price inflation will not be as large as expected due to the weakening of the euro
against the US dollar. Since June the prices of Brent oil in US dollars have declined
by 19%, but only by 13% when converted to the Euros.
Read more here: http://www.bne.eu/page/bnecentral-europe-daily-list/lithuaniasees-annual-deflation-01-september
67. Poland: No budget revision pledges Poland's new FinMin
bne
October 10, 2014
New PM Kopacz has made several expenditure promises in her recent policy speech
(defence and family subsidies), which had triggered talk in the market about possible
budget revision and wider deficit target; but, FinMin Szczurek has weighed in on the
subject clarifying that these additional items will increase expenditure by a modest
PLN 3.2bn-3.6bn, and at least part of this will be offset by lower debt servicing cost
(lower than budgeted interest rates) over the coming year. The govt still targets
2.6%-2.7% of GDP deficit for 2015 (vs. estimated 3.4% this year).
68. Slovakia Retail Sales Growth Slows In August
bne
October 10, 2014
Slovakia's retail sales increased at a slower pace in August, after improving in the
previous two months, figures from the Statistical Office of the Slovak Republic
showed Friday.
Retail sales grew 1.1 percent year-on-year following 2.8 percent increase in July. It
was the smallest gain thus far this year. Month-on-month, retail sales declined 0.4
percent in August.
Read more here: http://www.rttnews.com/2392782/slovakia-retail-sales-growthslows-in-august.aspx?type=alleco
69. Slovakia Trade Surplus Rises In August
RTT
Slovakia's trade surplus in August increased from a year ago, figures from the
Statistical Office of the Slovak Republic showed Thursday.
The trade surplus came in at EUR 232.8 million in August, which more than the EUR
205.2 million surplus recorded in the same month of the previous year. In July, the
surplus was EUR 413.2 million.
During the January to August period, the country registered a trade surplus of EUR
3.19 billion versus EUR 3.11 billion in the same period last year.
Read more here: http://www.rttnews.com/2395031/slovakia-trade-surplus-rises-inaugust.aspx
CREDIT SE MACRO NEWS
70. Bulgaria's Industrial Production Index Down 0.9% M/M in August 2014
Novinite
According to preliminary data of Bulgaria's National Statistical Institute (NSI), the
Industrial Production Index, seasonally adjusted, decreased by 0.9% on the month in
August 2014.
In August 2014, the working day adjusted Industrial Production Index fell by 1.9%
year-on-year.
Read more here:
http://www.novinite.com/articles/163936/Bulgaria's+Industrial+Production+Index+
Down+0.9+M+M+in+August+2014
71. Bulgarian Emigrants Send To Relatives BGN 2.3 B Per Year
Novinite
Bulgarian emigrants send to relatives in Bulgaria more than BGN 2.3 B per year,
shows 2013 data of the World Bank, quoted by Irena Zareva of the Institute for
Economic Studies at the Bulgarian Academy of Sciences (BAN).
According to Zareva, quoted by Pariteni.bg, in 2013 the sum is estimated at BGN 3.4
B.
Read more here:
http://www.novinite.com/articles/163967/Bulgarian+Emigrants+Send+To+Relatives
+BGN+2.3+B+Per+Year
72. Illegal activities contribute some EUR 400 mln to Romania's GDP
Romania Insider
The contribution of illegal activities, such as smuggling cigarettes and alcohol,
prostitution and drug use, to Romania's GDP increased by 1% in 2013 compared to
2012, to some EUR 407 million, according to official data released by the National
Statistics Institute (INS).
Read more here: http://www.romania-insider.com/illegal-activities-contribute-someeur-400-mln-to-romanias-gdp/133149/
73. Moldova GDP increases 3.9 percent
CISTran Finance Reports
Increased exports and fixed investments drove Moldova's economy to a 3.9 percent
increase in gross domestic product during the first six months of 2014, according to
aÊWorld Bank announcement on Thursday.
Despite the strength of Moldova's position, there are potential risks to the
macroeconomic framework of the country that are expected to negatively impact
growth until the end of the year.
Read more here: http://cistranfinance.com/news/moldova-gdp-increases-3-9percent/4851/
74. Slovenia's budget deficit will rise by EUR 200m to EUR 1.2bn
Balkans News
Slovenia's budget deficit will rise by EUR 200m to EUR 1.2bn under the
supplementary budget which the government will adopt in the coming weeks as a
response to the unrealistic assumptions in the valid budget, Finance Minister Dusan
Mramor announced on Tuesday.
Read more here: http://www.balkans.com/open-news.php?uniquenumber=197659
CREDIT EA MACRO NEWS
75. Central bank says Armenian GDP grows 3.8% in Q3
ARKA
TArmenias Central Bank estimated the economic growth as of late September at 3.8
percent attributing it to what it described as some economic recovery.' According to
a regulators press release, this estimation was made at a meeting of its Board on
Sept. 23. The economic growth at the end of the second quarter was 2.6 percent.
"The acceleration of economic growth in the third quarter was largely contributed by
a larger-than-expected growth in the agricultural sector amid passivity in the
industrial sector from the beginning of the year", the press release says.
Read more here:
http://arka.am/en/news/economy/central_bank_says_armenian_gdp_grows_3_8_pe
rcent_in_third_quarter/
76. Armenian national currency shows weakening trends
Tert.am
The paper warns of a possible currency crisis, citing the past weeks decline in the
Dollar exchange rate.
The paper notes that the price per one US Dollars increased from 408.50 to 410.25
Armenian Drams in Armenias Stock Market over the past days.
Read more here: http://www.tert.am/en/news/2014/10/07/hzh1/
77. Armenias industrial output in eight months grows by 0.9% to
AMD799.2bn
ARKA
Armenias industrial output in the first eight months of 2014 amounted to 799.2
billion drams, an increase of 0.9% from the same period in 2013, the National
Statistical Service (NSS) said today.
The NSS said the manufacturing sector accounted for about 64.6% of the total
output. Its share rose by 5.5% from 2013 to more than 516.8 billion drams.
Read more here:
http://arka.am/en/news/economy/armenia_s_industrial_output_in_eight_months_gr
ows_by_0_9_percent_to_799_2_billion_drams/
78. Azerbaijani state budget revenues exceed 1.2% - minister
Trend
The state budget revenues of Azerbaijan were fulfilled by 101.2 percent and
amounted to 14.71 billion AZN in January-September 2014, according to live data,
the Minister of Finance Samir Sharifov said during the meeting of the Cabinet of
Ministers.
The meeting was dedicated to the socio-economic development for the first 9 months
of 2014 and the challenges ahead.
The Ministry of Taxes provided tax revenues forecast implementation by 101.8
percent, and the state budget received 5.3 billion AZN, which is 394 million AZN (or
8 percent) more, compared to the same period of 2013.
Read more here: http://en.trend.az/business/finance/2320059.html
79. IMF forecasts Azerbaijan's GDP growth in 2014 at 4.5 pct
AzNews
October 9, 2014
The International Monetary Fund (IMF) forecasts Azerbaijan's GDP growth at 4.5
percent in 2014 and 4.3 percent in 2015.
This was noted in a report on the prospects for development of world economy World Economic Outlook - published on IMF's website on October 8.
According to the fund's previous forecast, released in June, the GDP growth of the
country was predicted at 5 percent in 2014 and 4.6 percent in 2015.
The report also said in 2019 the economic growth in Azerbaijan is expected to reach
4.2 percent while the June report forecasted the country's GDP growth at 4.23
percent in 2019.
IMF experts believe the decline of economic growth in oil and gas exporting CIS
countries in 2014-2015 is mainly due to the fact that high prices of energy carriers
compensate only part of the impact of the decline in Russia's export.
"Given the geopolitical tension in the region, the sanctions against Russia and
structural changes in the Ukraine, the CIS economy is facing serious problems," the
report noted.
IMF analysts expect a decline of overall GDP growth rate in the CIS countries from
2.2 percent in 2013 to 0.8 percent this year, and this figure is expected to reach 1.6
percent in 2015.
Read more here:
http://www.azernews.az/business/71740.html?utm_medium=twitter&utm_source=t
witterfeed
80. Lowest deflation among CIS countries in Jan-Aug 2014 recorded in
Armenia
ARKA
The lowest deflation in the Commonwealth of Independent States in Jan-Aug 2014
was recorded in Armenia, Gurgen Martirosyan, chief of the Armenian National
Statistical Services division in charge of international comparison.
According to the National Statistical Service, consumer prices shed 1.2% in August
2014, compared with December 2013, but rose 0.8%, compared with August 2013.
Read more here:
http://arka.am/en/news/economy/lowest_deflation_among_cis_countries_in_jan_au
g_2014_recorded_in_armenia/
81. Tajikistans inflation for Jan-Sept stands at 5.7%
Asia-Plus
In Tajikistan, inflation for the first nine months of this year has stood at 5.4 percent,
according to the National Bank of Tajikistan (NBT).
In September, inflation reportedly stood at 02 percent while in August inflation stood
at 0.7 percent.
A source at Tajik central bank says the government expects the year-end inflation to
stand at 7.5 percent this year.
Read more here: http://news.tj/en/news/tajikistan-s-inflation-jan-sept-stands-57percent
82. Uzbek-Russian trade hits $2.69bn in January-August
Uzdaily
The volume of trade turnover between Uzbekistan and Russia made up US$2.697
billion in January-August 2014, the Federal Customs Service of Russia said.
According to the Federal Customs Service of Russia, the volume of exports of Russia
made up US$2.065 billion in the reporting period and imports ñ US$631.4 million.
Trade surplus made up US$1.434 billion.
Uzbekistan is the fourth largest trade partner of Russia among the CIS states after
Ukraine, Belarus and Kazakhstan.
Read more here: http://uzdaily.com/articles-id-29499.htm
CREDIT RUSSIA MACRO NEWS
83. Capital outflow from Russia might be lower than $100bn forecast in
2014 - minister
Interfax
October 9, 2014
Capital outflows from Russia in 2014 could turn out to be less than the official
forecast of $100bn, Economic Development Minister Alexei Ulyukayev believes.
"We haven't changed the forecast for this year. It is still $100bn. Our accumulated
outflow, I believe, is currently $78bn for eight months and it looks like it will confine
itself to a smaller amount than $100bn. But capital outflow is always a hypothesis,
and we can't precisely calculate this, we can only conjecture with some certainty.
Therefore, we will not change the forecast to the end [of the year]," Ulyukayev said
in an interview with radio station Ekho Moskvy.
Read more here: http://www.interfax.com/newsinf.asp?pg=8&id=542403
84. Russian internal rebalancing strengthens, supporting RUB, non-CIS
imports shrank by 11% YoY in September
VTB Capital
October 8, 2014
consumer confidence deteriorates, signalling further pressure on private spending
News: The federal customs service has published its first estimate for September
non-CIS imports. The headline figure came in at USD 20.6bn, with the YoY drop of
10.7% (after the -11.4% YoY in August) meaning that it was below the waterline for
the fourth month in a row.
In separate news, Rosstat reported that Russian consumer confidence deteriorated
to -7% in 3Q14, from -6% in 2Q14.
On the sub-index level, the index of the expected economic changes in the short
term decreased to -7% during the last quarter (from -6% in the previous three
months).
Also, the index of past economic changes was down to -7% (from -6%), the index of
expected changes in the level of incomes edged down to -4% (from -2%), the index
of past changes to the level of incomes ticked up to -4% (from -6%) and the index
of favourable timing to make big purchases stood flat at -16%, the strongest level
since 3Q08.
Our View: A weaker domestic currency, the recently imposed trade restrictions and
cooling demand all weighed on imports of both consumer and investment goods,
spurring the CA rebalancing. Thus, the pace of the decline in imports of investment
goods intensified to 9.8% YoY, the strongest since late 2009, while the drop in
consumer imports eased somewhat in September to -5.2% YoY, partly due to better
gains across clothes and footwear items.
In the meantime, the latest Rosstat survey showed a worsening in consumer
confidence in August (while it is reported as 3Q14, it stands for August only). It
chimes with our understanding that consumers are suffering and shows that the
increasing dichotomy between actual consumer purchases and their confidence level,
as observed during 1H14, is unsustainable.
Hence, consumption fundamentals remain challenging, with sluggish income and
retail lending growth. In anticipation of some relief on the car market (and,
consequently, in general consumption growth) due to the new cash-for-clunkers
initiative, we would stay on the conservative side and not expect any tangible
upswing in the underlying trend of discretionary consumer spending in the near
term.
All in all, a firm downward trend in imports (particularly on the back of meagre
consumption) is set to stabilise RUB and prevent additional weakness, unless another
external shock occurs (a further escalation in Ukraine and/or collapse in oil prices).
85. Net capital outflow from Russia nearly doubles to $85.2bn in Jan-Sept Central Bank estimate
Interfax
October 10, 2014
The net capital outflow from Russia rose 90% in the first nine months of 2014 yearon-year to $85.2bn, up from $44.1bn in the same period last year, according to data
posted on the Central Bank's website.
The Central Bank forecast that capital outflow could total about $90bn in 2014, but
conceded that the figure could be even higher. The Economic Development Ministry's
official forecast for capital outflow in 2014 is $100bn.
The Central Bank has lowered its capital outflow estimates for the first and second
quarters to $48.6bn and $23.7bn respectively from the initial $48.8bn and $25.8bn.
Capital outflow in the third quarter decreased by 45% from the previous quarter to
$13bn, according to the Central Bank's preliminary data.
Read more here: http://www.interfax.com/newsinf.asp?id=542820
86. Putin signs law to free Reserve fund money for budget spending
bne
October 8, 2014
Russian President Vladimir Putin signed off on a law on October 8 that will divert
money that's normally plan for the reserve fund to budget spending in order to ease
the financial pressure on the government this year.
The cash-strapped government has been looking for ways to finance a increasingly
tight budget. There was an active discussion earlier this year about increasing taxes,
but now it seems the government has abandoned that idea. However last week it
did sign a law that increases property taxes somewhat.
With the new law signed on October 8 the government clearly has decided to raid its
piggybank in order to close the spending gap. The Russian budget is under pressure
due to falling oil prices; the assumption that the budget is for $100 oil, while
currently the actual prices is closer to $94.
The draft budget assumes RUB344.3bn of Reserve funds may be used for the budget
in 2015, RUB355.8bn in 2016 and RUB359.7bn in 2017.
The Ministry of Finance estimates that the Reserve Fund will be RUB3.5 trillion as of
the end of 2014 and RUB3.7 trillion as of the end of 2017.
87. RenCap-NES Macro Monitor
Renaissance Capital
October 8, 2014
This update of the RenCap-NES leading GDP indicator signals softer 3Q14 and 4Q14
growth relative to the previous release. We maintain our 2014E and 2015E GDP
growth forecasts of 0.8% and 1.7%, respectively, though we acknowledge that the
risks are slanted to the weaker side.
The RenCap-NES leading GDP indicator signals softer 3Q14 and 4Q14 growth relative
to the previous release
According to the RenCap-NES leading GDP indicator, the final estimate of YoY 3Q14
GDP growth is 0.2%, compared with the 0.6% projection made in September. The
second estimate of 4Q14 real growth GDP is -0.2% YoY (which might be the first
negative reading since 4Q09), below the 0.8% we expected a month earlier. Based
on official data of 1H14 growth and the updated estimates, the RenCap-NES indicator
suggests real GDP growth in FY14 of 0.4% YoY. The revision of both 3Q14 and 4Q14
forecasts is substantial and it signals that the state of the economy might be more
fragile than we first thought. However, the scale of the latest revision might be
exaggerated by the volatility of recent data.
We maintain our 2014E and 2015E GDP growth forecasts of 0.8% and 1.7%,
respectively
Our growth forecasts are based on the assumption of a frozen conflict in Ukraine
today, and the expiry of most Western sanctions on Russia in 2H15. We are still
slightly more optimistic than market consensus (0.3% and 1.0% growth in 2014 and
2015, respectively, according to Bloomberg). First and foremost, the tight labour
market should remain a supportive backdrop for consumer demand. We see limited
room for a pick-up in the unemployment rate from historic lows, attributed to a
shortage in the labour force. Second, without significant cuts in inventories, which
have probably bottomed out in many sectors, Russian GDP would shake off at least
one of the drags on growth. Last, a weaker currency would support the budget and
Russian net exports, partially via import substitution.
The risks to our forecasts are slanted to the weaker side
First, the main risks we see are geopolitical issues and uncertainty around
developments in the global commodities market (we assume $105/bl Brent oil for
2014E and 2015E). Second, the contraction in capex might be more prolonged than
we suggest (-3.3% in FY14E but 1.9% in FY15E) due to difficult credit conditions.
Third, higher inflation could contain households’ spending (we assume 2.7% in
FY14E and 2.3% in FY15E). On a positive note, inventories weighed on the growth
performance in 2Q14 to a lesser extent than previously (with the softest negative
reading in the past seven quarters). Apart from that, the risk of fiscal tightening via
a sales tax in 2015 has reduced noticeably, according to official statements. Still
higher CPI (we upgrade our 2014 year-end forecast to 8.2% from 7.5% previously)
might cost the budget more than RUB200bn over the next three years, bolstering
obligatory social indexations. This is not envisaged in current spending plans, so the
issue of budget consolidation might not be totally off the cards in the mid-term, in
our view.
88. Ruble weakness, high inflation, and slow growth to undermine
consumer confidence
UralSib
October 8, 2014
Consumer confidence starts to decline ... Yesterday, Rosstat published consumer
confidence data for 3Q14, which showed consumer confidence contracted 1 ppt to a
negative 7% in 3Q14 after unexpectedly growing 5 ppt in 2Q14. The index of
expected changes in the economic situation in the near future dropped 4 ppt to a
negative 4%: the share of respondents expecting the economic situation to worsen
in the next 12 months grew to 29% in 3Q14 from 22% in 2Q14. The index of
changes that have taken place in the economic situation contracted 1 ppt to negative
7% in 3Q14: the share of respondents that negatively assessed the changes that
have taken place in the economy increased to 31% in 3Q14 from 30% in 2Q14. The
index of expected changes in the personal material situation dropped 2ppt QoQ to a
negative 4%: the share of respondents expecting their material situation to worsen
in the next 12 months grew to 17% in 3Q14 from 16% in 2Q14. The index of
changes that have occurred in the personal material situation grew 2 ppt QoQ to
negative 4% in 3Q14. The index of favorable conditions for large purchases was
unchanged at negative 16%, and the savings index grew 2 ppt to negative 31%. The
consumer confidence index decreased among the young and the older population,
and was unchanged for the middle-aged population.
… and will continue to weaken. We believe that improvement in consumer confidence
in 2Q14 was temporary and expect the contraction in confidence that started in
3Q14 to continue in the next two-three quarters. The ruble has depreciated almost
20% YtD against the dollar, which has negatively affected real disposal income
growth and increased inflationary pressure. Russia’s response to sanctions and
import restrictions, together with ruble depreciation, have resulted in inflation
growing 8% YoY YtD.
We believe that inflation will remain high during the next few months. We have
lowered our macro economic outlook and now expect the economy to stagnate for
the next couple of years: according to our projections, real GDP will grow 0.6%0.7% in 2014-15, with just 0.2% real income growth per annum over the period.
Economic stagnation with high inflation will further weaken consumer confidence.
Alexei Devyatov
89. Russia's BoP in 3Q14: Internal rebalancing at full speed, but oil drop
requires more
VTB Capital
October 10, 2014
The BoP statistics for 3Q14 reveal further evidence of a strengthening internal
adjustment in light of the sanctions which have been enacted and the weaker
currency. The reshuffle in underlying capital flight goes on, with ‘grey’ flight
stabilising at lower levels and net FDI outflows intensifying. Looking ahead, the oilrelated terms of the trade shock (if we assume it is of a structural nature) urge a
stronger rebalancing that would hardly be spurred by a weaker rouble alone, but also
needs a tighter monetary stance. Speaking about the rouble outlook for the rest of
2014, the FX market performance now very much resembles 1Q14, with exports not
selling and the population starting to watch currency more closely. This kind of herd
behaviour is usually only broken by decisive action from the regulator (hike in rates
and bolder FX support).
Internal rebalancing underway, services still resilient. Despite the unfavorable
seasonality, this time the third quarter was strong in terms of the current account
surplus, running at USD 11.4bn vs. a deficit of USD 0.7bn last year. Therefore, the
sequential trend in the CA surplus has crept up to 4% of GDP. This was chiefly by
virtue of: ? the gain in the trade balance remaining in the double-digit area (11.2%
YoY), although it slowed, as shrinking exports of crude oil and gas were more than
recouped by choking merchandise imports (-8.7% YoY); ? an all-time high annual
plunge in investment income deficit (USD 5.8bn) was the largest contributor among
the invisible parts of the CA in light of stabilising/dampening external debt and
waning corporate profits that squeezed payouts for foreign investors.
The scale of internal rebalancing in the services industries is surprisingly modest,
with outbound tourism dropping a mere 3.9% YoY, signalling resilience to
relentlessly slowing income growth and a weaker RUB.
Underlying capital flight returned to normal after a blip. The sum of dubious
operations and errors and omissions – aka ‘grey’ capital flight – returned to the
negative area, with a USD 7.7bn drop in 3Q14, after an out of the ordinary USD
2.4bn increase in 2Q14 (we had not seen a positive print for years). However, there
was still a visible improvement (given 4q-roll) that we might link to the CBR’s
crusade against misbehaving banks.
Simultaneously, we warn against drawing any overly upbeat conclusions as ‘grey’
capital outflow probably only changed its clothes (for example, transformed into
something that the BoP methodology might classify as FDI).
That said, net private sector capital outflows moderated to USD 5.7bn, from USD
61.7bn in 1Q14 and USD 10.2bn in 2Q14, as well as USD 12.2bn in 3Q13.
90. Russia's Current account improves due to weak ruble
UralSib
October 10, 2014
Current account surplus surges to $52.3bn in 9M14 … The current account surplus
reached $11.4bn in 3Q14 and $52.3bn in 9M14 (compared to $26.1bn in 9M13),
according to data from the Central Bank. The current account for 3Q14 also
improved relative to 3Q13, when it shrank to negative $0.7bn. The trade balance
surplus reached $48.6bn in 3Q14 and $151.2bn in 9M14, while capital outflows
reached $13bn in 3Q14 and $85.2bn in 9M14.
… due to increase in trade balance and improvement in investment income balance.
The improvement in the current account surplus was largely due to an 11.9% yearon-year increase in the trade balance and a 17.5% year-on-year improvement in the
investment income balance, which rose to negative $41bn in 9M14 compared to
negative $49.7bn in 9M13. Exports reached $128.4bn in 3Q14 and $383.8bn in
9M14 (up 0.1% year-on-year), while imports reached $79.7bn in 3Q14 and
$232.7bn in 9M14 (down 6.3% year-on-year). Capital outflows increased 93.2%
year-on-year in 9M14. Direct investments in Russia dropped to $21.2bn in 9M14
(down 60.9% year-on-year), while portfolio investments decreased to negative
$12bn in 9M14 versus negative $5bn in 9M13. Direct and portfolio investments from
Russia totaled $47bn in 9M14, exceeding the level of investments in the country.
Capital outflows may accelerate in 4Q14. We believe that the weak ruble is the
primary reason behind the improvement in the current account this year. The weaker
national currency has led to a sizeable decrease in imports, which has improved the
trade balance and, in turn, the current account. Surprisingly, the balance of services
remained virtually unchanged year-on-year. Foreign tourism grew 0.5% year-onyear to $42.1bn in 9M14. The sharp increase in capital outflows was driven by
geopolitics. Since Russian companies now have limited access to international capital
markets, capital outflows may intensify in the coming months due to the inability of
companies to refinance their foreign debt. Thus, capital flight could reach $150160bn this year, which would add to ruble weakness. We expect the current account
surplus to reach $75bn in 2014, and then decrease to $40bn in 2015.
91. Russia's manufacturing production: Small progress made but still weak
Renaissance Capital
October 10, 2014
The manufacturing sector remains weak in August, but we expect to see a pick-up in
September. This view is supported by the PMI in September, which rose above the
neutral 50-point mark for the first time since March 2014. We expect some
improvement in business activity after the labour strike in July disrupted production.
Ironically, the risk to factory output is the weak rand, which is contributing to an
uptick in price pressures. Usually, a weak rand should boost exports of manufactured
goods.
Slight improvement but still weak
Manufacturing production increased to -1.2% YoY in August, from a downwardly
revised -8.1% YoY in July (previously -7.9%). We and Bloomberg consensus had
expected a weaker improvement in August. The main contributor to the monthly
decline was lower production in: wood and wood products, paper, publishing and
printing (-11.3% YoY), petroleum, chemical products, rubber and plastic products (3.9%), glass and non-metallic mineral products (-13.4%), basic iron and steel, nonferrous metals products, metal products and machinery (-3.1%) and food and
beverages (-2.0%). On a MoM basis, manufacturing production increased by 2.2% in
August, from -3.6% in July.
Recovering from the NUMSA strike
Especially noticeable is the production decline in engineering-related industries of the
manufacturing sector, which indicates that the sector is still recovering from losses
arising out of the NUMSA metals and engineering strike. The manufacturing
environment in SA can be characterised by low business confidence, largely
influenced by the protracted labour-related production stoppages in the platinum
industry, as well as the NUMSA strike. The strikes affected the supply chain
performance for a number of manufacturers, leading to declines in other sectors such
as retail.
Mercedes Benz SA charges ahead
The motor vehicles, parts and accessories and other transport equipment division
was a significantly positive contributor to the better-than-expected August factory
output number. The division, which accounts for about 7.9% of total manufacturing
production, increased 31.7% YoY in August, from -29.6% in July. Vehicle production
was affected by the retooling and refurbishing of the Mercedes Benz SA factory,
which limited production. This is the first positive vehicle production number since
January 2014.
No change in our rates view
The weak manufacturing production number ought to signal the MPC members to
keep rates on hold; however, we believe that inflationary pressures from the weak
exchange rate and the expectation of rate hikes in the US could see rates go up by
25 bpts in November. We expect the SARB to increase rates by 100 bpts in 2015.
92. Russian CPI up 0.2% in first week of Oct
Alfa Bank
October 9, 2014
Rosstat reports that CPI grew 0.2% w/w in the first week of Oct, showing no
deceleration compared to Sept figures. The CPI growth breakdown indicates
acceleration in vegetable prices; however, this had been expected due to
seasonality. Prices in this segment are still down 30-50% YTD, and will likely
continue recovering by year-end, putting upward pressure on overall price growth.
The new concern is ongoing ruble depreciation, which is much higher than expected,
with 3Q14 depreciation of 15% to add 1.5pp to overall consumer price inflation in
the coming six months. All in all, we now expect inflation to accelerate from 8.0%
y/y in Sept to 8.1% y/y in Oct, and we deem any decline below 8% y/y as unlikely in
2014, strengthening the CBR's case in favor of a 50bp rate hike ASAP.
Dmitry Dolgin
93. September was perfect storm for Russian CPI inflation
VTB Capital
October 8, 2014
A range of external shocks severely hurt inflation in September, as the pass-through
effect from the weaker currency intensified the inflationary impact from the food
ban. As a result, inflation printed a three-year high of 8.0% YoY last month. Almost
the entire 0.4pp headline acceleration was due to faster gains in food (chiefly, meat
and fruit & veg.) prices, while core inflation demonstrated resilience: up a mere
0.1pp. If oil prices stabilise near USD 90-95/bbl, headline inflation will likely peak
near 9% in 1H15 before strong disinflation. The costpush inflation underway will
likely prompt the CBR to preserve its tight stance, but given rising tolerance towards
elevated inflation, we do not expect additional hikes unless extra shocks take place.
Import ban continues to fuel food inflation. Headline CPI jumped 40bp to 8.0% YoY,
the sharpest upturn since March 2014, coinciding with the recent weekly inflation
prints. Component-wise, the pick-up in food inflation (to 11.4% YoY) came on the
back of unusually modest monthly deflation in fruit & vegetables (that added around
25bp to the acceleration in headline CPI) and price gains on products that were
affected by the recent extension of trade restrictions, with meat contributing almost
23bp to the headline acceleration. The moderating gasoline and tobacco inflation was
supportive, but only marginally (shaving circa 3bp off the headline CPI).
Core inflation: tentative signs of FX pass-though. In September, VTBC core inflation
demonstrated a slightly stronger upward trend, with annual growth edging up to
5.5% from the 5.2-5.4% seen over the previous four months. As of now, the impact
from the weaker rouble has touched a narrow range of CPI items, proving that
general economic conditions are not beneficial for companies to increase retail
prices. Although the CBR estimates FX pass-through at 0.13, we see it at 0.10,
staying at a more conservative level in terms of the scale of the negative output gap.
Hence, if oil quotes stabilise near USD 90-95/bbl, the rouble would also hover near
38- 39 against the dollar, adding around 10bp to the headline CPI over the next 2-3
quarters. Hence, under such a scenario, headline CPI could flirt with the 9.0% mark
before pronounced disinflation takes up the reins in 2H15.
CBR to seek comfort in wait-and-see mode. There are many unknown factors at the
moment in terms of the inflation outlook. By that we mean oil prices in particular, as
well as inflation expectations. The former case is described above. As for the latter,
though, the current mayhem on the FX market is having less resonance in the media
compared to what we saw this spring, which could partly ease CBR concerns related
to its inflation expectation. Recent comments from the CBR suggest the regulator
acknowledges the short-term nature of the current inflation upturn, and that it also
expects a more favourable inflation environment in 2H15. Thus, it is our thinking
that the regulator will prefer to conduct on-hold monetary policy with a hawkish bias
in the coming months, while an additional inflation shock might trigger tightening.
94. Ruble depreciation create windfall revenues for the government's
budget
bne
October 8, 2014
The silver lining in the recent depreciation of the ruble is that it creates up some
RUB900bn of extra cash for the Russian budget, say economists.
Federal budget for 2014 is composed on the assumption that average annual oil
price amounts to $104 per barrel oil, but prices began to decline in August to a low
of $91.35.
For each drop of $10 in the cost of a barrel the budget loses some $600bn to $1.5
trillion on an annualized basis, economists say. However, Russia is still on course for
an average oil price on the order of $100 even including the recent declines as prices
were well over $100 in the first part of the year.
Budget income amounted to RUB9.4 trillion or 66.3% of the annual rate (oil and gas
revenues - $4.9 trillion) leading to a budget surplus of RUB919.7bn.
But even if the oil prices falls reducing revenues the concurrent fall in the value of
the ruble off sets this somewhat. According to the budget 2014, exchange rate of the
ruble amounts to RUB35.5/dollar. However, on October 6, 2014, on Moscow
Exchange it fell to RUB40/dollar - for the first time since 1998. According to the
RBC's consensus-forecast, by the end of 2014, exchange rate of the ruble will
amount to RUB38.1/dollar and was over RUB40/dollar at the time of writing.
According to the Finance Ministry estimates, appreciation of the dollar by RUB1 gives
to the budget additional income amounting to RUB180bn. Weak ruble provides for
the additional budget revenue due to increase in nominal oil and gas revenue and
some duties on import.
CREDIT UKRAINE MACRO NEWS
95. Ukraine's C/A issues remain despite heavy hryvnia depreciation
SP Advisors
October 10, 2014
The deep hryvnia depreciation narrowed the C/A deficit to $2.7bn in 8M14 from
$9.0bn in 8M13. In August alone the C/A was fully balanced – a sharp contrast to the
$1.8bn monthly deficit a year previous. The improvement was mainly helped by a
drastic decline in the import of goods, which reached 42% yoy in August and 22% in
8M14. While the trend is apparently positive, some concerns remain:
(i) The decline in goods exports (-17% yoy in August, -8% in 8M14) will accelerate
through the year-end due to interruptions to key exporters’ operations in the Donbas
– this would require an even stronger adjustment in imports if the C/A were to
remain balanced.
(ii) Imports of natural gas declined 86% yoy in volume terms in August since Ukraine
isn’t purchasing gas from Gazprom due to the gas price dispute. Once Ukraine
returns to a normal gas purchase schedule, the C/A deficit will reemerge.
We forecast Ukraine’s C/A deficit at close to 3.0% of GDP in 2014 and we expect it
will narrow slightly to 2.9% in 2015 as a weaker hryvnia and falling real household
incomes keep imports on a downward trend in the coming months.
96. Ukraine CPI speeds up to 2.9% m/m in September
Concorde Capital
October 7, 2014
Ukraine’s consumer prices jumped 2.9% m/m (+17.5% yoy) in September compared
to 0.8% m/m (+14.2% yoy) in the prior month, according to state statistics released
on Oct. 6. Faster food price growth (+2.9% m/m vs. -0.1% m/m in August) was the
main factor. Other CPI components accelerated as well, including transportation
(+3.3% m/m), education (+2.2% m/m), healthcare (+2.0% m/m) and utilities
(+1.6% m/m).
Alexander Paraschiy: Hryvnia devaluation through August-September was the main
reason for accelerated inflation in September. Though the central banking authorities
have used administrative levers to force the exchange rate to “stabilize” near UAH
12.95/$, importers have reflected in their prices an exchange rate at above UAH
14/$.
Unless a new currency shock happens, we do not see a strong pretext for price
acceleration over the upcoming months. In October, utility rates will keep rising after
the 40% jump in July; however, they will have limited impact on CPI. Since the
results were in line with our previous estimates in September, we are keeping our
CPI forecast almost unchanged at 11.3% yoy (19.1% YTD) in 2014.
97. Ukraine's economy will dive in 2H14-1H15 before bottoming out
SP Advisors
October 10, 2014
This economic crisis will be comparable to the 2008/09 downturn in terms of the
depth of the GDP decline (GDP fell 14.8% yoy in 2009) but it will be longer lasting
and with the prospects for a reversal entirely unclear.
What is clear is that the war zone wasn’t shaped haphazardly – it accurately cuts the
key industrial companies of the region out from Kyiv-governed territory. The
terrorist-controlled region apparently lacks an important element – the Azov
seacoast city of Mariupol with its cargo sea port and two of Ukraine’s top-3
metallurgical plants. The seizure of Mariupol was fortunately prevented by Ukrainian
military forces, which continue to stand ready to defend the city at all costs.
Industrial production in Donetsk Oblast slumped 59% yoy and in Luhansk Oblast by
a whopping 85% in August. By contrast, industry fell 21% yoy overall in Ukraine.
The August industrial production data clearly show where the bottom could be for the
Ukrainian economy – output in key sectors of the economy is unlikely to be much
better than the August data for the next 6-9 months. Monthly production of coal fell
60% yoy, metallurgy cut output 30%, and production in the machinery sector shrank
31%. Retail trade contracted 17% yoy. A part of the decline is due to the inability to
collect statistics in the war zone, but that’s just a small part of the explanation.
The war in the east, combined with banking sector vulnerabilities, and Russia’s
aggressive trade policy trigger more fundamental problems:
- A major deterioration in business sentiment, which has led to a full halt in
investment activities in Ukraine. We expect fixed capital investment will fall 30-35%
yoy in 2014 as companies cut expenses to the bare minimum maintenance CAPEX.
- A worsening of the consumer mood on the back of high inflation and the ongoing
reduction in real incomes. According to GFK, the consumer confidence index fell a
remarkable 10.4 points from July to 54.7 in August.
- Exports are falling as many key exporters from the war zone have scaled down
operations. Russia’s aggressive trade war is another concern as the politically
motivated non-tariff barriers continue to bite. Trade preferences from the EU should
compensate for the loss of the Russian market, but that will require time.
Overall, we see the economic decline deepening substantially in 2H14. GDP growth
numbers will remain deep in the red at least though 1H15 due to a relatively high
comparison base. If no major shocks emerge politically, militarily, or economically
we expect the trend to flatten out only in 3Q15, while any return to growth is
possible no earlier than 4Q15. We project a 9.5% yoy GDP decline for 2014 and a
further 4.3% contraction in 2015.
98. Ukraine's hryvna to remain under pressure
SP Advisors
October 10, 14
The negative market sentiment will keep the local FX market nervous in the coming
months. The NBU has thus far failed to bring the market exchange rate close to the
“indicative” rate of UAH12.95/$ using administrative tools. The equilibrium rate in
the shadow cash market is currently range-bound near UAH14.0-14.5/$.
In our view, it is only a matter of time before the NBU admits the “indicative” dollar
rate is too low and sanctions another wave of official depreciation. At this time we
see the exchange rate appreciating slightly to UAH13.7/$through end-1H15, and
further to UAH13.3/$in 2H15.
99. Ukraine's budget deficit to reach 4.8% of GDP, to be covered with IFI
borrowings
SP Advisors
October 10, 14
Tax revenues are holding up fairly well, supported by a combination of high inflation,
hikes in excise taxes and royalty rates, the elimination of some tax avoidance
schemes, and (unfortunately) persistent strong fiscal pressures on companies. In
September, state budget proceeds declined 9.3% yoy, but the decline was purely
technical as a sizable transfer by the NBU to the budget last year pumped up the
comparison base. Net of NBU transfers, the budget saw a 7.0% increase in revenues
– quite a decent result given that a large part of the Donbas economy contributes
practically nothing to the state budget. On the other hand, the potential to offset the
cutoff in tax inflows from the war zone via compensatory measures like tax rate
hikes is limited. We forecast 5% growth in state budget revenues in 2014, below the
13% projected by the budget law.
On the expenditures side, a tiny 5% increase in budget outlays in 8M14 was fully
utilized to cover depreciation-inflated state debt servicing needs and boost military
spending (+37% yoy, 4% of budget spending). Nearly all other key expenditure
items declined yoy. An unfortunate factor that keeps expenditure growth in check is
the inability to deliver social payments to recipients and to fund healthcare/education
infrastructure in the war zone. Those payment interruptions will apparently result in
huge accumulated arrears that will weigh on the central government budget in the
coming years.
We see the state budget deficit at 4.8% of GDP, above last year’s 4.4%. The
projected budget shortfall doesn’t include UAH6.7bn (0.4% of GDP) in compensation
for VAT arrears, contributions to Naftogaz’s share capital (UAH96bn, or 6.4% of
GDP) that facilitated the redemption of the company’s Eurobond, and possible bank
recapitalization costs – all of these are non-cash expenses covered via T-bill
transfers. The sources of cash to cover the state budget gap are at present limited
solely to borrowings from IFIs and other governments. The government has thus far
received c. $6.3bn in external loans and at least $2.0bn will come in 4Q14. This is
entirely sufficient to keep government liquid through 2014. Meanwhile, domestic
borrowings are stagnating as liquidity issues have kept commercial banks’ interest in
T-bills subdued.
The fiscal deficit will remain in the range of 4.5-5.0% of GDP for at least the next
two years. The government will seek to compensate an inflation-driven decline in
households’ living standards via higher salaries for public employees and social
payments. The need for a further increase in military spending is also apparent. We
therefore see no chance of a narrowing of the fiscal gap any time soon.
Consequently, raising money from IFIs and foreign governments will be a key
agenda item in the coming years.
100. Ukraine economic slide seen accelerating in Q3 to five-year low
Reuters
October 10, 2014
Ukraine's economy is expected to have shrunk 9.5% year-on-year in the third
quarter of 2014, a Reuters poll showed, suffering its biggest contraction of the past
five years as fighting between government and rebel forces inflicts huge damage on
the industrial east.
Economists in the survey estimated that the slide worsened rapidly in JulySeptember from the first and second quarters, when gross domestic product shrank
by annual rates of 1.1% and 4.7% respectively. The analysts at 12 banks and
brokerages also saw GDP dropping 7.8% this year, according to the median forecast
in the poll, a much more pessimistic assessment than the 5.0% prediction in the
previous survey in a June. President Petro Poroshenko said last week that 50% of
industrial infrastructure in two eastern Ukrainian regions had been destroyed due to
almost daily artillery shelling in Donetsk and Luhansk, where major steel and energy
production is based.
"The performance of industrial production, construction and trade in July and August
was very poor," said Dmitry Sologub of Raiffeisen Bank Aval. "In the third quarter
GDP decline accelerated significantly. I expect further deterioration in the fourth
quarter to up to 13-15% as the situation in these sectors continues to deteriorate."
The poll results are even gloomier than the expectations of international
organisations. The International Monetary Fund has predicted the Ukrainian
economy, which stagnated last year, will contract 6.5% this year , while the World
Bank expects an 8% decline. This year will mark the economy's worst performance
since 2009, when GDP tumbled about 15% due to the global financial crisis.
While investment and general economic confidence is being hit, industry is suffering
particularly badly as the conflict is being fought out largely in the Donetsk and
Luhansk regions, which used to contribute 16% of Ukrainian GDP and about a
quarter of industrial production. In August, the fall in industrial output accelerated to
21.4% year-on-year from 12.1% in July and 5.0% in June, State Statistics Service
data showed. The analysts expect a 19% drop year-on-year in September.
Dmitry Boyarchuk of CASE Ukraine forecast an annual 20% drop in industrial output
over the next few months. "The regions' industrial infrastructure will not be restored
in the nearest future," he said. "The agricultural sector is growing by 1-3%, but this
is not enough to compensate the decline in industry, transport, trade and other
sectors."
Reuters polled analysts at Alfa Bank Ukraine, Capital Times, CASE Ukraine, Concorde
Capital, Credit Agricole Ukraine, Credit Rating, Da Vinci AG, International Centre for
Policy Studies, Prominvestbank, Institute for Economic Research and Political
Consulting, Raiffeisen Bank Aval, InvestCapital Ukraine.
Following are the main results of the survey. Median figures from the previous poll,
where applicable, are given in brackets.
Read more here: http://uk.reuters.com/article/2014/10/07/ukraine-economyidUKL6N0S119N20141007
101. Ukraine gross foreign reserves increase 1.7% m/m in September
Concorde Capital
October 8, 2014
The gross international reserves of Ukraine’s central bank increased by $272m to
$16.2bn in September, 2.3 months of future imports, according to a National Bank of
Ukraine (NBU) report published on Oct. 7. A $1.4bn IMF tranche, as well as a 0.5bn
loan from the World Bank, were the key sources of the gross reserves increase. At
the same time, interventions on the ForEx (the NBU sold $834m) coupled with
external redemptions ($193m to the IMF) dampened the gross reserves growth.
Alexander Paraschiy: The very slim gross reserves increase despite $1.9bn in
external support delivered during the month is very disappointing. These results
would not have been surprising if they included a $1.6bn Naftogaz Eurobonds
redemption, but it was delayed till early October.
Given that the NBU keeps pouring more foreign cash into the market through
auctions amid no signs of stabilization at the ForEx, we might see a very strong
(over $2bn) gross reserves contraction in October. Against this backdrop, we
anticipate the authorities will hastily push forward with a $1bn governmentguaranteed Eurobonds placement. Also, we anticipate diligence in compliance with
IMF requests, such as limiting fiscal gaps.
With the ForEx interventions much stronger than we anticipated, we are revising
down our gross foreign reserves estimate to $16.5bn (2.4 month of imports) for
2014 from $18.5bn estimated previously.
102. Ukrainian Foreign Reserves Rise to $16.2bn in Sept.
Tim Ash, Standard Bank
October 8, 2014
Ukraine's hard-currency reserves rose from $15.93b in August to $16.2bn in
September the central bank said on its website. However, the IMF says Ukraine may
need $19bn more aid if war persists.
A bit strange, given that the NBU was working very hard to defend the UAH towards
month end - likely because of concern over the debt/GDP trigger in Russian bail
bonds. There was also the $1.67bn paid on Naftogas bonds at the end of September.
The NBU did benefit from IMF/WB disbursements for $1.4bn and then $500m in
Sept. I think the NBU sold FX to make sure of the NAftogas payment, but likely only
in the first day or so of October., using some of the grace period and eager not to
see headline reserves drop at quarter end.
Note a lot of press reports at present about the fact that banks seem to be short of
FX and limiting disbursements at the retail level. Herein the WSJ had the piece about
the trip to the local Sberbank around the corner from the NBU with Governor
Gontareva, whereupon the teller appears to have been reluctant to hand over hard
cash. What seems apparent is that the NBU is warning banks to help to hold the rate
around the "official" rate of UAH12.9:$1, but they seem reluctant to sell scarce FX,
and what seems to be happening now is a parallel/black market emerging with the
market rate closer to UAH15:$1. Obviously restricting FX convertibility, in effect, has
ramifications, particularly in terms of making its more difficult for entities to service
FX debts, plus also generally disrupting economic activity even further.
On the economy front, the IMF kept its minus 6.5% forecast for Ukrainian real GDP
this year in its latest WEO, albeit this looks dated now with even the government
talking about a decline nearer to minus 9-10%. The Fund's assumption 1% real
growth next year, meanwhile, depends also on whether the current ceasefire holds
into next year.
The conflict in the Donbas, meanwhile, continues with reports overnight of four more
Ukrainian troops killed, which take the death toll for Ukrainian troops since the
ceasefire began last month to 60, and many more injured. Over 1,000 Ukrainian
soldiers have now been killed, with the overall death toll likely rising to nearer to 45,000 - even that might be an underestimate. A total of 12 people over the past 24H
are reported to have been killed, including civilian casualties.
Sent from Bloomberg Professional for iPad
------------------------------------------------------------------------------The above commentary represents a personal view, is not investment advice or Stan
dard Bank research, but may contain extracts from published research.
103. Upward trend in Ukrainian inflation resumes in September
Sberbank CIB
October 8, 2014
After a period of seasonal deceleration during the summer, prices began increasing
again in September, posting growth of 2.9% m-o-m. Monthly inflation was flat last
September, meaning the y-o-y tally has accelerated to 17.5% from 14.2% in August.
The major food segments contributing to total index growth were eggs (up 13.5%
m-o-m and 21% y-o- y), bread (up 3.6%m-o-m and 18.6% y-o-y) and fruit (up
5.2% m-o-m and 53.9% y-o- y). As for the non-food segment, housing prices were
up 1.6% m-o-m and 24.4% on a y- o-y basis. Fuel prices continued to grow, adding
4.8% m-o-m and 56% y-o-y.
Overall, prices for transport-related services (including fuel and ticket prices)
together with food remain the items showing the most significant price growth. The
current geopolitical instability accompanied by damaged transport logistics and the
upcoming heating season will likely entail further price increases. Inflation has
reached 16.2% YTD, and we expect it to be above 20% by year end.
Evgeny-Gavrilenkov
CREDIT KAZAKHSTAN MACRO NEWS
104. Kazakhstan to revise forecasts for GDP growth
AzNews
October 10, 2014
The Kazakh government plans to revise the forecasts for GDP growth in 2014, said
Kazakhstan's National Economy Minister Erbolat Dossayev on October 9.
"The government expects results for nine months to revise the forecasts for this
year. The results will be ready by October 15, and then we will take necessary
decisions," he said, noting that there exist trends that have a definite impact on the
economy of Kazakhstan.
In August, the Kazakhs government approved the forecast of socio-economic
development of the country for 2015-2019.
According to the forecasts, the real GDP growth of Kazakhstan in 2015 is expected to
reach 5%, in 2016 - 5.6%, in 2017 - 6.8%, in 2018 - 5.8%, and in 2019 - 6.5%.
The nominal GDP is projected to grow from 45 trillion tenge ($1=181.8 tenge) in
2015 to 72.8 trillion tenge in 2019. GDP per capita in 2015 will amount to over
$13,900 and will increase to $21,400 in 2019.
Kazakhstan's export will increase from $79.2bn in 2015 to $93.5bn in 2019 and the
import of the country from $50.1bn in 2015 to $57.8bn in 2019.
Touching on the possibility of devaluation of Kazakhstan's national currency tenge,
Dossayev said it is not worth waiting for a regular devaluation in the country.
"Today we hold preventive measures with the government in order to understand the
direction in which the Russian ruble will be weakened or consolidated," he said.
"Devaluation is not likely to occur."
Read more here:
http://www.azernews.az/region/71816.html?utm_medium=twitter&utm_source=twit
terfeed
CREDIT TURKISH MACRO NEWS
105. Turkey cuts growth estimates, raises inflation forecast
Hurriyet Daily News
Turkey has slashed its growth estimates and raised its inflation forecast for 2014 and
2015, Deputy Prime Minister Ali Babacan said on Oct. 8, citing unfavorable conditions
in the global economy.
Government officials have warned that tensions in Iraq and Syria, as well as Ukraine,
combined with slower growth in Europe could hit the economy, putting pressure on
the Central Bank to cut rates and support growth.
Read more here: http://www.hurriyetdailynews.com/turkey-cuts-growth-estimatesraises-inflation-forecast.aspx?pageID=238&nID=72690&NewsCatID=344
CREDIT EE - FROM THE DAILIES
106. Belarus' gold, forex reserves down to $6bn in September in IMF terms
Belta
October 8, 2014
According to preliminary data as of 1 October Belarus' gold and foreign exchange
reserves stood at $6,004.6 million in accordance with methods of the International
Monetary Fund. The reserves went down by $284.9 million in September, BelTA
learned from the statistics released by the National Bank of the Republic of Belarus.
In national terms the volume of the gold and foreign exchange reserves shrank by
$69.4 million to stand at $7,197.7 million as of 1 October according to preliminary
data.
Read more here: http://eng.belta.by/all_news/economics/Belarus-gold-forexreserves-down-to-6bn-in-September-in-IMFterms_i_76295.html?utm_source=twitterfeed&utm_medium=twitter
107. Belarusian trade surplus at $653m in 8M compared with deficit last
year
Interfax
October 8, 2014
Belarus had a trade surplus of $652.8m in the first eight months of 2014 compared
with a trade deficit of $839.6m in the same period last year, the National Bank
reported.
Belarus narrowed the merchandise trade deficit 78% to $469.6m. The trade surplus
in services declined 15.1% to $1.12bn in the eight months.
Trade in merchandise and services fell 3.3% to $58.58bn in January-August,
including $49.93bn for merchandise trade (down 4.8% year-on-year) and $8.66bn
for services (up 5.8%).
Exports of merchandise and services declined 0.9% to $29.62bn, including $24.73bn
for merchandise (down 1.7%) and $4.89bn for services (up 2.9%). Imports dropped
5.8% to $28.96bn, including $25.2bn for merchandise (down 7.7%) and $3.77bn for
services (up 9.8%).
The National Bank said that the trade balance for merchandise and services in
August was positive and amounted to $139.7m.
In July, the trade balance was negative at $9.3m.
Read more here: http://www.interfax.com/newsinf.asp?pg=2&id=542315
108. Default in Ukraine inevitable — Russian presidential advisor
TASS
October 9, 2014
With shrinking economy and a deteriorating balance of payments, Ukraine’s default
is becoming inevitable, the Russian president’s economic advisor Sergey Glazyev told
the Eurasian Economic Integration conference on Thursday.
“The balance of payments and its dynamics indicate that Ukraine in the near future
will be unable to independently fulfill its state commitments. The question arises who
will pay for this. The aid that the EU and the US have promised is not enough to
cover the holes in the balance of payments, that’s why, in my opinion, the default is
inevitable. Will it become selective? Not likely. It will be overwhelming,” Glazyev
said.
Glazyev also said that Ukraine has already entered the phase of an economic
catastrophe. According to the Eurasian Development Bank (EDB), Ukraine needed
$55 billion to stabilize the situation some six months ago.
Read more here: http://en.itar-tass.com/economy/753461
109. Russia Could Freeze Prices For 'Vital Products' If Inflation Soars
Reuters
October 9, 2014
Russia could temporarily freeze the price paid by consumers for some "vital
products" if inflation soars, Trade Minister Denis Manturov said in an interview
published Thursday.
The weakening ruble, sanctions on Moscow over its role in the Ukraine crisis and a
Russian ban on food imports from a number of Western countries have pushed
annual consumer price inflation to 8 percent.
Asked what measures the government might take if inflation continued to rise,
Manturov told state-owned Rossiiskaya Gazeta: "We have a huge amount of leverage
of an administrative nature."
"For example, the law on trade stipulates that the government has the right to freeze
prices for 90 days on a specific vital product," he said.
"If data monitoring shows dramatic changes in the price (for example if growth
exceeds 30 percent) of the 40 vital products tracked, it will be an occasion to think
about adopting emergency measures to stabilize prices."
He did not identify the 40 products considered "vital" or say in what sector or sectors
they were.
Read more here: http://www.themoscowtimes.com/article/508682.html
110. Russia Spends Up to $1.75bn in Two Days to Buoy Ruble
Bloomberg
October 8, 2014
Russia’s central bank spent as much as $1.75bn to prop up the ruble over the last
two trading days, its biggest market intervention since PresidentVladimir Putin’s
incursion into Ukraine in March.
Russia’s central bank spent the equivalent of $980m to shore up the ruble on Oct. 3,
the latest data on the authority’s website showed today. The bank also said it shifted
the upper boundary of the currency’s trading band by 10 kopeks yesterday, a move
that may have involved spending between $420m and $769m that day. The
exchange rate weakened 0.3% to 44.6234 versus the basket by 5:12 p.m. in
Moscow, set for a record low for the fourth time this month.
Putin is suffering the consequences for shaking up the post-Cold War order in
eastern Europe as the and European Union impose sanctions on his economy and
investors pull money out of the country. Demand for dollars and euros is growing
among Russian companies locked out of western debt markets as they contend with
$54.7bn of debt repayments in the next three months, according to central bank
data.
Read more here: http://www.bloomberg.com/news/2014-10-07/russia-spent-980million-in-biggest-intervention-sincemarch.html?hootPostID=e9dd66edcabbe066b1997367ae62cc92
CREDIT SE - FROM THE DAILIES
111. Albania's Growth Slumps in Second Quarter of 2014
Balkan Insight
Albania's GDP fell by 0.6 per cent in the second quarter of 2014, the National
Institute of Statistics said, frustrating government expectations of higher growth.
The National Institute of Statistics, INSTAT, said on Monday that the slump in the
economy during the period was due to the poor performance of the construction and
industrial sectors, although other parts of the economy fared better.
Read more here: http://www.balkaninsight.com/en/article/albania-s-growth-slumpsin-second-quarter-of-2014
112. Albania’s Growth Slumps in Second Quarter of 2014
Balkan Insight
October 7, 2014
Albania's GDP fell by 0.6 per cent in the second quarter of 2014, the National
Institute of Statistics said, frustrating government expectations of higher growth.
The National Institute of Statistics, INSTAT, said on Monday that the slump in the
economy during the period was due to the poor performance of the construction and
industrial sectors, although other parts of the economy fared better.
Read more here: http://www.balkaninsight.com/en/article/albania-s-growth-slumpsin-second-quarter-of-2014
113. Bulgarian Emigrants Send To Relatives BGN 2.3 B Per Year
Novinite
October 10, 2014
Bulgarian emigrants send to relatives in Bulgaria more than BGN 2.3 B per year,
shows 2013 data of the World Bank, quoted by Irena Zareva of the Institute for
Economic Studies at the Bulgarian Academy of Sciences (BAN).
According to Zareva, quoted by Pariteni.bg, in 2013 the sum is estimated at BGN 3.4
B.
Read more here:
http://www.novinite.com/articles/163967/Bulgarian+Emigrants+Send+To+Relatives
+BGN+2.3+B+Per+Year
114. Czech the Curve: Fixed more in favour than floaters
bne
October 10, 2014
The MinFin sold CZK15bn of bonds compared to the planned CZK8-16bn in the
competitive round.
á Stronger demand for fixed, while weaker for floaters. The first round of this auction
ended with unmet investor demand of CZK11.1bn, which is above the average per
auction day so far this year (CZK10.5bn).
á We expect similar issuance in November as well. The issuance can in our view
reach an upper limit of 4Q's plan with a larger buyback programme that has so far
reached CZK4bn.
á Pre-issuance beyond the buyback programme for next year looks unlikely, if the
MinFin's plan to use the STA is still on track.
á MinFin redemptions of bonds will reach CZK140bn in 2015, with possibly net
negative local bond issuance.
115. Croatia: GDP levels revised up after introducing ESA2010 methodology
Erste
October 6, 2014
Croatia: For Croatia, there are two key indicators influenced by the new ESA2010
implementation - GDP and public debt figures. While the new methodology had a
minimal impact on the GDP figures, reshuffling on the average +/- 0.2pp from
historical data, public debt stock will be faced with a stronger adjustment, as the
figure should take a hit from the inclusion of the CBRD and highway related debt.
Bottom line, this implies the public debt figure increasing by approx. 10pp of GDP,
i.e. heading towards the 85+% of GDP region.
Czech Republic: As a result of a shift to the new ESA2010 methodology, Czech
nominal GDP went up 5% (LCY 203bn, EUR 7.4bn) in 2013, due largely to an
increase in the total amount of fixed capital formation (up 15.7%, LCY 161bn in
2013), which now includes (most importantly) R&D expenditure and smaller assets
like tablets and smartphones. Regarding the impact of the ESA2010 standard on
both nominal GDP and delimitation of the general government sector, the Czech
general government debt-to-GDP ratio came down marginally to 45.7%, from 46%
in 2013.
Hungary: Due to the new ESA2010 methodology, nominal GDP data has been
increased significantly, by 1.2-2.7% in 1995-2013. 2013 FY avg. real GDP growth
has been revised to 1.5%, from 1.1%, while the nominal GDP has been increased by
2.7% to HUF 29,900bn. As the accounting of R&D expenditures changed the most,
the gross fixed capital formation figures were heavily affected. Last year's
investment ratio is lifted to 19.9%, from 18.1% earlier. Our investment figure
expectation will likely be elevated by some 2pp this year, from 19.3%. Furthermore,
all of the GDP proportional ratios (public debt, external debt, C/A and trade balance,
FDI, etc.) figures are reduced. Public debt to GDP was 77.4% vs. 79.2% in 2013,
according to ESA2010. We are about to modify all of these forecasts soon.
Nonetheless, real GDP growth and CPI figures will likely be unchanged, as well as
market (forint, bond yield) forecasts.
Poland: One of the biggest impacts of the ESA2010 revision is an upward shift in
nominal GDP figures by around 1.5%, driven in part by an increase in the investment
level (due to including R&D expenses in that category). Despite higher GDP levels,
the growth dynamics have not changed much and do not affect our growth forecast
(3.1% this year and 3% in 2015). Moreover, we think that the latest revision may
help public finance figures, i.e. the debt-to-GDP ratio and general government deficit
(GDP%) may be slightly lower.
Romania: The ESA2010 methodology, which - apart from military expenditures and
R&D - will incorporate illegal activities, should nudge Romanian GDP by up to 1%.
According to some preliminary estimates by the National Institute of Statistics (INS),
the contribution of illegal activities to GDP should be to the tune of 0.1-0.2%. The
shadow economy is already included in the GDP calculation and it has averaged 2223% of the total economy over the last few years.
Serbia: On September 30, we should have already seen the final data on 2Q GDP,
but the release was postponed due to harmonization with the new ESA2010 and
revision of the system of national accounts. We still do not have information on when
we could expect this release, but we do not expect severe deviations from the flash
estimate of the -1.1% y/y growth figure, as the experience of other countries shows
that harmonization with ESA mostly affects levels of gross domestic product and not
yearly growth rates.
Slovakia: The new ESA2010 methodology is likely to lead to an upward revision of
2011-12 nominal GDP to between 1.2% and 2%. General government debt-to-GDP
is likely to be revised downwards by 0.3% to 0.4% of GDP for 2012, whereas its
2011 value should only change by -0.1% to - 0.2% of GDP. The budget deficit
(expressed as a percentage of GDP) is not expected to be revised much, with a 2011
revision of -0.2% to -0.1% and a very small (-0.1%) or zero revision in 2012.
According to the National Bank of Slovakia, government debt for 2013 is likely to be
slightly below 55% of GDP under the new methodology. Despite the fact that the
country owes more, this lower figure would mean that Slovakia has not passed its
own internal threshold under the so-called Debt Brake procedure. Lower government
debt in 2013 would be a result of the positive impact of ESA2010 on GDP. The
National Bank also outlined the possibility that the budget deficit for 2013 could be
higher under ESA2010, but still below the threshold of 3% of GDP.
Slovenia: According to official estimates of the Slovenian statistical office,
implementation of ESA2010 methodology increased 2013 GDP by 2%, while nominal
levels of the deficit and debt were not changed. Thus, fiscal figures were revised
downwards, with the deficit landing at 14.6% of GDP (vs. the previous -14.7%) and
public debt at 70% (vs. the previous 71.7%). As the 2013 changes were relatively
mild, we do not see stronger effects in 2014 and thus we are keeping our 2014
estimates unchanged at -4.5% of GDP for the deficit figure and 80.8% for the public
debt figure.
116. Illegal activities contribute some EUR 400 mln to Romania’s GDP
Romania Insider
October 10, 2014
The contribution of illegal activities, such as smuggling cigarettes and alcohol,
prostitution and drug use, to Romania’s GDP increased by 1% in 2013 compared to
2012, to some EUR 407 million, according to official data released by the National
Statistics Institute (INS).
Read more here: http://www.romania-insider.com/illegal-activities-contribute-someeur-400-mln-to-romanias-gdp/133149/
117. Lithuania Affirmed At 'A-/A-2' On Strong Fiscal Position And
Confirmation Of Euro Adoption; Outlook Stable
bne
October 10, 2014
OVERVIEW
Lithuania is set to join the eurozone in January 2015. In our view, Lithuania's
monetary policy flexibility will improve and external risks will reduce when it enters
the eurozone, and its fiscal position will continue to strengthen over 2014-2017.
We are therefore affirming our sovereign credit ratings on Lithuania at 'A-/A-2'. We
are also revising our transfer and convertibility assessment upward to 'AAA' from
'AA-'.
The stable outlook reflects our expectation that Lithuania's growth will remain
sustainable, and the government will stay committed to fiscal discipline.
RATING ACTION
On Oct. 3, 2014, Standard & Poor's Ratings Services affirmed its 'A-/A-2' long- and
short-term foreign and local currency sovereign credit ratings on the Republic of
Lithuania. At the same time, we revised the transfer and convertibility (T&C)
assessment upward to 'AAA' from 'AA-'. The outlook is stable.
Read more here: http://www.bne.eu/page/bnecentral-europe-daily-list/ratingslithuania-affirmed-2-strong-fiscal-position-and
118. Lithuania at 'A-'; Outlook Stable
bne
October 10, 2014
Fitch Ratings has affirmed Lithuania's Long-term foreign and local currency Issuer
Default Ratings (IDR) at 'A-'. The Outlooks are Stable. The issue ratings on
Lithuania's senior unsecured foreign and local currency bonds have also been
affirmed at 'A-'. The Country Ceiling has been affirmed at 'AAA' and the Short-term
foreign currency IDR at 'F1'.
KEY RATING DRIVERS _The affirmation and Stable Outlook reflect the following
factors: Upcoming membership into the eurozone will further enhance Lithuania's
already effective policy-making and governance. Adoption of the single currency will
reduce credit risks associated with foreign currency exposures on the sovereign's
balance sheet and in the banking system, as well the country's still high level of net
external debt. The euro's reserve currency status will also enhance the sovereign's
fiscal and external financing flexibility, while Lithuanian banks will gain access to
European Central Bank (ECB) liquidity facilities.
Lithuania will remain one of the fastest growing countries in the EU. Our latest
forecast is that Lithuania's GDP will grow 3.0% in 2014, followed by growth of 3.5%
in 2015-2016. However, Lithuania's small and open economy does leave it
vulnerable to external shocks. A history of large boom-bust cycles means Lithuania's
volatility of GDP and five-year average real GDP growth is significantly weaker than
the 'A' median.
Real GDP growth in 2014-2016 will largely be driven by domestic demand, supported
by increasing employment in the labour market, higher real wages and a growth
dividend in investment activity from upcoming euro adoption. We expect some
negative impact on Lithuania's agricultural and transportation sectors from Russia's
latest international trade restrictions, with further risk from negative spill-overs on
domestic demand.
Strong fiscal finances anchor Lithuania's ratings. At 2.2% of GDP (2013), Lithuania's
fiscal deficit is in line with the 'A' median of 2.3% of GDP. Meanwhile, its gross debtto-GDP ratio (39.3%, 2013) is significantly below the 'A' median (50.3%, 2013) and
less than half the EU average (87.1%). Our baseline debt dynamics forecast
envisages debt-to-GDP peaking at 42% of GDP in 2014, before embarking on a
gradual decline.
Read more here: http://www.bne.eu/page/bnecentral-europe-daily-list/fitch-affirmslithuania-outlook-stable-0
119. Moldova GDP increases 3.9 percent
CISTran Finance Reports
October 7, 2014
Increased exports and fixed investments drove Moldova’s economy to a 3.9 percent
increase in gross domestic product during the first six months of 2014, according to
a World Bank announcement on Thursday.
Despite the strength of Moldova’s position, there are potential risks to the
macroeconomic framework of the country that are expected to negatively impact
growth until the end of the year.
Read more here: http://cistranfinance.com/news/moldova-gdp-increases-3-9percent/4851/
120. Poland Bond Bulls a Sales Forecast to Cheer
bne
October 10, 2014
Polish companies are set for a record quarter of bond sales as sliding borrowing costs
lead them to diversify from loans, according to Fitch Ratings.
Non-financial companies, including coal producer Kompania Weglowa SA and utility
Enea SA, may issue as much as 16 billion zloty ($4.8 billion) of local- and foreigncurrency debt in the fourth quarter, three times more than a year earlier, said
Miroslaw Dudzinski at Fitch. The yield on JPMorgan Chase & Co.'s index of Polish
corporate dollar bonds dropped 40 basis points this year, more than the average for
emerging-market peers.
With government bond yields in Poland and the euro-region, the nation's biggest
export market, close to record lows, companies will wean themselves off loans, the
traditional source of corporate funding, Dudzinski said. The trend is accelerating as
interest rates in Poland are set to fall further.
Read more here: http://www.bloomberg.com/news/2014-10-06/fitch-gives-polandbond-bulls-a-sales-forecast-to-cheer.html
121. Poland's Energa at 'BBB'; Outlook Stable
bne
October 10, 2014
Fitch Ratings has affirmed Poland-based Energa S.A.'s Long-term foreign and local
currency Issuer Default Ratings (IDRs) at 'BBB' with a Stable Outlook. A full list of
rating actions is provided at the end of this rating action commentary.
The affirmation reflects the dominant share of the regulated distribution business in
Energa's EBITDA, which results in low business risk and cash flow predictability. The
company's financial leverage is moderate with funds from operations (FFO) adjusted
net leverage of 1.8x in 2013. We project this ratio to increase to about 3x by 20162017, assuming implementation of a full capex plan, and which we see as the
maximum leverage commensurate with the current ratings.
Read more here: http://www.bne.eu/page/bnecentral-europe-daily-list/fitch-affirmspolands-energa-bbb-outlook-stable
122. Polish City of Gdansk at 'BBB+'; Outlook Stable
bne
October 10, 2014
Fitch Ratings has affirmed the Polish City of Gdansk's Long-term foreign and local
currency Issuer Default Ratings (IDR) at 'BBB+' and its National Long-term rating at
'AA-(pol)'. The Outlook is Stable.
KEY RATING DRIVERS
The affirmation reflects Gdansk's continued sound operating performance which,
together with its high capital revenue and healthy liquidity, supports a strong selffinancing capacity for the city's investment plans. The ratings also factor in stable
levels of direct debt for 2014-2016. The ratings further take into account projected
high, but declining, capital expenditure, persistent pressure on operating expenditure
and growing maintenance costs of completed investments.
Fitch base case scenario expects Gdansk's operating balance to be at 11% of
operating revenue in the medium term, which would be in line with the 2012-2013
average. This will be driven by the city's financial flexibility, the city authorities'
policy to limit operating expenditure growth and projected growth of income and
property tax revenue, supported by an expansion of Gdansk's tax base. In 2013,
Gdansk posted an operating margin of 12.1% (2012: 10.8%), which was above our
expectations.
Read more here: http://www.bne.eu/page/bnecentral-europe-daily-list/fitch-affirmspolish-city-gdansk-bbb-outlook-stable
123. Romania chooses four banks for new euro bond
IFR
October 9, 2014
Romania has picked four banks for a new euro-denominated bond, according to a
finance ministry official.
The four chosen include HSBC as well as three European banks that are primary
dealers in Romania.
Read more here: http://www.reuters.com/article/2014/10/08/romania-bondsidUSL6N0S33G520141008
124. Romania cuts rates, eases reserve requirements as growth plummets
Financial Times
Romania's latest interest rate cut ? to another all-time low ? comes after a sharp
slowdown in growth, but further easing will have to be weighed against the political
outlook and the government's likely parting of ways with the IMF.
Read more here: http://blogs.ft.com/beyond-brics/2014/10/03/romania-cuts-rateseases-reserve-requirements-as-growth-plummets/
125. Romania posts steepest retail volume drop in the EU this August, says
Eurostat
Business Review
Romania's seasonally adjusted volume of retail trade feel by 0.6 percent in August
m-o-m, this being the highest decrease in the EU, according to estimates from
Eurostat, the statistical office of the European Union.
Read more here: http://business-review.eu/featured/romania-posts-steepest-retailvolume-drop-in-the-eu-this-august-says-eurostat-71303
126. Serbia’s 23% Pile of Bad Loans Lures Distressed Debt Funds
Bloomberg
October 8, 2014
Buyers of distressed debt are being lured by the prospect that Serbia will clean up its
financial system amid mounting pressure from international creditors.
EOS Matrix, the Belgrade-based unit of Germany’s EOS, a company that began as a
Hamburg debt-collection service, said it’s in talks with more banking clients after
buying Serb non-performing corporate loans for 18 million euros ($23 million) in
December. The junk-rated former Yugoslav republic needs to convince the
International Monetary Fund that it’s working to stabilize the economy or risk being
shut out of debt markets, a watchdog appointed by parliament said last month.
Read more here: http://www.bloomberg.com/news/2014-10-07/serbia-s-23-badloans-lure-distressed-funds-east-europe-credit.html
127. Slovaks to Delay Sale of International Bond as Limit Near
bne
October 10, 2014
Slovakia will wait until January before tapping international bond markets as the
debt-ceiling law cuts room for sales in 2014 and prevents the country from taking
advantage of record-low yields, a state official said.
The eastern euro-area member state seeks to sell about an additional 400 million
euros ($505 million) in domestic auctions this year, bringing the full-year gross
issuance to less than 4.8 billion euros, said Daniel Bytcanek, Director of the state
debt-management agency Ardal. The country plans to raise about 5 billion euros in
2015, starting with a syndicated offering of a "benchmark" long-term bond in
January, he said.
Slovak 10-year yields have fallen more than one percentage point this year as the
European Central Bank has loosened monetary policy amid a weak economy and
slowing inflation. Even with borrowing costs at a record low, the government has
started tapping its cash reserves to ensure public debt will remain well below 57
percent of output, the threshold which, according to the debt-ceiling law, triggers the
need for a balanced budget.
Read more here: http://www.bloomberg.com/news/2014-10-03/slovaks-to-delaysale-of-international-bond-as-limit-near.html
128. Slovenia's budget deficit will rise by EUR 200m to EUR 1.2bn
Balkans News
October 10, 2014
Slovenia's budget deficit will rise by EUR 200m to EUR 1.2bn under the
supplementary budget which the government will adopt in the coming weeks as a
response to the unrealistic assumptions in the valid budget, Finance Minister Dusan
Mramor announced on Tuesday.
Read more here: http://www.balkans.com/open-news.php?uniquenumber=197659
129. Slovenia:corrective budget,likely to break deficit threshold
ANSAmed
October 9, 2014
Slovenian Economy Minister Dusan Mramor has announced a new corrective budget
this year.
Public deficit will increase by 200 million euros, from 1 billion to 1.2 billion euros,
while the deficit will break the 3%-deficit-to-GDP ratio originally forecast at 3.2%.
The deficit is expected to further increase to 3.4% in 2015.
Read more here:
http://www.ansamed.info/ansamed/en/news/sections/economics/2014/10/08/sloven
iacorrective-budgetlikely-to-break-deficit-threshold_adcbf82a-4072-463e-a3c148a5acc917e4.html
130. Turkey cuts growth estimates, raises inflation forecast
Hurriyet Daily News
October 9, 2014
Turkey has slashed its growth estimates and raised its inflation forecast for 2014 and
2015, Deputy Prime Minister Ali Babacan said on Oct. 8, citing unfavorable conditions
in the global economy.
Government officials have warned that tensions in Iraq and Syria, as well as Ukraine,
combined with slower growth in Europe could hit the economy, putting pressure on
the Central Bank to cut rates and support growth.
Read more here: http://www.hurriyetdailynews.com/turkey-cuts-growth-estimatesraises-inflation-forecast.aspx?pageID=238&nID=72690&NewsCatID=344
131. Turkey: Concluding Statement of the 2014 Article IV Mission
International Monetary Fund
October 6, 2014
Turkey’s economy has grown by a remarkable 6 percent on average since 2010.
However, low national saving and competitiveness challenges are constraining
investment and exports and making it harder for Turkey to meet its ambition to close
the per capita income gap with advanced economies. Low saving also contributes to
external imbalances that expose the country to the risks associated with
international capital flows. The authorities’ immediate priority should therefore be to
raise private and public savings. A higher primary fiscal surplus is essential. In
addition, monetary policy needs to focus on the inflation target. The macro
prudential policies to preserve financial stability should also be reinforced.
Determined implementation of the reforms in the 10th development plan will likewise
be essential to help Turkey avoid the “middle income trap”.
1. Turkey’s economy has grown by a remarkable 6 percent on average since 2010.
The economy recovered swiftly from the great financial crisis and unemployment
reached its lowest level in the last decade. More recently, the authorities effectively
contained the fallout from heightened domestic uncertainty and financial market
volatility. However, rapid growth has come at the expense of high inflation and a
large external deficit. These imbalances are holding back growth potential and need
to be addressed with carefully sequenced macroeconomic policies and structural
reforms.
2. Growth is set to continue, albeit at a moderate pace. In 2014, GDP is expected to
grow at 3 percent, driven by public sector support, net exports, and a mild revival of
private consumption in the later part of the year. However, inflation will exceed the
authorities’ target once again, reflecting the exchange rate pass through, high food
inflation, and partly, premature monetary easing. In addition, the current account
deficit—although decreasing—will remain elevated.
Read more here: http://www.imf.org/external/np/ms/2014/100314.htm
132. Turkey: Rating Action: Moody's assigns a (P)Baa3 senior unsecured
foreign-currency debt rating to Turkiye Sinai Kalkinma Bankasi
Moody’s
October 9, 2014
Moody's Investors Service has today assigned a provisional (P)Baa3 long-term
foreign-currency senior unsecured debt rating to Turkiye Sinai Kalkinma Bankasi A.S.
(TSKB)'s planned U.S. dollar-denominated bond issuance (the notes).
RATINGS RATIONALE
Moody's provisional rating for the debt obligations of TSKB is in line with TSKB's
Baa3 long-term foreign-currency issuer rating and is not constrained by Turkey's
foreign-currency debt ceiling.
The notes will be unconditional, unsubordinated and unsecured obligations, and will
rank pari-passu with all of TSKB's other senior unsecured obligations.
As Moody's issues provisional ratings in advance of the final issuance of the notes,
these ratings only represent Moody's preliminary credit opinion and do not
immediately apply to the issued securities. The rating on the debt notes issued will
be subject to Moody's review of the terms and conditions set forth in the final base
and supplemental offering circular and pricing supplements of the notes to be issued.
A definitive rating may differ from a provisional rating if the terms and conditions of
the issuance are materially different from those of the preliminary prospectus
reviewed.
WHAT COULD MOVE THE RATING UP/DOWN
Currently there is no upward pressure on the rating, as reflected by the negative
outlook on TSKB's long-term foreign-currency issuer rating.
The bank's long-term ratings could come under downward pressure following: a (1)
weakening in its intrinsic standalone financial strength, stemming from evidence that
the operating environment is leading to further significant deterioration in
profitability or asset quality or prolonged restrictions to access to capital markets;
and (2) a weakening creditworthiness of the support provider, the parent bank
Turkiye Is Bankasi (Isbank: deposits Baa3 negative/Prime-3; BFSR D+ stable/BCA
ba1); as well as (3) adverse changes in the parental support assumptions we
currently factor into TSKB's ratings.
Moody's lowering of the applicable country debt ceiling below TSKB's assigned debt
ratings would also result in a downgrade on the assigned ratings.
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was Global Banks published in July
2014. Please see the Credit Policy page on www.moodys.com for a copy of this
methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement
provides certain regulatory disclosures in relation to each rating of a subsequently
issued bond or note of the same series or category/class of debt or pursuant to a
program for which the ratings are derived exclusively from existing ratings in
accordance with Moody's rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation to the rating
action on the support provider and in relation to each particular rating action for
securities that derive their credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory disclosures in
relation to the provisional rating assigned, and in relation to a definitive rating that
may be assigned subsequent to the final issuance of the debt, in each case where
the transaction structure and terms have not changed prior to the assignment of the
definitive rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the respective
issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the
primary entity(ies) of this rating action, and whose ratings may change as a result of
this rating action, the associated regulatory disclosures will be those of the guarantor
entity. Exceptions to this approach exist for the following disclosures, if applicable to
jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated
entity.
Regulatory disclosures contained in this press release apply to the credit rating and,
if applicable, the related rating outlook or rating review.
Please see www.moodys.com for any updates on changes to the lead rating analyst
and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for
additional regulatory disclosures for each credit rating.
CREDIT EA - FROM THE DAILIES
133. Azerbaijan's creditworthiness supported by low government debt,
sustained fiscal surpluses and strong net creditor position
Moodys announcement
In a report published on October 6th, Moody's Investors Service says that
Azerbaijan's Baa3 foreign and local-currency bond ratings with a stable outlook
reflect the government's (1) low government debt; (2) its sustained albeit falling
fiscal surpluses over the past couple of years; and (3) its strong net creditor position
due to sizable foreign assets that it has accumulated. These strengths will help to
shield the economy from internal and external shocks.
The rating agency's report is an update to the markets and does not constitute a
rating action.
Read more here: https://www.moodys.com/research/Moodys-Azerbaijanscreditworthiness-supported-by-low-government-debt-sustained-fiscal-PR_309696
134. Azerbaijan sees almost fourfold increase in corporate securities market
Trend
The total turnover of transactions on all instruments on the Baku Stock Exchange
(BSE) in January-September 2014 stood at 7.366 billion AZN, or by 1.4 times more
compared to the same period of 2013, BSE said on Oct.8.
The volume of the state securities market hit 4.061 billion AZN (a decrease by 7.38
percent) during the reporting period and the turnover of corporate securities market
totaled 3.3 billion AZN (a 3.8 times growth).
Read more here: http://en.trend.az/azerbaijan/business/2319923.html
135. Kazakh Eurobond set to provide new benchmark for corporate issues
bne
Kazakh corporate bond yields fell on October 7 after the government returned to
global capital markets with its first dollar-denominated Eurobond issue in 14 years.
Good demand for the $2.5bn issue and the low yields achieved are expected to
provide a new benchmark for Kazakh corporate bond issuers such as state oil and
gas firm KazMunaiGas.
Kazakhstan issued 10-year Eurobonds worth $1.5bn and 30-year bonds worth $1bn
on October 6. The 10-year bonds were priced to yield 4.07%, with a spread of 150
basis points over mid-swaps, and the 30-year bonds had a yield of 5.11% (with a
spread of 200 basis points).
In response, Bloomberg said that the yield on KazMunaiGas' 10-year and 30-year
Eurobonds worth a combined $3bn issued in 2013 fell by 0.15 percentage point to
4.56% and 0.14 percentage point to 5.92% respectively on the news. The yields are
more than 1 percentage point lower since their January highs, Bloomberg added.
Read more here: http://www.bne.eu/content/story/kazakh-eurobond-set-providenew-benchmark-corporate-issues
136. Kazakhstan sells first overseas dollar bonds in 14 years
AKIpress
Kazakhstan issued $2.5 billion of 10-and 30-year bonds yesterday in what was the
nations first dollar-denominated overseas sale since 2000.
Kazakhstan sold $1.5 billion of 10-year dollar bonds to yield 1.5 percentage points
above midswaps and $1 billion of 30-year debt at 2 percentage points over
midswaps, according to Bloomberg data.
Read more here: http://www.akipress.com/news:549052/
137. No tenge devaluation expected in Kazakhstan - National Economy
Minister
Kazinform
At today's briefing in Central Communications Service Yerbolat Dossayev, National
Economy Minister denied the information about possible devaluation of the national
currency of Kazakhstan.
"We are closely monitoring the situation unfolding around the economy of the
Russian Federation. At the present time, the Ministry and the Government are
developing preventive measures in order to be able to understand, in what direction
and to what extent will strengthen or weaken the Russian national currency," said Y.
Dossayev.
Read more here: http://inform.kz/eng/article/2704742
138. Tajik central bank raises its refinancing rate
Asia-Plus
The National Bank of Tajikistan (NBT) has raised its refinancing rate in order to
ensure effectiveness of the monetary policy, an official source at Tajik central bank
said.
According to him, refinancing rate is the main instrument of the monetary policy and
it is used to ensure an efficient implementation of the main goals of the countrys
monetary policy.
Proceeding from this, Tajik central bank on October 9 raised its refinancing rate by
1.0 percent to 6.9 percent from 5.9 percent set on May 19, 2014.
Read more here: http://news.tj/en/news/tajik-central-bank-raises-its-refinancingrate