Key events in EMEA and Latam next week

We expect GDP in the fourth quarter to slow down from 5.1% to 4.8% year-on-year. The annual 2018 reading, which was published last week, suggests a moderation of both private consumption and investment. Some major revisions to the historical data are likely, given the annual net export contribution was neutral (contrary to the outcome of the quarterly figures published so far).

Inflation should fall further in January from 1.1% YoY to 0.8% YoY due to energy prices, as well as government lowered interim fees, subtracting 0.2 percentage points from the headline index. Core inflation is likely to remain soft – we expect a stable 0.6% YoY reading. The January reading is more uncertain than normal due to increases in local government fees and household maintenance costs (+) and changes to some VAT tax rates (-).

January CPI is always more difficult to estimate as many contracts are repriced at the beginning of the year. The Czech statistical office has started to use a new method for gathering food prices, so uncertainty about this part of the consumer basket is higher still. We believe food prices might increase on a monthly basis above 1%, and core prices should go up around 0.8%. On the other hand, fuel prices will fall by 3.8% due to oil prices developments. This should all bring the annual headline figure to 2.1% after 2.0% in December 2018.

Flash GDP for 4Q18 is expected to reach 0.6% quarter-on-quarter, which is the same as the previous quarter, pushing annual growth down slightly to 2.3% for 4Q18 and 2.8% for the full-year.

The main event next week is the January inflation reading. We see headline CPI edging higher as the annual change in fuel prices will roughly counterbalance the strengthening inflation in services. However, core readings - including the tax adjusted indicator - will pick up much more, overshooting the target. We see core CPI (excluding tax) above 3% in January.

The Hungarian central bank might wait until March to adjust both the FX swaps and the interest rate corridor simultaneously. Our 4Q18 GDP forecast is subject to upside risk due to the particularly strong industrial performance at the end of the year.