Key events in EMEA and Latam next week

Czech October CPI will very likely stagnate at 2.7%. The highest uncertainty is concentrated in food prices. The Czech Statistical Office's preliminary figures show that food prices might accelerate relatively strongly in October, even though typical seasonality would suggest soft monthly growth. As such, we expect 1.5% month-on-month growth in food prices in October. Taking into account the typical average seasonal increase of 0.3%, year-on-year CPI should slow to 2.5%. Flash GDP growth will likely point to an economic slowdown, with quarterly growth probably slowing from 0.7% to 0.4%, in our view. However, on an annual basis, growth should remain close to 2.7%, just slightly below the 2Q figure of 2.8%.

We expect Hungary to remain among the top performers in the EU as we are forecasting 4.8% year-on-year GDP growth in 3Q19. However, the raw data will be skewed due to a higher number of working days, so the adjusted figure could be roughly 0.2 percentage points lower. We don’t see any major change to the growth structure based on high frequency data. Services should remain the main contributor on the back of a strong labour market, industry could result in a positive surprise and the contribution of the construction sector might remain strong but somewhat lower than in previous quarters. Looking forward, this reading might be the last one for a while showing a rate of more than 4% growth, as soft indicators suggest a further slowdown while calendar and base effects will drag down growth significantly.

We expect 3Q GDP growth to decelerate from 4.5% to 3.9% YoY due to weaker investments and a negative contribution from net exports. The fiscal impulse likely increased private consumption from 4.4% to 4.8% YoY, but this probably wasn't enough to push growth above 4% YoY. The moderation should continue in the coming quarters given decelerating consumption and a slowdown in the eurozone.

Final CPI inflation data should confirm a reading of 2.5% YoY with core inflation stable at 2.4%. This should be a non-event for the market – inflation should accelerate in 1Q of 2020 and reach the upper bound of the central bank's target (3.5% YoY). The Monetary Policy Council's reaction will be dependent on the outlook for the rest of the year – the central bank’s staff so far is forecasting a return to the inflation target in the coming quarters.

We expect annual inflation to have inched lower towards 3.40% in October, just below the 3.50% upper bound of the central bank’s 2.5%±1 ppt target band, driven by a relatively strong base effect, which will offset the fairly robust 0.4% month-on-month increase. The monthly acceleration should come mainly from food items, though the other components – non-food and services are likely to have seen marginal advances as well.

The economic growth story seems to have continued into the third quarter as well. Retail sales have accelerated by 1.8% versus the previous quarter while the widening trend of the trade balance seems to have moderated slightly. The construction sector has remained vibrant, offsetting to some extent the industrial contraction. We therefore maintain our 0.5% quarter-on-quarter GDP growth forecast for the third quarter.