Key events in EMEA and Latam next week

Russian activity data for October will likely confirm the stalling recovery amid a second wave of Covid-19 infections and moderation in budget support. The weakness is likely to be more pronounced in the industrial data, which will be amplified by continued restrictions on oil output and the adverse calendar effect. Meanwhile, it remains unclear if this weakness will strengthen the case for additional key rate cuts, as the Central Bank of Russia will also be considering volatility on the financial markets and accelerating CPI.

We expect industrial growth to substantially slow in October. This reflects less supportive calendar effects than the month prior, but also somewhat weaker underlying momentum. The real question though is how strong the downturn will be going further into 4Q. Manufacturing should be substantially more resilient than services, but limitations imposed on mall activity pose a substantial risk.

Covid-19 has not impacted the labour market significantly so far. But this will start to change in October as the second wave of infections has already gained momentum. For this reason, we expect a modest deceleration in wage growth (from 5.6 to 4.6%YoY) and the recovery of employment in the enterprise sector to pause. These statistics will worsen further in November and December as the second lockdown (introduced on 4 November) takes its toll on economic activity.

Inflation is well below the central bank’s forecast and the forint is supported by better market sentiment. This opens the door for an early re-evaluation of monetary policy at the November rate setting meeting in Hungary. This could mean a change in tone and some new messages to lay the groundwork for a dovish step in the near future to help the economy amid a ‘stop-start’ recovery.

In addition to changes in the economy management team towards more technocratic leaders at the Central Bank and the Finance Ministry, President Erdogan’s comments that the new leadership at these institutions would be supported, even if it called for ‘bitter-pill policies’, have supported expectations of a sizeable policy rate hike and a simplification in the policy framework to provide more transparency and predictability. Accordingly, we expect the Central Bank of Turkey to adjust its policy rate to 15% from 10.25%, and start lending from 1-week repo auctions again.