Key events in EMEA and Latam next week

After raising its outlook from stable to positive in June 2018, S&P could move to upgrade Bulgaria’s sovereign credit rating further, this time into investment grade territory at ‘BBB’, thus aligning itself with Moody’s and Fitch.

While our main scenario is still for an unchanged rating, an upgrade is possible given that some of the reasons cited for a potential upgrade in June seem to be in place- namely improved domestic financial conditions, strengthened fiscal and external buffers and declining non-performing loans. Still others – namely the balance of payments or imminent admission to the European Exchange Rate Mechanism II, are less supportive. The process to join the European Banking Union and participate in the ERM II are important milestones and help to temper worries about the domestic financial system.

Flash 3Q GDP growth ended below both the market's and the Czech National Bank's (CNB) forecast (2.3% year-on-year vs. 2.7%). A revised estimate released next week should confirm that household consumption remains the main driver of growth, with the weaker-than-expected figure driven mainly by volatile investments and inventories. The data should be no game changer for the CNB, which should continue to tighten monetary policy gradually. This will be delivered via higher rates, as the Czech koruna will most likely appreciate more slowly than the CNB’s forecast assumes.

According to the Ministry of Finance's Teresa Czerewińska, the central budget achieved a strong surplus of PLN 6 billion at the end of October. Next week's budget data should provide greater detail about the reason for this surplus, i.e. additional revenues or lower expenses.

A final GDP reading is likely to confirm 5.1% year-on-year growth with a strong contribution from both private consumption and investments. The contribution from net exports is expected to be close to the neutral level of zero percentage points.