Key events in EMEA and Latam next week

Speculation about Hungary's next move on interest rates has increased in the wake of comments by central bank Vice Governor Marton Nagy in Vienna, who said the bank could start to tighten policy if core inflation reached or exceeded 3%.

We still expect the National Bank of Hungary to sit on its hands but think the press release could cite Nagy's concern over the risks to core inflation ex-tax and its possible implications. However, the NBH might want to wait for at least a couple of months to gather proof of core CPI ex-tax moving above 3% and announce an upcoming adjustment in monetary policy via FX swaps in March, along with an updated inflation forecast.

Given a further slight decline in January, industrial confidence and preliminary manufacturing PMI in Germany, we believe that the Czech PMI will stay slightly below the key 50-point level this month. This might be another argument for the Czech National Bank (CNB) to apply a more prudent wait-and-see approach and remain on hold during its meeting on 7 February.

This was suggested by new board member and former CNB Chief Economist Tomas Holub in his interview on 23 January, changing market expectations about the upcoming CNB rate decision in February to “on hold”. This is now our baseline scenario, though some board members will very likely vote for a hike due to solid domestic demand, including Vojtech Benda and Ales Michl.

We expect 2018 GDP growth at 5.1% YoY, confirming only a modest deceleration in the fourth quarter. Last year's growth structure relied on robust private consumption and strong investment.

The PMI manufacturing index should be stable in January given weaker confidence in the eurozone economies, especially Germany. We expect a soft 47.5 reading.