Key events in EMEA and Latam next week

As some car manufacturers in the Czech Republic remained closed during May, recovery in manufacturing PMI will be modest and we expect a small improvement like Germany towards 40 points.

Retail sales will obviously be hit hard, with almost twice the fall in comparison to March as the lockdowns continued the entire month of April. Wages in 1Q will decelerate slightly as Covid-19 affected just the end of the quarter.

Russian CPI is likely to stabilise around 3.0-3.1% year on year in May, supporting expectations of another policy rate cut from the current 5.5% level in June. But the scope of the cut is unlikely to exceed 50-100 basis points, contrary to more aggressive expectations by some market participants.

The CPI performance is only partially attributable to weak demand, and we do not exclude that the overall CPI reading may be distorted by lockdown measures, which are still in place in Russia. For now, we agree with Bank of Russia’s recent key rate guidance, which is still dovish but more nuanced, suggesting resumed CPI growth in 3Q20.

The April data from Hungary is set to be really ugly, especially when it comes to the retail sector. We see fuel and non-food consumption collapsing but food shops have also been having problems due to the lockdown and curfew measures. The expected 9% year on year collapse in retail turnover would mark the biggest drop on record, ever.

However, industry should provide some respite. April PMI showed some improvement and as car manufacturers and related suppliers reopened factories from the middle of the month, we hope for some rebound.

Nevertheless, the year-on-year drop in industrial production seems unavoidable as we are still far from pre-crisis levels. As producers face low demand and supply chain problems, we expect May PMI to remain in the “negative” territory, albeit showing some further improvement.

We forecast May inflation to come in at 1.4%, pulling the annual figure up to 11.4% from 10.9% a month ago, given price hikes in tobacco products, recovery in oil prices weighing on transport along with some pressure on food prices. But sluggish demand factors remain the key downside risk to the outlook.