Key events in EMEA and Latam next week

We expect the Central Bank of Russia (CBR) to lower its key rate by another 25 basis points to 7.00% on 6 September, as local inflation keeps decelerating and is likely to underperform our 4.5% year-on-year forecast in August. The CBR is also likely to cut its year-end CPI expectations from 4.2-4.7% towards our 4.0% forecast. At the same time, we expect the CBR's rhetoric to be less dovish to account for the deterioration of global market sentiment, which has already contributed to rouble weakness and may hamper improvement in the inflation expectations of households and corporates.

Following a temporary increase in July, we expect annual inflation to resume its downtrend and fall to 15.3% (1.2% month-on-month) in August amid a supportive base effect and lower energy prices, despite administrative price adjustments. Inflation will drop very rapidly in September and reverse thereafter because of large base effects.

Regarding GDP growth, the second quarter will likely be another weak period for consumption, although the contribution from net exports should remain solid. Accordingly, we expect 2Q growth to be -1.6% on a YoY basis, shifting the policy mix towards further loosening. This is supported by an improving global, geopolitical and political backdrop, which should contribute to a recovery in the second half of the year.

The first set of data for the third quarter will be revealed next week. Retail sales figures might be affected by an increased savings rate due to the start of a new retail bond, but we still see a sound performance. The biggest question mark is related to industrial production. On the one hand, summer holidays can be a drag on production but overall, the number of working days was unusually high in July, offering a silver lining. Overall, we see a monthly drop in production but an even worse performance a year ago provides a really low base. However, some rebound might come in the next month, as we call for an improving PMI in August.

While the August Manufacturing PMI is likely to remain close to the previous print, below 45 points, July industry should be strong, affected by traditional summer month volatility. As the preliminary data suggests, the number of manufactured cars increased by more than 30% YoY due to the very low base from last year, affected by holiday shutdowns. As such, value-added of summer statistics is very limited again. Wages for the second quarter should remain strong and keep growing above 7% YoY, given the overheated domestic labour market, which reacts to the global slowdown with a traditional delay.