Key events in emerging markets next week

Next week’s events will be concentrated on Tuesday with the third quarter GDP release and the National Bank of Hungary’s rate-setting meeting. On economic activity, we see 1% quarter-on-quarter growth, which would mark a significant slowdown compared to the previous period. The more moderate growth is mainly caused by net exports. Strong domestic demand (consumption and investment) is driving imports, while global value chain issues are holding back export activities.

However, even with such issues, we see GDP growth at 7.7% on average in 2021. In the meantime, inflation is soaring, price expectations are rising, and real interest rates are plunging, so the forint is depreciating.

In short, the Hungarian central bank is under pressure. Yet, we see a 30bp hike and a signal that a bigger cut in QE could come next month. So we don’t see Hungary following in the footsteps of the Czech and Polish national banks with big one-off hikes. The government decided to cap non-premium fuel prices for three months from mid-November, reducing a major upside risk for inflation, and reducing the chances of strong second-round effects.

The Central Bank of Turkey (CBT) foresees that “supply-side transitory factors leave limited room for the downward adjustment to the policy rate”. In our view, this guidance implies that after one further 100bp rate cut at the November meeting, the central bank will likely stop its frontloaded easing cycle, at least until the year-end. The governor’s rhetoric in the inflation report release, and moderation in some core inflation indicators in October, also support this expectation.