Taking stock

Dünya Executive - - REPORT -

Kubilay Ozturk, economist, Deutsche Bank

The overall EMEA growth forecast for 2017 is slightly higher than estimates from six months ago. Turkey and Hungary stand out with a positive surprise in growth. In Turkey, strong credit and fiscal impulse will push 2017 growth higher than even our above-consensus call six months ago. In Hungary, better exports and private investment­s have also led us to revise growth upwards. South Africa stands out with one of the most significan­t downward adjustment to our growth forecast due to the cabinet reshuffle, several credit downgrades and higher political uncertaint­y. At 0.5% this year, growth will hardly be better than 2016. Positive inflation surprises have led to our 2017 EMEA forecast being revised upwards by roughly 1.7 percentage points. In Turkey, forward guidance and an effort to recoup some credibilit­y suggest that the Central Bank of Turkey could wait until fledgling improvemen­t in headline consumer inflation becomes more visible, which we expect to take place with the July print. Until then, the bank looks set to keep monetary conditions tight and the effective rate close to current levels. Moving on to politics, we hope for no-news-is-good-news from Turkey as Parliament works through the necessary legal changes post-referendum. While EM FX has rallied against the dollar in 2017, it has been more a case of broad dollar weakness rather than intrinsic EM FX strength. EM FX has underperfo­rmed the euro and remained largely unchanged versus an equally weighted euro and dollar basket.

(July 17)

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