Key events in EMEA and Latam next week

The good economic momentum seems to have been maintained in the second quarter, but not to the extent that of acceleration. Retail sales have been virtually flat in 2Q19 versus 1Q19 while the trade balance continued widening at a constant rate. Some green shoots are visible in the construction sector while confidence indicators have been improving as well. We, therefore, maintain our 0.5% quarter-on-quarter growth forecast (3.7% year-on-year) for 2Q.

Czech inflation should remain at 2.7% YoY in July (0.2% MoM), taking into account that fuel prices declined slightly in annual terms (-1.2% MoM) and also food prices usually decline during the summer (-0.5% MoM) as the harvest reaches the market. Still, volatility in food and alcoholic beverages poses some risks towards higher price dynamics. The Czech National Bank also estimates 2.7% CPI in July in its latest forecast. Flash 2Q GDP should slow down slightly towards 2.5% after 2.8% in 1Q19, while the central bank expects 2.7%.

We see Hungarian GDP growth slowing down in 2Q19. Based on the high-frequency data in the retail sector, industry and construction, all of them closed a weaker period in April-June versus the first quarter. The quarterly growth rate could be the worst in the past two years. However, the annual economic performance at 4.5% is expected to be strong enough to keep Hungary in the top shelf of all EU member states when it comes to GDP growth. The main driver will remain consumption and investment activity.

We expect 2Q GDP growth to slow down modestly from 4.7% to 4.6% YoY, slightly above the market consensus of 4.5%. Private consumption should remain sound (4.6% YoY), while investments are likely to decelerate after a very strong 1Q. Last quarter numbers were distorted by the weak performance in June related to breaks in manufacturing enterprises work after heat-related disruptions.

The final CPI reading should confirm 2.9% YoY dynamics. The major focus will be on the structure of core inflation. After the flash reading, we estimate an increase from 1.9% to 2.1% YoY. The key factor is whether higher dynamics was an effect of tourism-related activities (rather temporary) or a broad-based acceleration. We see recent growth as rather persistent and forecast CPI above 2% in the coming months and close to 2.5% YoY on average in the fourth quarter.