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Over the coming days, markets will get their first glimpse at how the BRICS economies performed in January. Investors will be watching for inflation data from Brazil and Russia, information on India’s upcoming budget, key trade and lending data in China and a series of releases in South Africa.
A series of inflation snapshots will dominate Brazil’s economic calendar this week. The Fundação Instituto de Pequisas Econômicos (Fipe)’s monthly consumer price index (CPI) readings for the city of São Paulo will kick things off on Monday morning. Markets expect Fipe’s index to show a quickening in the monthly pace of consumer price rises from 0.78% in December to 1.06% in January.
Later in the day, Brazil’s central bank will issue the results of its weekly survey of economists’ expectations. In last week’s report, the Banco do Brasil reported that economists had lowered their average 2013 growth forecast to 3.10% from 3.19% in the previous week and raised their year-end inflation forecast for the fourth week in a row to 5.67%.
Investors will receive more inflation insights on Tuesday when the Fundação Getulio Vargas (FGV) releases its general price index (IGP-DI) and on Wednesday when central bank officials release their installed capacity utilisation (CNI) and commodity price indices.
Markets expected the central bank’s CNI index to rise slightly, from 81.4 to 81.5. Analysts at 4CAST expect the commodity price index to have fallen 2.2%, on a monthly basis, in January.
Three more inflation measures, scheduled for release on Thursday and Friday, will close out the country’s data week. The Instituto Brasileiro de Geografia e Estatística (IBGE)’s monthly consumer price index (IPCA) is expected to continue its rise on Thursday, but FGV’s inflation preview index is expected to show a slight decline, as is Friday’s weekly measure from the foundation.
Tuesday’s consumer price index (CPI) release is the big item on Russia’s economic calendar this week. Markets expect figures to show that consumer prices rose 0.9% on a monthly basis and 7.0% on an annual basis in January, up from a 0.5% monthly rise and 6.6% annual rise in December.
Like Brazil, Russia is battling a frustrating combination of high inflation and low growth. Figures released last week showed that Russia’s economy expanded by 3.4% in 2012, down from 4.3% in 2011 and lower than the Economy Ministry’s 3.5% forecast. Last year’s growth was the second slowest rate of expansion recorded since the government defaulted on $40-billion in debt in 1998.
Most economists, including those in the country’s central bank and finance ministry, expect slightly higher growth in 2013, but do not believe that the economy can perform much better without a series of significant reforms to reduce dependence on revenues from oil exports. Economists from the central bank and government disagree, however, on the role monetary policy is playing in slowing the economy.
President Vladimir Putin and officials in Russia’s economy ministry partially blame strict monetary policy for the country’s lacklustre performance. Bank of Russia Chairman Sergei Ignatyev – who is leaving the bank later this year – disagrees, arguing that the economy is growing near potential and that rate cuts would do little to bolster growth. Given Mr. Ignatyev’s comments, the bank is widely expected to leave rates on hold at their February meeting, expected this week or next.
The Reserve Bank of India lowered its benchmark repo rate for the first time in nine months last week and lowered the bank’s cash reserve ratio (CRR) in a bid to bolster growth in Asia’s third largest economy. If the country’s current account deficit and inflation situations improve, officials suggested that more rate cuts may follow.
“The message that we are trying to give is that as much as there is some space,” Governor Duvvuri Subbarao told a news conference following the bank’s policy meeting, “we are going to use it with a lot of judgment on timing and quantum.”
The “space” which Mr. Subbarao referenced, most economists believe, is largely dependent on the fiscal policy decisions that the country’s government unveils in its upcoming budget, which Finance Minister Palaniappan Chidambaram will present to lawmakers later this month. With no major data releases scheduled and earnings season largely over, speculation on the budget is likely to drive markets in the week ahead.
The government is widely expected to cut spending in the current year by approximately 1.1-trillion rupees – equal to roughly 8.0% of budgeted spending and 1.0% of gross domestic product (GDP) – as it struggles to meet strict deficit targets by March. In an interview with the Financial Times newspaper, Mr. Chidambaram said last week that this year’s fiscal deficit will be no more than 5.3% and next year’s will be no more than 4.8%. “That’s a red line and I will not breach that red line,” he said.
China will shut its markets next week in celebration of the Chinese New Year, or Spring Festival, the longest and most important festival on the country’s holiday calendar. But before festivities begin, government will release a slew of important data. Imports, exports, trade balance, money supply and lending data are all due on Friday.
After seven consecutive quarters of slowdown, China’s export growth rebounded to a seven-month high in December, surging 14.1% compared to a year earlier. Economists attributed the strong performance to exporters clearing year-end orders and not necessarily indicative of trend that will continue into 2013. Nevertheless, markets expect January’s numbers to paint an equally positive picture. Consensus is for a 17.1% year on year gain.
The country’s imports grew 6.0% in December, bringing China’s trade surplus to a two-month high of $31.6-billion. Economists expect a 23.5% imports surge in January to reduce the country’s trade surplus to $24.2-billion.
December’s money supply and new yuan lending data were also positive. M2 money supply grew 13.8%, year on year, while new loans totalled 454.3-billion yuan, bringing the annual total to 8.2-trillion yuan in loans disbursed. Markets expect money supply grew 14.2%, year on year, and that bank lending swelled to 1.0-trillion yuan in January.
Together, the money supply and lending data points to resilient demand for loans in the world’s second largest economy. A gradual rebound in domestic demand is expected to provide support to China’s economy in 2013 while trade is likely to remain a weak spot.
The first significant item on South Africa’s economic calendar this week is Tuesday’s quarterly labour force information from Statistics South Africa (Stats SA). South Africa’s unemployment rate has long hovered at around one-quarter of the population, by far the highest amongst the BRICS economies. This week’s release is unlikely to show a significant change. South African Reserve Bank Governor Gill Marcus told a news conference last week that the government’s current policies are not sufficient to meaningfully reduce the current 25.5% unemployment rate given the central bank’s current growth forecasts
South Africa, like many of its peer economies, is battling low growth and high inflation. Growth is expected to fall to 2.6% this year and inflation rose to annual rate of 5.7% in December.
Adding to these common challenges, South Africa has been racked by a wave of strikes over the past six months as workers from the mining, manufacturing and agricultural sectors demand higher wages. Ms Marcus said last week that she and her colleagues on the Reserve Bank’s monetary policy committee are “mindful of the danger of a possible wage-price spiral and further employment losses should unaffordable real wage demands be granted while economic growth remains constrained.”
On Thursday, the Reserve Bank will release information on its gross and net reserves – which are expected to remain largely unchanged – and Stats SA will release December’s manufacturing production and capacity utilisation figures. Markets expect manufacturing production to have slowed to 3.1% growth in December from 3.4% in November.