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4 Jan 2016
EMEA: Contrasting paths in 2016 – Deutsche Bank
FXStreet (Delhi) – Research Team at Deutsche Bank, suggests that the growth in EMEA appears set to accelerate, to nearly double to 2% next year as Russia and Ukraine emerge from their deep recessions while elsewhere, they expect growth to remain relatively stable or contract slightly.
Key Quotes
“We’re not quite ready to call the end of the recession in Russia just yet but the economy has shown clear signs of bottoming over the last few months. The recovery, however, is likely to be slow. Oil prices look set to remain low, likely prompting the government to rein in spending over the coming year. Access to financing will remain difficult so long as sanctions are still in place. Inflation is falling and this will support a recovery in real incomes and confidence. Overall, however, we would expect the recovery to be hesitant, with the economy bouncing along a floor for the next year or so. This points to a contraction of 3.7% this year and a further 0.7% drop in 2016.
The economy has held up rather better in Turkey, the region’s other geopolitical hotspot. After multiple elections over the last two years, the domestic political outlook became clearer when the AKP regained its overall majority in parliament last month. This should at least provide investors with a bit more clarity, even as the risks emanating from its southern borders remain acute.
The economy in South Africa has been in the doldrums, growing by barely 1% this year. The year ahead is unlikely to be any better as declining profits weigh on investment and household demand. The government will be unable to provide offsetting support as it will need to stick to its hard spending ceilings, and possibly raise taxes, to stabilize the level of debt.
Central Europe by contrast has been a relative island of stability over the past year, growing by around 3.6%, the fastest pace since 2008. Public investment might weaken a little following the shift to a new EU budget envelope. Growth is thus set to slow this year, but only moderately, as the region’s fundamentals remain generally healthy. The risks to the growth outlook are primarily external and, as ever, tied to a slowdown in the Euro Area.
With domestic demand expected to remain strong and the sharp drop in oil prices in late 2014 now dropping out of the base, inflation should start to inch higher in the coming quarters (except in Romania where another VAT cut will offset this). While we’re not expecting any rate cuts, the benign outlook for inflation leaves scope for some further loosening of monetary policy across the region in the near term if growth disappoints. In contrast to other emerging markets in the region, Central Europe is also less exposed to the Fed rate hiking cycle and should continue to benefit from the tailwinds provided by further ECB easing.”
Key Quotes
“We’re not quite ready to call the end of the recession in Russia just yet but the economy has shown clear signs of bottoming over the last few months. The recovery, however, is likely to be slow. Oil prices look set to remain low, likely prompting the government to rein in spending over the coming year. Access to financing will remain difficult so long as sanctions are still in place. Inflation is falling and this will support a recovery in real incomes and confidence. Overall, however, we would expect the recovery to be hesitant, with the economy bouncing along a floor for the next year or so. This points to a contraction of 3.7% this year and a further 0.7% drop in 2016.
The economy has held up rather better in Turkey, the region’s other geopolitical hotspot. After multiple elections over the last two years, the domestic political outlook became clearer when the AKP regained its overall majority in parliament last month. This should at least provide investors with a bit more clarity, even as the risks emanating from its southern borders remain acute.
The economy in South Africa has been in the doldrums, growing by barely 1% this year. The year ahead is unlikely to be any better as declining profits weigh on investment and household demand. The government will be unable to provide offsetting support as it will need to stick to its hard spending ceilings, and possibly raise taxes, to stabilize the level of debt.
Central Europe by contrast has been a relative island of stability over the past year, growing by around 3.6%, the fastest pace since 2008. Public investment might weaken a little following the shift to a new EU budget envelope. Growth is thus set to slow this year, but only moderately, as the region’s fundamentals remain generally healthy. The risks to the growth outlook are primarily external and, as ever, tied to a slowdown in the Euro Area.
With domestic demand expected to remain strong and the sharp drop in oil prices in late 2014 now dropping out of the base, inflation should start to inch higher in the coming quarters (except in Romania where another VAT cut will offset this). While we’re not expecting any rate cuts, the benign outlook for inflation leaves scope for some further loosening of monetary policy across the region in the near term if growth disappoints. In contrast to other emerging markets in the region, Central Europe is also less exposed to the Fed rate hiking cycle and should continue to benefit from the tailwinds provided by further ECB easing.”