Natalia Gurushina, Economist, Emerging Markets Fixed Income
January 29, 2020
Poland’s downside GDP surprise reignited concerns that the region might be in a weaker position to face the virus-related growth headwinds. Brazil’s industrial confidence moved to positive territory for the first time in 1.5 years.
Global growth issues are front and center this morning, with initial estimates from Asia suggesting that the virus outbreak might shave 0.2% of 2020 real GDP growth. European activity (including EMEA) is also under intense scrutiny due to concerns that Q4 slowdown puts the region in a weaker position to face additional growth headwinds. Poland’s below-consensus GDP print this morning is a case in point. The annual growth moderation to 4% (from 5.1% in 2018) implies that the economy expanded only by 3% year-on-year in Q4—which is likely to provide additional ammunition to the central bank’s doves if inflation continues to surprise to the upside.
Are there new signs of life in Brazil’s growth? Industrial confidence was back in positive territory in January after 1.5 years of disappointments (see chart below). Let’s hope it lasts (the improvement is corroborated by higher capacity utilization), but the market is likely to demand additional reassurances that pro-growth structural reforms remain on the government’s agenda.
There was a lot of optimism in Argentine trading this morning, following reports about a possible partial principal payment on Province of Buenos Aires’s 2021 bond. If this idea makes it to the final version of the debt-restructuring proposal, the acceptance rate is likely to increase significantly from the current 26%. On the sovereign side, the lower house started to debate the “Restoration of Debt Sustainability Bill”, while International Monetary Fund (IMF) officials confirmed that their team will travel to Argentina in February, most likely after IMF Managing Director Kristalina Georgieva meets with Argentine Economy Minister Martin Guzman in the Vatican.
Chart at a Glance: Brazil’s Industrial Confidence – Back in Business?
Source: Bloomberg LP
IMPORTANT DEFINITIONS & DISCLOSURES
PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments.; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.
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