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  • Emerging Markets Debt Daily

    South Africa’s Encouraging Manufacturing Rebound

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    June 11, 2019

    South Africa’s manufacturing rebound sends a positive signal about the post-election growth dynamics. An upside surprise in Mexico’s industrial production is not yet a game-changer.

    South Africa’s manufacturing production delivered a massive upside surprise in April, with yearly growth accelerating sharply to 4.6% 
    in the absence of electricity blackouts. Looking forward, we think there is a good chance it may get an extra boost from the post-election improvement in sentiment, especially if President Cyril Ramaphosa strikes the right notes in the forthcoming state of the nation address. We will be paying special attention to what he says about the restructuring of state energy giant Eskom, as its operational inefficiencies remain a major drag on the country’s domestic activity.

    Mexico’s growth outlook—and especially the strength of the domestic manufacturing sector—is very much in focus given the lingering uncertainty about the tariff agreement with the U.S. April’s industrial production was out this morning, and it looked better than expected, expanding by 1.5% month-on-month on a seasonally adjusted basis. The uptick does not look strong enough to change market expectations of policy rate cuts. Our argument, however, is that sticky inflation and numerous external risks will keep the central bank’s hawkish bias in place for now.

    An upside surprise in Czech headline inflation (2.9% year-on-year in May) is unlikely to affect the central bank’s more relaxed policy stance. The main reason is that core inflation continues to moderate, and this is happening against the backdrop of softening activity indicators. One development that can make the central bank more alert is the renewed pressure on the koruna. Absent this, however, the wait-and-see approach looks very appropriate for the current combination of domestic and global factors.


    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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