Investment Research 28 February 2013

Transcription

1 Investment Research 28 February 213 Macro Monitor Latvia Last year, Latvia showed the fastest growth in Europe, according to flash estimate GDP, which suggests it increased by.% y/y versus.4% y/y in 211. Detailed statistics have not yet been announced but we estimate growth was balanced and determined by both domestic demand and exports. We expect GDP growth to decelerate to 3.% on average this year, due mainly to weaker domestic demand, while we expect exports to continue to perform well. Risks to our forecast appear to be on the downside. Euro area performance remains weak this year and one-off effects, which helped keep export growth strong last year, are unlikely to be repeated. Inflation decelerated significantly to 2.3%, down from 4.4% in 211, due to a reduction in the VAT rate from 22% to 21%. We expect this trend to continue helped by a reduction in energy prices. Recent consumer price trends indicate that Latvia is likely to meet the Maastricht criteria and become a euro member in January 214. Relatively high unemployment remains Latvia s greatest challenge. Taking into account the expected deceleration in growth, the speed of improvement is set to slow down too. On the other hand, the strong rebound in consumption last year may indicate that at least some jobseekers are registered at a labour exchange but are working illegally. We expect the current account deficit, which caused so much trouble during the credit boom, to remain at a low level over our forecast period. However, we expect some deterioration in 2 fuelled mainly by stronger capital goods import growth. Macro forecasts 1 Year Gdp 1 Private. cons 1 Fixed Inv1 Export 1 Import ) Average % y/y 2) % of GDP 3) % of total work force 4) Export and import prices, EUR Macro forecasts 2 Year Trade Balance 2, 4 Current acc. 2, 4 Industrial prod. 1 Unemploy ment 3 Wages1 Inflation ) Average % y/y 2) % of GDP 3) % of total work force 4)Goods, export and import prices, EUR Senior Analyst Violeta Klyviene vkly@danskebank.com Important disclosures and certifications are contained from page 7 of this report.

2 National accounts Gross domestic product GDP increased by.1% y/y in Q4 12 versus.2% y/y in Q3 12. Overall, GDP grew by about.%. Growth was determined by export and domestic demand factors. - Gdp, Latvia We expect GDP growth to decelerate to 3.% on average this year, due mainly to weaker domestic demand, while we expect exports to continue to perform well. With a gradual recovery of the eurozone, we expect Latvian expansion to accelerate as well, to 4-% on average. Private consumption Private consumption contributed 3. percentage points, or more than half, of growth in Q3 12 and was the second largest (after exports) contributor to economic expansion. Private consumption, Latvia Deceleration in CPI inflation has improved consumer purchasing power and stimulated private consumption growth. Rapid growth in a slow labour market recovery environment will be difficult to maintain and we expect a slowdown in growth to 3.% y/y in 213 and then acceleration to 3.7% y/y in February 213

3 Investments Fixed investments, Latvia Investment grew by 21% y/y over the first nine months of 212 mainly due to public investment and higher absorption capacity from EU structural support. At the beginning of a new EU structural support period, public investment growth would slow down and investment recovery would depend on private investment trend. The share of nonperforming loans remains at a high level and it would limit more rapid credit recovery. Thus, we expect to see a moderate growth in coming years. We forecast investments to grow to 7.% y/y in 213 and 8.6% y/y in 214. Net exports Export growth exceeded our expectation last year. Exports, Latvia Imports, Latvia Some important export partners Russia, Sweden and Lithuania underperformed the euro area outlook significantly last year. On the other hand a good export performance was determined by a very good harvest and the latter is more of a one-off factor. We expect exports to grow by.6% y/y in 213 and 7.1% y/y in 214. Risks to our forecast appear to be on the downside. Euro area performance remains weak this year and one-off effects, which helped keep export growth strong last year, are unlikely to be repeated February 213

4 Production and labour market Industrial production Industrial production, Latvia Industrial production grew 6.2% y/y in 212. The robust growth was determined by the fact that almost 7% of manufacturing output was exported. We expect to see a continuation of strong growth based on both the positive domestic market and external demand outlooks. We now expect IP to grow by 7.9% in 213 and 8.4% in 214. However the risk to our forecasts is on the downside, as slow credit recovery might limit production growth capacity. Unemployment 18 % % Unemployment, Latvia Relatively high unemployment remains Latvia s greatest challenge. Taking into account the expected deceleration in growth, the speed of improvement is set to slow down too. On the other hand, the rapid recovery in consumption may indicate that at least some jobseekers are registered at a labour exchange but are working illegally. We expect the unemployment rate in Latvia to decrease to 13.3% in 213 and to 12.4% in February 213

5 Wages and prices Wages Wages, Latvia In 212, the job vacancies rate was the one of the lowest in the EU at around.4%; the same as it was in still-crisis beset Portugal and Cyprus. This, and strong labour supply, would help to keep wage growth broadly in line with productivity growth over the medium term. We expect average nominal wage growth to decelerate to 2.6% y/y in 213 and then accelerate to 3.8% y/y in 214. Inflation Inflation, Latvia Inflation decelerated significantly to 2.3%, down from 4.4% in 211, due to a reduction in the VAT rate from 22% to 21%. We expect this trend to continue helped by a reduction in energy prices. Recent consumer price trends indicate that Latvia is likely to meet the Maastricht criteria and become a euro member in January February 213

6 Emerging Markets contacts Emerging Markets Research Lars Christensen larch@danskebank.dk Flemming Jegbjærg Nielsen flemm@danskebank.dk Violeta Klyviene vkly@danskebank.com Stanislava Pravdova spra@danskebank.dk Alexander Reventlow alre@danskebank.dk Vladimir Miklashevsky vladimir.miklashevsky@danskebank.com Global Retail SME, FX Stig Hansen sh@danskebank.dk Flemming Winther flw@danskebank.dk Trading FX, Fixed Income, Danske Bank Markets Frank Sandbæk Vig fsv@danskebank.dk Thomas Manthorpe tman@danskebank.dk Markku Anttila markku.anttila@ danskebank.fi Perttu Tuomi perttu.tuomi@ danskebank.fi Danske Bank Poland, Warsaw Maciej Semeniuk msem@pl.danskebank.com Bartłomiej Dzieniecki bdz@pl.danskebank.com Danske Bank Markets Baltics Howard Wilkinson howard.wilkinson@danskebank.com Martins Strazds martins.strazds@danskebank.lv Giedre Geciauskiene giedre.geciauskiene@danskebank.lt Rainer Änilane rainer.anilane@ danskebank.ee ZAO Danske Bank Russia, Saint-Petersburg Treasury Department Lenina Rautonen lenina.rautonen@danskebank.ru Vladimir Biserov vladimir.biserov@danskebank.ru Darja Kounina darja.kounina@danskebank.ru All EM research is available on Bloomberg DDEM 6 28 February 213

7 Disclosure This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S ( Danske Bank ). The author of the research report is Violeta Klyviene, Senior Analyst. Analyst certification Each research analyst responsible for the content of this research report certifies that the views expressed in the research report accurately reflect the research analyst s personal view about the financial instruments and issuers covered by the research report. Each responsible research analyst further certifies that no part of the compensation of the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed in the research report. Regulation Danske Bank is authorised and subject to regulation by the Danish Financial Supervisory Authority and is subject to the rules and regulation of the relevant regulators in all other jurisdictions where it conducts business. Danske Bank is subject to limited regulation by the Financial Services Authority (UK). Details on the extent of the regulation by the Financial Services Authority are available from Danske Bank upon request. The research reports of Danske Bank are prepared in accordance with the Danish Society of Financial Analysts rules of ethics and the recommendations of the Danish Securities Dealers Association. Conflicts of interest Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of highquality research based on research objectivity and independence. These procedures are documented in Danske Bank s research policies. Employees within Danske Bank s Research Departments have been instructed that any request that might impair the objectivity and independence of research shall be referred to Research Management and the Compliance Department. Danske Bank s Research Departments are organised independently from and do not report to other business areas within Danske Bank. Research analysts are remunerated in part based on the overall profitability of Danske Bank, which includes investment banking revenues, but do not receive bonuses or other remuneration linked to specific corporate finance or debt capital transactions. Financial models and/or methodology used in this research report Calculations and presentations in this research report are based on standard econometric tools and methodology as well as publicly available statistics for each individual security, issuer and/or country. Documentation can be obtained from the authors upon request. Risk warning Major risks connected with recommendations or opinions in this research report, including a sensitivity analysis of relevant assumptions, are stated throughout the text. Date of first publication See the front page of this research report for the date of first publication. General disclaimer This research has been prepared by Danske Bank Markets (a division of Danske Bank A/S). It is provided for informational purposes only. It does not constitute or form part of, and shall under no circumstances be considered as, an offer to sell or a solicitation of an offer to purchase or sell any relevant financial instruments (i.e. financial instruments mentioned herein or other financial instruments of any issuer mentioned herein and/or options, warrants, rights or other interests with respect to any such financial instruments) ( Relevant Financial Instruments ). The research report has been prepared independently and solely on the basis of publicly available information that Danske Bank considers to be reliable. While reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and Danske Bank, its affiliates and subsidiaries accept no liability whatsoever for any direct or consequential loss, including without limitation any loss of profits, arising from reliance on this research report. The opinions expressed herein are the opinions of the research analysts responsible for the research report and reflect their judgement as of the date hereof. These opinions are subject to change, and Danske Bank does not undertake to notify any recipient of this research report of any such change nor of any other changes related to the information provided in this research report. This research report is not intended for retail customers in the United Kingdom or the United States February 213

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