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Sum with Substance-Week Ahead
October 25, 2012, 8:45 am

In a full week for the BRICS economies, closely followed purchasing managers’ indices (PMIs) for all five countries will be released on Thursday. Central bankers in India and Russia will announce their latest rates decisions and a steady stream of data from Brazil and South Africa – including both countries’ latest trade data – will give global markets plenty to mull over. Here is your guide to the major economic events happening from Sao Paolo to Johannesburg in the week ahead.


Brazil’s economic week begins on Monday with budget balance numbers. Markets expect treasury officials to report a September budget surplus of BRL2.5-billion, up from BRL1.6-billion in August.

On Tuesday morning, Brazil’s Foundation Getulio Vargas (FGV) will release its latest Indice Gerais de Precos (IGP) inflation gauge. The FGV’s IGP-M series measures inflation by taking a weighted average of wholesale prices (60%), consumer prices (30%) and construction costs (10%). Markets expect the index to show a 0.14% monthly rise in October, down from 0.97% in September.

Later in the day, government will release debt figures. Net debt as a percentage of GDP is expected to fall slightly from 35.1% in August to 35.0% in September. For 2012 as a whole, Brazil’s central bank expects public sector debt to equal 34.8% of GDP.

Another inflation gauge, the manufacturing producer price index (PPI), will take centre stage on Wednesday. Prices at Brazil’s factory gates rose 0.53% in August and are expected to have risen for a seventh consecutive month in September. Analysts at 4CAST predict a 0.60% monthly uptick.

On Thursday, investors will focus on October’s manufacturing PMI, industrial production and trade statistics. The PMI is expected to remain just below the 50.0 mark separating expansion from contraction. Industrial output is forecast to fall 0.5% from August to September, following 1.5% growth in the previous month. And, finally, markets expect government figures to show that Brazil’s trade surplus narrowed for the seventh straight month to USD1.825-billion in October from USD2.557-billion in September.


The big event on Russia’s calendar this week is a meeting of the country’s central bank on Thursday. Bank Rossii hiked interest rates for the first time in nine months in September, but left rates on hold in October.

Economists at Danske Research expect officials to raise the benchmark refinancing rate to 8.50% and to raise the overnight repo and deposit rates by 25 basis points each to 5.75% and 4.50%, respectively, this week.

“Bank Rossii has been very hawkish, emphasizing the importance of controlling inflation. The central bank’s chairman Sergey Ignatiev recently said that it understands the non-monetary nature of Russian inflation [economists attribute recent inflation to price hikes by state monopolies in July and September],” analysts wrote in a recent research note, “Yet, political pressure to slow down price increases remains high.”

The European Bank for Reconstruction and Development (EBRD) expects inflation to reach 6.8% by the end of 2012. President Vladimir Putin stated in early October that “driving down inflation is most important” and Finance Minister Anton Siluanov has argued that higher interest rates will not hurt economic growth. Not everyone agrees.

“If there’s no change in monetary policy, I look very pessimistically at the pace of economic growth next year,” German Gref – head of Sberbank – told The Moscow Times last week. “Firms are not in a position to borrow and invest,” he added.

The EBRD, World Bank and International Monetary Fund have all recently revised downward their growth projections for Russia in 2012 and 2013.


The Reserve Bank of India (RBI) will announce its latest rates decision on Tuesday. Most economists expect that Governor Duvvuri Subbarao and his colleagues will leave the country’s benchmark repurchase rate on hold at 8.0%, but cut the bank’s 4.5% cash reserve ratio for the fourth time this year – by 25 basis points – in a bid to boost lending.

India – Asia’s third largest economy – is confronting a frustrating combination of high inflation and low growth. The country’s annual inflation rate – highest among the BRICS – rose further to 7.81% in September, its highest level in 10 months. And economic growth slowed to 5.3% in the second quarter, a three year low, before rebounding to 5.5% growth in the three months through June.

Making matters even more complicated for policymakers, India’s budget deficit – at 5.8% of gross domestic product in the last fiscal year – is the highest among the five BRICS countries. Ratings agency Standard & Poor’s forecast an even wider gap of 6.0% in the current fiscal year, ending in March 2013. Governor Subbarao said earlier this month that monetary policy decisions will be guided, at least in part, by the outlook for the country’s budget gap.

To address the growing imbalance, Prime Minister Manmohan Singh announced a series of actions in September, including an increase in diesel prices and a limiting of the supply of subsidised cooking gas. This may give the RBI more room to manoeuvre, but with inflation well above the bank’s 5.0% comfort level, not much.


Two PMI releases, both scheduled for Thursday, will dominate China’s economic calendar this week. The first, referred to as China’s official PMI, is sponsored by China’s National Bureau of Statistics and compiled by the China Federation of Logistics and Purchasing (CFLP). The second is sponsored by HSBC and compiled by Markit Economics.

Because of differences in the sample sizes and composition of the two surveys – Markit questions smaller firms, on average, than CFLP – they often diverge in their readings. HSBC’s PMI has been below 50.0 for 11 straight months. China’s official PMI has only fallen below 50.0 for two months.

Most recently, China’s official PMI improved to 49.8 in September from 49.2, remaining just below the 50.0 mark separating expansion from contraction. The improved reading indicates that, although the country’s manufacturing activity continued to deteriorate last month, it did so at a smaller rate than in August.

Flash results from the HSBC PMI, released last week and based on responses from 85% to 90% of total respondents, rose to a three-month high of 49.1 in October. Economists interpreted the preliminary results, which registered the most encouraging orders information since April, as a sign of a strengthening recovery in China’s massive manufacturing sector. But the situation is still precarious.

Hongbin Qu, chief economist for China at HSBC, cautioned last week that “external challenges still abound and the pressures on [the] job market are lingering. This calls for continuation of policy easing in coming months to secure a firmer growth recovery.”

South Africa

South Africa’s busy data week will begin with the release of last month’s M3 money supply and private sector credit extension data on Monday. Consensus is for an 8.0% year on year rise in money supply and 8.3% growth in credit, up from 7.9% in August. The amount of credit extended to the private sector is viewed as a key gauge of the economy’s health.

On Wednesday, preliminary trade figures from the South African Revenue Service are expected to show that the country’s trade gap narrowed from ZAR12.2-billion in August to ZAR8.2-billion in September. Despite this moderation, South Africa’s cumulative trade deficit through the third quarter of 2012 is forecast to rise to ZAR78.1-billion, more than 12 times higher than the ZAR6.1-billion deficit recorded over the same period last year.

On Thursday, the Bureau for Economic Research will release October’s PMI readings. The PMI declined during August and September and, despite forecasts for a slight improvement, is expected to remain in negative territory this month.

Closing out the week, the National Association of Automobile Manufacturers of South Africa (Naamsa) will release October’s vehicle sales figures. The annual pace of total sales growth slowed to 1.4% in September – the lowest level since January 2010 – largely as a result of the high base established in September of last year.

In a research note, analysts at Nedbank wrote that “car sales growth is likely to remain modest into 2013” and that “commercial sales growth could be impacted negatively by gloomy sentiment.”

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