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Weekly Export Risk Outlook n38: Greece; Kenya; Russia & U.S



​U.S.: Lingering weakness, so the Fed may hold until 2016

The September employment report was disappointing and may have pushed a Fed rate hike into 2016. The economy created only +142,000 jobs (expectations of +200,000), August was revised down from +173,000 to a weak +136,000 and July was revised down another -23,000. Hourly wages fell one cent as the y/y increase remained at +2.2%, barely above inflation. Moreover, 350,000 workers left the labour force, driving the participation rate down to 62.2% from 62.4%, the lowest since October 1977. The manufacturing sector lost -9,000 jobs after losing -18,000 in August. The September ISM manufacturing index was also weak, falling to 50.2 from 51.1, barely above the level signalling expansion, and markedly below the 56.1 in September 2014. New orders also fell, to 50.1 (59.4 last year), and export orders were an anaemic 46.5. A separate report also showed export weakness in August (-2% m/m) while imports increased by +1.2%, widening the trade deficit to –USD48.3bn from -USD41.8bn in July and pressuring Q3 GDP growth. The only recent bright spot was the ISM non-manufacturing index, which was still strong at 56.9 in September, despite falling -2.1 points.

Russia: Elevated inflation and very weak domestic demand

Headline inflation edged down to 15.7% y/y in September (15.8% in August) as a result of modest disinflation in the prices of both food (17.4%) and services (13.8%), with the latter suggesting continued weakness in domestic demand. Core inflation remained stable at 16.6% y/y. Last week, RosStat also published the demand side breakdown of Q2 GDP. Private consumption fell by -8.6% y/y while gross capital formation plunged by -37.8% y/y, reflecting a -7.4% y/y decrease in fixed investment and a large negative contribution of -5.7pps from inventories. Net exports somewhat mitigated the overall Q2 GDP contraction of -4.6% y/y, with a positive contribution of +7.1pps as real exports increased by +1.4% y/y while imports contracted by -29.9%. However, the outlook for Q3 remains gloomy as nominal exports of goods fell -40% y/y in July (-30% in Q2) in the wake of the renewed fall in oil prices. Industrial output contracted by -4.8% y/y in July-August (-4.9% in Q2) and the average manufacturing PMI in Q3 was 48.4, unchanged from Q2. EH forecasts full-year GDP will contract by -4% in 2015 and -0.3% in 2016.

Greece: Waiting for debt relief

Eurozone finance ministers reiterated the importance of a strong reform momentum and agreed on a set of milestones that need to be implemented by mid-October to allow disbursement of EUR2bn of the remaining EUR3bn of the first tranche of EUR26bn (out of the total EUR86bn three-year programme). Further milestones will be discussed later in the month (including reforms to pensions, the financial sector – senior bondholders bail-in, NPL reform - and labour and product markets, as well as setting up of the privatisation fund by year-end). These will allow disbursement of the remaining EUR1bn. The first programme review is expected to be finalised by the end of October and, if it is positive, debt relief measures will be considered (including longer maturities and lower interest rates), but a nominal debt haircut remains excluded. In parallel, the ECB Asset Quality Review and the Stress Tests on banks are scheduled to be finalised by year-end, with banks progressively recapitalised during November and December (up to EUR25bn). We expect capital controls will be removed gradually, financing will remain challenging, GDP will contract by -2% in 2015 and business insolvencies will increase by +15%.

Kenya: It’s not all doom and gloom

Good weather conditions for the growing season boosted agricultural output in Q2 and abundant rainfall enabled strong gains in hydroelectricity generation. As a result, GDP growth in Q2 was +5.5% y/y, compared with +4.4% in Q1. As with other frontier African markets, global uncertainties have prompted an outflow of portfolio equity. This has weakened the KES. However, the IMF is providing total access to around USD610mn under a 12-month Stand-By Arrangement and a Standby Credit Facility and, while acknowledging strong exogenous headwinds, the Fund remains relatively upbeat on the economy. The government has yet to request a draw-down in either of the Fund precautionary arrangements, which are intended to provide a policy anchor and mitigate the impact of external shocks. With growth also boosted by spending on infrastructure projects, EH expects annual GDP growth of at least +6% in 2015 and 2016, although El Niño weather effects have downside