Emerging Markets Monitor - June 3
Turkey Inflation Soars, Bolsonaro Re-Election Bid Clouded by Economy, Nigeria's 'Satchet-ization', Imran Khan Slows Pakistan Reforms, Intel and VinGroup Join Hands
The Top 5 Stories Shaping Emerging Markets from Global Media - June 3
Turkey Inflation Soars, Highest Since 1998. May: 73.5% Annual Inflation
Bloomberg
“Turkey’s inflation soared in May to the fastest since 1998 as it came under more pressure from the rising cost of food and energy while ultra-loose monetary policy contributed to currency weakness.”
“Consumer prices rose an annual 73.5%, up from 70% in April, according to data released by the state statistics agency Friday. The median forecast in a Bloomberg survey of 20 economists was 74.7%.”
“…Turkish inflation has been in double digits for much of the past half-decade as authorities prioritized economic growth and exports. President Recep Tayyip Erdogan has long advocated the theory that high interest rates cause inflation rather than curb it, pressuring the central bank to keep borrowing costs low in the face of risks to the lira and prices.”
“The biggest drivers of the latest surge in inflation were food and energy, exacerbated by the global rally in commodities and the Russian invasion of Ukraine. Turkey is a major importer of oil.” Bloomberg reports.
Bolsonaro Re-election Prospects in Brazil Clouded by Weak Economy
Financial Times
“The Brazilian economy expanded sharply in the first quarter of the year as retail sales and services picked up following the end of coronavirus pandemic restrictions.”
“Official data released on Thursday showed gross domestic product expanded 1 per cent in the first quarter from the previous quarter, when it grew 0.7 per cent. Compared with the same quarter last year, the economy expanded 1.7 per cent.”
“Economists warned, however, that the rally was unlikely to continue as a combination of soaring inflation and rising interest rates chokes off consumption in Latin America’s largest economy.”
“Brokerage XP has forecast a technical recession by the end of the year following two consecutive contractions in the third and fourth quarters. The outlook will be a blow to President Jair Bolsonaro, who is facing a tough re-election battle in October, with the economy ranked as the primary concern for voters.”
“…In the past year, inflation has also surged to more than 12 per cent, with rising food and fuel prices frustrating voters ahead of the polls in October. Brazil has the fourth-highest level of inflation among G20 nations, after Turkey, Argentina and Russia.” Bryan Harris reports.
The “Satchetization” of Africa’s Largest Economy
Al Jazeera
“In February 2019, Eat’n’Go, the Nigerian franchisee of popular pizza maker Domino’s, introduced a miniature version of the pizza boxes the market was familiar with, for 550 naira ($1.50). Smaller in size and far cheaper than the medium-sized pizza which costs N3,900 ($9), this new version was designed to be affordable for everyone.”
“It was a necessary decision given the economic instability at the time, CEO Patrick Michael told Al Jazeera. ‘The Nigerian market is diverse, and the potential for profit remains high,’ he said. ‘However, we can’t overlook the economic instability [which] has, in some way, affected purchasing power. At times like this, it becomes pertinent for industry players like ourselves to cushion the effect of this situation on customers.’”
“Since 2015, Nigeria, Africa’s largest economy, has gone into recession twice and in that time, the naira has plummeted against the dollar, losing 70 percent of its value. That put the economy in a chokehold. But things could become even worse in the coming days.”
“According to a recent World Bank report [PDF], by 2022, the number of poor people in the country is projected to reach 95.1 million – more than 40 percent of the population. And even as the adverse economic effects of the COVID-19 pandemic linger, commodity prices are on the rise due to the effect of Russia’s invasion of Ukraine.”
“A 2022 report by the National Bureau of Statistics (NBS), shows that Nigeria’s annual inflation rate accelerated for the third straight month to 16.82% in April 2022, from 15.92% in March. It was the steepest rise in inflation since August 2021 and follows the trend of a global surge in commodity prices.” Al Jazeera reports.
Imran Khan Jeopardizing Pakistan’s Attempts to Fix the Economy
The Economist
“…The appearance of the barriers, put there by police, signals that the city of 1m is under siege from one of the country’s ‘long marches’. These are more aptly described as long drives: convoys of protesters travel in cars and minibuses from cities such as Lahore and Peshawar, a few hours away by road. These ritualised displays of street power, in which political parties rally their supporters and lead them towards the capital, are a favourite tactic for anyone trying to rattle the government.”
“No one is keener on them than Imran Khan, the cricketer-turned-populist who leads his own Pakistan Tehreek-e-Insaf (pti) party. Since being ousted from his job as prime minister in a no-confidence vote in April, he has refused to leave the pitch. Instead he has taken to street protests, threatening to bring down the new government.”
“…It is hard to see why the new prime minister, Shehbaz Sharif, a former chief minister of Punjab and the younger brother of Nawaz Sharif, a former prime minister, would agree to call early elections. His government, less than two months old, has taken tentative steps towards repairing relations with the West. But it has not yet devised a strategy to tackle the economic crisis it inherited. In part that is because Mr Khan’s protests have kept it distracted.”
“Mr Sharif has also failed to seize the political initiative. Last month the country watched the flailing prime minister board a plane to London to seek advice from his older brother, who lives in exile.”
“The country’s finances are in wretched shape. The pandemic and the fallout from the war in Ukraine have battered an economy already reeling from decades of mismanagement, outsize military spending and a focus on debt-driven infrastructure projects that generated no returns. Inflation hit 13.8% in May, driven largely by the price of food and transport. The rupee has lost 8% of its value against the dollar since early April (see chart). Foreign reserves had dwindled to $10bn by May 20th, enough to cover imports for only about six weeks.”
“…Mr Khan’s latest deadline came and went. He had not called a new march by the time The Economist went to press. Some observers suspect that he may need time to rally his supporters after the anticlimactic ending to his last push on the capital. His allies think he is unlikely to return to Islamabad imminently.” The Economist reports.
Intel Deal with Vietnam’s VinGroup Reflects Shared EV Ambitions
Nikkei Asia
“Intel CEO Pat Gelsinger has signed a deal with Vingroup to jointly develop technology, including for autonomous driving, as the chip giant seeks to speed into the auto sector and expand operations in Vietnam, its biggest test and assembly site.”
“…The partnership brings together two neophytes to the car industry: Vingroup is Vietnam's biggest conglomerate, booking most of its profits in real estate, while Intel dominated chipmaking before rivals surpassed it in revenue and advanced tech. Both companies see vehicles, especially EVs, as vital to their next stage of business and both have announced major factory construction projects in the U.S. as President Joe Biden beckons manufacturers.”
“…Vingroup subsidiary VinFast is the latest auto brand to jump on the Intel bandwagon. The U.S. company has worked with carmakers from Ford to China's Nio and Geely, either directly or through Mobileye, the Israeli self-driving sensor startup Intel acquired.”
“Gelsinger's Asia tour comes as the U.S. tries to strengthen the chip industry's supply-chain cooperation in the region, hedging the geopolitical risk posed by China. U.S. officials have speculated that Vietnam could play a bigger role in the chain, with locals already working for U.S. chipmakers Qualcomm, Marvell and Intel. And Gelsinger's stopover in South Korea might forge more links to the semiconductor ecosystem Samsung Electronics has built up in the country, analysts say.” Nikkei Asia reports.
“Twenty years from now you will be more disappointed by the things that you didn’t do than by the ones you did do.” - Mark Twain