The government discussed raising gas tariffs by 12% in 2012, but splitting the hike into several stages, Vedomosti daily cited government sources. The new formula envisages a 5% hike of gas prices in Jan 2012, followed by another 9.5% hike in April after the presidential elections in March. This would result in 12% average annual increase of tariffs. Earlier plans were for 15% increase from the beginning of the year. Tariff hikes for the remaining monopolies, Russian Railways and power companies, will be similar to the expected inflation of 5-6% in 2012. The higher increase of gas tariffs aims to compensate the sharp increase of NDPI tax on Gazprom which should contribute to the budget RUR 122bn next year, while at the same time allow the monopoly to maintain planned investments. According to preliminary estimates, electricity prices will have to rise by 5-6% in 2012, given a 12% gas price hike. According to Deputy EconMin Klepach the tariff hikes will be neutral for the economy contributing 0.1pp to GDP growth.

Business confidence worsened in August compared to July, Rosstat's survey conducted among 4,500 companies shows. Confidence in the extraction industry was positive at 4% in August declining moderately from 6% in July probably as a result of the drop in crude oil prices on the back of expectations about lower future demand. Business confidence in the manufacturing sector turned negative at -1% in August from indifference in July. However, when accounted for seasonal factors, business sentiment in the manufacturing sector has deteriorated more visibly (to -4%) while confidence in extraction and utilities have remained largely unchanged. Expected demand for manufacturing output was also at the lowest level as compared to the other two sectors. Still, businesses remain cautiously positive about short-term prospects. The number of businesses expecting continued growth of output exceed the pessimists by 23%. However, that share has declined by 27% in July. The share of businesses that believe that the economic situation will improve over the next six months remained unchanged at 30%. Manufacturing companies consider the sluggish domestic demand as a main hurdle to further growth of production, along with high taxation, and lack of funding. The weight of economic uncertainty as a major problem for businesses has increased in August as compared to July.

China Eximbank is going to provide loans to agricultural projects in Ukraine according to a memorandum signed with agriculture minister Mykola Prysyazhnyuk, the news agency UNIAN reported today quoting Prysyazhnyuk’s press service. He said Eximbank was ready to offer loans not only under government guarantees but also under guarantees from European or Ukrainian banks. A working group is scheduled to come up with a list of agricultural projects for China Eximbank in September, said Prysyazhnyuk. Meanwhile, the Chinese FIXAM company pledged investment of USD 150mn in the construction of an agricultural market in Ukraine’s southern Kherson Region, UNIAN reported yesterday quoting Kherson governor Mykola Kostyak. The Kherson authorities also expect FIXAM to invest into upgrading the Kherson heat and power plant so it should use biofuel.

Polish sold industrial production will rise by a seasonally adjusted 4.6% y/y in August, holding steady with July, Finance Minister deputy stats director Slawomir Dudek told Reuters on Tues. Higher infrastructure investment is expected to offset slower export growth, he said. Dudek added that though the export situation was highly uncertain, the ministry was aware infrastructure investments would peak in Q3 and Q4, supporting overall output as well as construction. In July, headline output slowed to a lower-than-expected 1.8% y/y, a figure Dudek said was not completely surprising for the ministry.

Finance Minister Jacek Rostowski upheld the government's GDP growth forecast of 4% y/y for 2012, saying it was too early to make any changes as no one knew how the situation would develop, according to a Tues. interview with TOK FM. He compared the situation to 2008, when everyone called for the FinMin to change its growth forecast early, it resisted, and then forecast precisely GDP growth whereas many were far too pessimistic. Rostowski said the ministry was ready to adjust depending on the situation. The minister likewise downplayed the meagre 1.8% y/y growth in July industrial production, noting seasonally adjusted growth was a fair 4.6%.

Rostowski denied any plan to do what Labour Minister Jolanta Fedak recently proposed and liquidate the privately managed pillar of the reformed pension system. He said the second pillar would not be liquidated even if his Civic Platform (PO) and the Fedak's Polish People's Party (PSL) formed another ruling coalition after the Oct 9 elections.

The finance minister also said that the Democratic Left Alliance's (SLD) idea to bring back the 40% tax bracket on the "rich" and spend billions more on health-care and other social programs did not make sense economically. He also called the scheme a misunderstanding of what the health-care sector needed.

The MPC decided to maintain the mid-term inflation target at 3% y/y, completing its regular review of the target, the central bank (NBH) announced. It underlined that price stability was the primary objective of the central bank and pointed that the 3% target was appropriate in this regard. Specifically, this rate of inflation was considered to be sufficiently low to keep economic losses from higher prices at a minimum, to reduce the risk of deflation and to take into account the possible statistical errors in the inflation calculation. In addition, the MPC took into account Hungary's future entry in the eurozone, pointing out that nominal convergence was crucial for ensuring smooth adoption of the euro. To this effect, the inflation target was also set with a view to align inflationary expectations with the eurozone inflation target. Consequently, the MPC stressed that a lowering of the inflation target could be considered in the medium term, possibly referring to the 2% eurozone inflation target. It noted that the target could be revised in three years at the latest or at the date of Hungary joining the ERM II.

As we reported earlier, there were speculations that the inflation target could be actually revised up due to pressure from the government for more accommodative monetary policies. Consequently, the final MPC decisions is positive news as otherwise the central bank credibility for managing inflation would have been, in our opinion, significantly compromised.

The autonomy of independent regulators is challenged by the government, the daily Cumhuriyet claimed. The daily referred to a change in the law on the organisation and functions of the EU ministry, published in the Official Gazette on Aug 17. It includes provisions, stipulating that the minister is authorised to audit all operations and transactions of supreme boards, including the Banking Regulation and Supervision Agency (BDDK), the Capital Markets Board (SPK) and the Energy Market Regulatory Body (EPDK). The law is interpreted as granting the related ministries the right of administrative supervision of these institutions and arguably violates the Constitution. In this context, deputy chairman of the opposition CHP party Akif Hamzacebi announced that his party will appeal the law amendment to the Constitutional Court. On the other hand, Energy Minister Taner Yildiz explained that the amendment aims to enhance coordination among institutions regarding the audit mechanism. Otherwise, the EPDK will continue to be independent in taking decisions, he added.

The changes seem to follow earlier statements by deputy PM Ali Babacan, who had argued that the power of independent market regulators should be re-thought in order to separate the technical and the political aspects of market supervision. In addition, the EPDK was recently stripped from its price-setting functions, which were transferred to the Energy Ministry. We think that these reports seem to infringe on the principles of the market economy and do suggest an ongoing centralisation of power by the government with likely negative implications for the country’s potential to attract FDIs and to continue its EU accession bid.

The economic coordination committee, which met yesterday, decided to finalise legal arrangements on the new employment package and action plan for improving investment conditions by the end of September, the Treasury informed. Commenting on the meeting, Development Minister Cevdet Yilmaz said the employment package will include active employment programmes, aiming to improve labour qualifications as well as reducing labour costs. He acknowledged that, challenged by the continuous increase in the labour participation rate due to healthy population growth, the government could not rely solely on economic growth to sustain the downward trend in unemployment. The unemployment rate recently recovered to its pre-crisis level and stood at 9.4% in May as job creation was more than sufficient to counter an increased labour supply. Although it benefits from seasonal factors, we expect the decreasing trend of unemployment to continue on account of still strong capacity utilisation in the industry unless a possible worsening in the global economic outlook has considerable contagion effects on the local economy.

With respect to investment incentives, Yilmaz stated the new mechanism will be in accordance with measures to ease the current account deficit. To the same end, as we reported earlier, the government has initiated efforts to transform free trade zones into free economic zones, which will encompass logistics and tourism in addition to currently promoted trade and industrial activities.

In a related statement, Industry Minister Nihat Ergun said that the employment package has been elaborated together with the changes in the investment incentives mechanism and informed that the two issues will be submitted to the parliament before the end of the year.

Gold extraction at the Rosia Montana mine should start, President Traian Basescu declared in a TV interview. In addition, he said that the government will open two other gold mines through two state-owned mining companies, because the country needs more gold for the central bank reserves. Romania has further 50 tons and 54 tons of gold underground deposits to explore and extract from these mines in the next period, Basescu said without giving any other details. He expressed hope that the gold reserve of the NBR will increase to 200 tons from the current 103 tons, as the precious metal has proved the most safe and profitable investment during the recent crisis.

Exploration at the Rosia Montana gold mine in western Romania is currently in private hands, owned by the Canadian Gabriel Resources in a joint venture with the Romanian Government. The Rosia Montana Project contains resources of about 414 tons of gold and 1,250 tons of silver. The project has been stopped until now due to aggressive protests by environmental NGOs and activists trying to protect the cultural value of the region and the environment.

The average net salary fell by 0.5% y/y in real terms in June, after 0.3% y/y growth in May, preliminary figures released by the state statistical bureau showed. The real net wage posted positive annual growth only in April and May this year, after previously declining for four months in a row. In nominal terms, the average net wage growth slowed by 1.4pps m/m to 1.5% y/y, thus falling behind CPI inflation, which decelerated by 0.5pps to 2% y/y in June. In monthly terms, the net wage increased by 1.3% to HRK 5,498 (EUR 742). The gross wage also rose by 1.7% m/m to HRK 7,907 (EUR 1,068), which brought its annual growth to 1.8% y/y. In real terms, the gross wage fell by 0.1% y/y.

Although the real wage growth and the declining registered unemployment in the last two months signaled the beginning of the recovery of the labour market, the process will be very volatile due to the weak economic growth prospects. The private sector has still to recover of two consecutive years of recession and is unlikely to provide a significant boost to employment and real wage growth in the second half of the year. The high external exposure and the rising arrears of the real sector will also put a limit on the real wage growth, while the only possible stimulus could come from the public sector as the government could turn to populist measures ahead of the upcoming elections. Still, the cabinet has pledged to follow conservative income policy to sustain the credibility of its fiscal policies.

The registered unemployment rate eased to 16.8% y/y in July, down by 0.1pp m/m, preliminary figures released by the state statistical bureau showed. The unemployment rate fell for a fifth month in a row and has decreased by 2pps since the beginning of the year. Still, it remains 0.4pp higher compared with July 2010. The unemployment rate in July slightly missed our forecast, which predicted it would remain flat at 16.9%, which means that the labour force has increased during the month.

The unemployment rate dynamics contrasted with the growth of the number of registered unemployed in July, which rose by 1.7% y/y, but remained almost flat on the month. However, this is consistent with the rising seasonal employment during the summer months, which also explains the growth of the labour force. This trend is likely to persist in the next several months, which would have a positive impact on the labour market.

We expect the unemployment rate to decline further in August, supported mostly by higher seasonal employment in the tourism sector in light of the strong tourist season. The decline could sustain by the end of the year, provided that public measures to boost employment produce results in Q3. The upcoming general elections in December will also serve as a stimulus to the government to accelerate measures aimed at improving the labour market in an attempt to brush up the ruling coalition's image ahead of the elections. On the negative side, we still do not expect the private sector to generate new jobs by the end of the year due to the weak economic growth and the weak competitiveness of the domestic industry. In addition, the public sector's impact on new job creation will also be limited in light of the rising need for a fiscal consolidation.

The German state lender KfW will help Serbia establish its own development bank, according to a press release of the cabinet. The agreement was struck during the visit of German Chancellor Angela Merkel in Belgrade today. The Serbian Development Bank will be founded by the end of the year and it will replace the currently existing development fund and the export credit and insurance agency (AOFI). The newly established institution will not be subject to government regulations on commercial banks.

Construction of Banja Luka - Doboj motorway will start next spring and the project should be completed by July 1 2014, Nezavisne Novine daily reported. Representatives of China Road and Bridge Corporation (CRBC) and motorway company Autoputevi RS signed a preliminary agreement on the project on Tuesday in Banja Luka. The Chinese Export Bank is expected to approve a loan that will cover 85% of the project funding. The remainder will be provided by the RS government. The 72km-highway is expected to cost some EUR 400mn.

According to the press, the executive secretary of the Ministry of Finance, Nelson Barbosa, declared on Tuesday that the ministry still expects a GDP growth around 4.0-4.5% in 2011, which is slightly more optimistic than the latest market forecast. Barbosa said that the ministry of finance is not so pessimistic about the evolution of economic growth in the second quarter of 2011. He admitted that the government is expecting some deceleration in Q3 2011, given that the economy expanded at a very fast pace in Q1 2011. In addition, Barbosa also declared that the deceleration observed in the IBC-Br was already expected by the government and that the ministry of finance will wait until the release of the GDP figures for the second quarter to revise its economic growth forecast (if necessary). He also reiterated that the government is forecasting an economic growth of approximately 4-5% in 2012.

According to the CNI, the manufacturing sector posted another negative result in July. The indicator of actual versus usual capacity utilization fell to 45.2 points, which represents the eighth consecutive month of decrease. The average level of capacity utilization in the industrial sector reached 75%. Another indicator that exhibited a negative performance in that month was inventory level. The index rose to 53.9 points in July from 53 points in the previous months showing that the manufacturing sector accelerated the rate at which is accumulating inventories. Performance in inventories reinforces the negative perspectives for the industrial production given that suggests further deceleration in the sector. In turn, the indicator of production evolution remained stable at 50.4 points.

Despite the unfavorable evolution in those indicators, the businessmen continue relatively confident in regards to the domestic demand, employment and purchase of raw materials for the next six months. The index related to demand observed a slight fall to 61.3 points in July from 61.9 points in the previous month. The index of purchase of raw material decreased to 57.6 points (from 58.2 points), while the employment index dropped to 53.2 points from 54.2 points. Exports are the only item that the businessmen are pessimistic about the future evolution (index below 50 points). In July, it reached 49.1 points.

According to AON Hewitt, wages will grow by 4.51% on average during this year, with an inflation of 3.55%. Besides this increase, the consulting company expects a 1.0% increase in employment benefits. This increase should cause an increase in domestic demand as real wages grow. Moreover, if the national currency continues to show strength against the US dollar, domestic demand should be pushed upwards even further. However, this result hasn’t been seen so far. Since the crisis, domestic demand has remained stagnant, yielding ambiguous results. Although many analysts expect to see a strong recovery of the domestic market during the second semester of this year, no robust improvement has been recorded yet. According to the same company, wages will grow faster in 2012, by 4.68%, while inflation should end the year at 3.94%. Since 2009, wages have failed to recover, helping to maintain a low level of inflation but holding the domestic market stagnant. An eventual recovery of average wages should help to strengthen the middle class, and therefore, the domestic market. On the other hand, the high unemployment level pressures against higher wages. In fact, in many sectors, where employment is often temporal, wages are likely to remain unchanged at best.

The hotel occupancy in June presented a growth of 4% m/m and moving from an occupancy of 47.22% in June 2010 to 51.11% in June 2011, according to the DANE. Moreover, in H1 the hotel sector posted occupancy of 50.01%, better than the 48.35% reported last year. Additionally, the sector presented an increment in its incomes of 12.5% y/y in June and 5.2% y/y in H1, helped by the beginning of the vacation season. The peso's appreciation is one of the factors that helped the increase of tourists in the country, who have reached 642,000 in May. The regions that present the greatest influx of tourist were San Andres Island, the Caribbean coast and the coffee zone, thus the increase in hotel occupancy was mostly in these zones. It is expected that the U-20 World Cup held in the country contributed to the tourist and hotels sector, and a preliminary announcement said that the country received more than 70,000 visitors during the tournament.

Saudi Arabia's real GDP growth should quicken to 6.5% y/y in a "favourable" move in 2011, though authorities should focus on maintaining fiscal sustainability, securing broad-based growth and enhancing job creation in the medium term, the IMF said in an Article IV report published Tues. The fund expects GDP growth to pick up from 4.1% in 2010, which itself was well up from 0.1% the previous year. GDP growth is to be supported by the oil and non-oil sectors, higher public spending and a global demand recovery.

The IMF applauded the kingdom's "stabilising role in the oil markets," underscoring positive spill-over effects of Saudi policies on regional and global economies. The fund likewise backed Saudi's decision to use oil income to help tackle social issues, mainly in housing and unemployment, and enlarging the social safety net. The IMF, however, urged the government to carefully monitor potential inflationary pressures. The fund also warned that recent public spending initiatives increased vulnerability to a sustained decline in the oil price. The fund called for further private sector activity to enhance the impact of higher spending. The establishment of a formal medium-term expenditure framework, backed by a macro-fiscal unit, would help strengthen the implementation of fiscal policy over time, the IMF noted.

The IMF did welcome Saudi efforts to boost budget revenue, including modernising tax administration and further progress towards a GCC-wide VAT. The fund also highlighted the importance of gradually reforming domestic energy pricing. The IMF praised the central bank's "effective" supervision and regulation of the financial system. Such policies helped boost the banking system's resilience to recent shocks, the fund said. It applauded authorities' "strong efforts in combating money laundering and the financing of terrorism."

On the currency peg to the USD, the IMF said such a policy provided a credible nominal anchor while facilitating investment and financial sector development. The fund welcomed the government's new strategy to stimulate job creation in the private sector, which it said would allow reducing reliance on the public sector to absorb domestic labour. The fund also called for final approval of a new mortgage law to enhance access to housing finance.

IMF's macro forecasts

2010 2011F GDP 4.1% 6.5% GDP (oil) 2.2% 9.4% GDP (non-oil) 4.9% 5.4% CPI 5.4% 6.0% Budget surplus 5.2% 9.3% CA surplus 14.9% 20.1%

Source: IMF

Qatar will spend USD 20bn-25bn on tourism infrastructure over the next decade seeking to lure mainly high-end tourists ahead of the 2022 World Cup, Qatar Tourism Authority chairman Ahmed Abdullah Al-Nuaimi told Reuters late Mon. Spending will be mainly on hotels, parks and entertainment projects, he said. Qatar currently has 100 hotels, villages and compounds spread across the seven host cities, boasting 10,000 hotel rooms. In 2011, some 5,000 rooms will be added with plans to reach 30,000 by 2013, Nuaimi said. An extra 5,000 rooms will hit the market yearly throughout 2022, he noted. Qatar pledged to deliver around 240 World Cup-related properties before the start of the championship. An additional 140 properties will be set up to accommodate the more than 400,000 tourists expected for the tournament, according to a recent FIFA report.

Hotel projects include the USD 2bn City Centre project which will start opening in 2011. The site will house six new hotels, including Shangri La and Rotana. A cruise ship terminal will be constructed at Doha's new USD 5.5bn deepwater seaport with capacity for two to three cruise ships that could be used to accommodate visiting fans, Nuaimi said. By 2022, Qatar's hotel capacity will double to 90,000 rooms, translating into USD 17bn of investments over the next five years, according to government forecasts. The World Cup fervour will also help re-launch and speed up the implementation of several mega-real estate projects including Barwa's USD 10bn Urjuan project in Al-Khor. The World Cup will also likely speed up work on the USD 3bn 40km Qatar-Bahrain Causeway, which is set to be the world's longest marine causeway when completed.

The person-night at Israeli recovered in July to 4% y/y in July up from 0.1% y/y decline in June, according to preliminary figures released by the Central Bureau of Statistics (CBS). Foreign tourist visits were up moderately by 0.8% y/y in July improving from 3.3% y/y average decline in Apr-July. The number of tourist night spend by domestic visitors increased by 5.6% y/y. The seasonally adjusted data, also shows recovery as foreign tourist nights have risen by 4.8% y/y boosting overall growth to 2.9% y/y. The growth of tourist nights in July was largely expected due to the waning high-base effects which dampened growth in the previous months. We expect that positive effect to remain in August but the outbreak of violence at end of the month and the rocket barrage from Gaza on South of Israel will likely reduce foreign tourist visits. Still, domestic tourism remains relative resilient to security threats.

Cocoa arrivals increased by 22.7% y/y to 1.388mn tonnes in the period Oct 1-Aug 21, according to exporter estimates quoted by Reuters. In the week Aug 15-21, cocoa arrivals reached around 9,000 tonnes, estimates show, which represents an increase of 41.6% y/y. With the end of the season approaching (end-September), cocoa production look set to beat the 2003/04 season record of 1.407mn tonnes. The government had set a target of 1.3mn tonnes for this season's harvest, which has been boosted by good weather, but recently revised it up to 1.4mn tonnes.

Tea production increased by 8% y/y to 26.3mn kgs in July 2011 while tea exports declined by 2% y/y. Cumulatively in the first 7 months of the year tea production declined by 13% y/y to 204mn kgs. The increase in output for July is attributed to improved weather conditions with adequate rainfall during the month. Kenya is a leading exporter of black tea and earlier in the year the tea-board said that they expected output to decline but revenues to be at similar levels to last year helped by a weaker KES. Demand for tea exports has declined due to the political unrest in Egypt. Egypt is one of the leading buyers of Kenyan tea.

The central bank's (SARB) leading business cycle indicator increased for the first time in four months, rising by 2.4bps or 1.8% m/m to 133.8 in June after declining by 2.2bps to 131.4 in May. As a result of the monthly increase, the y/y rate growth rate moved into positive territory, rising by 3.6% y/y after declining by 0.2% y/y in May. In the breakdown, seven of the ten sub-components of the leading indicator increased, while three decreased. The largest positive contributions came from a notable increase in the number of residential building plans passed, as well as a significant increase in the y/y change in job advertisement space, which the SARB attributed to the low base that was created in June 2010 as a result of the hosting of the World Cup. The major negative contributors were the prices of all classes of shares traded on the JSE, as well as the interest rate spread. The SARB also reported that the coincident indicator for May was 151.6, down from 152.3 in April, and the lagging indicator was 98.8, down from 99.2 in April.

One of the country’s largest cement manufacturers, Lafarge Cement Zimbabwe has announced plans to invest USD 5mn each year for the next four years as it seeks to improve efficiency and boost output at its plant in Harare. Demand for cement is picking up due to increased construction activities as a result of the better economic environment. It is reported that the cement manufacture is even failing to meet export demand due to high local demand. The company is targeting to produce 400,000 tonnes of cement by end of the year.