• Civil engineering works fell by 5.3% y/y in June, suggesting that the government-advertised boom was short-lived
• Employment rose by 2.1% y/y, while wages were higher by 7.2% y/y
• New building permits rose by 1.8% y/y, out of which residential permits rose by 5.5% y/y

Construction activity eased its growth to 2.0% y/y (wda) in June from 4.4% y/y in May, according to figures from the statistical office. The reason was civil engineering works, whose volume fell by 5.3% y/y in June after rising by 6.6% y/y in May. Thus, it appears that the widely advertised boom in public investment in transport infrastructure was short-lived. Meanwhile, building construction growth almost doubled, from 3.3% y/y in May to 6.3% y/y in June, but it was not enough to push overall activity to an improvement. In seasonally adjusted terms, construction activity remained flat when compared to May. Building construction rose by 1.3% m/m (sa), while civil engineering works contracted by 2.5% m/m (sa).

Data Download

Employment in construction kept rising, up by 2.1% y/y in June, reporting its 12th consecutive month of growth. Nominal wages rose by 7.2% y/y in June, bringing growth to 4.4% y/y in Q2, slightly lower than the 4.9% y/y reported in Q1. Unlike in industry, skilled labour is less in demand in construction, though there are still low-skilled positions remaining unfilled. Thus, wage growth remains robust, even though not at the same level as in industry.

New building permits rose by 1.8% y/y in June, with new residential permits rising by 5.5% y/y. Residential construction was stronger, as the number of started dwellings rose by 52.9% y/y in June, leading to a 38.9% y/y increase in H1 2026. Nevertheless, the number of completed dwellings kept falling, down by 17.8% y/y in June and by 4.4% y/y in H1 2026. Thus, even though housing supply is about to increase, there will be some time before we see its impact on property prices.

• Markets expected a surplus of CZK 17bn
• Manufacturing was behind the lower surplus, likely as a reaction to improving external demand
• Machinery & equipment and parts & components were behind the deterioration in the trade surplus
• Rising energy and chemical prices still have an impact in cumulative terms
• We expect some improvement in Q3, given the sharp increase in new industrial orders in June

The external trade surplus reached CZK 15.5bn in June (FOB/CIF), lower by 42.6% y/y, according to figures from the statistical office. The print was weaker than anticipated, as markets projected a surplus of CZK 17bn. In cumulative terms, the trade surplus added up to CZK 107.8bn, lower by 18.7% y/y, while the 12m-rolling trade surplus reached CZK 182.3bn, its lowest level in the past 27 months. In seasonally adjusted terms, the trade surplus almost halved when compared to May, reporting its lowest level since the beginning of 2023.

Data Download

The lower external trade surplus was mostly due to manufacturing, a combination of weaker exports and strong imports. The latter is likely due to some recovery in external demand, as indicated by the sharp increase in industrial orders. High uncertainty related to the US-Iran was likely also a factor, as there has been an increase in input purchases recently, to avoid further disruption in supply chains. The main sources of a lower surplus include machinery & equipment, parts & components, and chemicals, though the latter reflects higher prices after the US-Iran war started. Energy trade also contributed, but it was no longer the primary factor behind the recent deterioration in trade surpluses. Besides, oil prices eased in June after the US-Iran conflict receded. Naturally, this reversed in July, yet we are seeing oil prices calming again in August. In terms of regions, the EU remained the main source of trade surpluses, though Germany is doing worse than originally anticipated. Meanwhile, the US has become a major source of trade deficits, after LNG purchases from US markets rose, due to the blockade of the Strait of Hormuz.

In cumulative terms, the situation was similar, even though energy trade had a much bigger negative impact. The US is now almost as big a source of deficit as China, showing how much energy imports have shifted. There is still a favourable base effect related to Russia, as the Czech Republic stopped importing Russian oil in late April 2025, leading to a high base in early 2025. Still, there is hope that exports will recover, at least in Q3, given the sharp increase in new industrial orders reported in June.

Overall, we are still seeing the impact of the US-Iran war, which led to major changes in energy trade. On the positive side, trade surpluses appear relatively resilient, and even the sharp increase in energy and chemical prices did not eliminate them. Thus, the odds are that we will still see a modest surplus in 2026, including in the current account. There has also been support from exchange rate developments, as the PPI-based REER remained stable in June, and has been largely flat throughout H1 2026. All this speaks of a sound external position, and we see no immediate external risks.

• Markets expected an increase of 2.1% y/y
• Power generation was behind the sharp growth acceleration, reflecting hotter weather and a low base
• Production of transport equipment other than motor vehicles improved noticeably, likely due to external demand
• New industrial orders rose sharply, driven mostly by export orders, including in the automotive sector
• Employment kept falling due to a desire to contain production costs; yet, wages kept rising fast due to persisting shortage of skilled labour
• We expect some improvement in industrial activity in Q3, especially after renewed hope for cessation of hostilities between the US and Iran

Industrial growth accelerated to 4% y/y (wda) in June from 2% y/y in May, according to figures from the statistical office. The print was noticeably stronger than anticipated, as markets projected industrial growth at 2.1% y/y in June, close to its May level. Total output increased by 1.2% m/m (sa), with manufacturing rising by 0.8% m/m.

Data Download

The main growth driver was power generation, which rose by 25.1% y/y in June, up from a 2.1% y/y increase in May. We attribute this mostly to the heat wave that hit Europe in late June, as AC use in the Czech Republic has been spreading. According to data from the energy regulator, the average temperature in June was higher by 1.1 degrees C in year-on-year terms, and weather effects are likely to be even more pronounced in July. Moreover, power generation reported a one-off slump in June 2025, creating a low base. If the impact of power generation is eliminated, then industrial growth would be 2.4% y/y in June, much closer to market expectations.

Manufacturing growth strengthened as well, picking up from 2.2% y/y in May to 2.6% y/y in June. Yet, it wasn't a clear improvement, as some sectors improved sharply, while others kept posting deterioration. The main growth drivers were the production of transport equipment other than motor vehicles (up 35.8% y/y in June after a 14.3% y/y fall in May), as well as electrical equipment (up 4.7% y/y in June from a 0.1% y/y increase in May). Meanwhile, pharmaceutical production deteriorated (down 11.7% y/y in June from a 6.0% y/y increase in May), as well as output of chemicals and non-metallic minerals. Such swings are mostly due to global uncertainty, as well as still sudden shifts in external demand. As industrial orders have become increasingly volatile, output can no longer be maintained at a steady level throughout the year.

Speaking of demand, new industrial orders rose by 13.2% y/y (wda & sa) in June, up from a 3.6% y/y increase in May. Export orders increased by as much as 19.6% y/y, which was their strongest growth since the beginning of the year. Transport equipment was behind the sharp increase, though improvement was observed in the automotive sector as well, along with electrical equipment, basic metals, and machinery & equipment. Thus, it appears that the Czech manufacturing sector will see some good times ahead, or at least in Q3 2026. Pharmaceutical and chemicals kept seeing weaker orders, likely due to higher production costs.

Despite the steady increase in new orders, employment still fell by 1.1% y/y in June, which is primarily to contain production costs. However, the ongoing trend to cut low-paying jobs continued, as nominal wages rose by as much as 7.9% y/y. It brought wage growth to 5.8% y/y in Q2, slightly easing from a 6.1% y/y increase in Q1. Even then, wage growth has remained robust, indicating that skilled positions are still very much in demand. What has been going on is an optimisation of the production process, and the introduction of more automation. The downside is that skilled labour availability has not increased, keeping wage growth pressure substantial.

All in all, we will probably see some improvement in industrial activity in the months to come, even if the manufacturing PMI weakened a bit in July. However, renewed hope for cessation of hostilities between the US and Iran will likely improve sentiment in August. Oil prices appear to be falling again, after their spike in the second half of July, so energy price pressure will ease once more.

ODS really cracks on property tax! But it will need the courage and flame from the 90s (Lidove Noviny)

Number of new homes increases substantially, yet they keep getting pricier (Pravo)

Law cuts exploitation of cadastral data, but it won't impact speculators only, according to experts (Hospodarske Noviny)

German business is worried, high costs are narrowing margins to a minimum (Hospodarske Noviny)

Close to Trump. Foreign ministry to have a new consulate in Miami (Mlada Fronta Dnes)

President and national interest. It is not photographers but actions that shape a state's future (Lidove Noviny)

It takes CZK 500 and a couple of clicks. First Czech bank opens bath towards bitcoin (E15)

Warning: violence fascinates young people (Mlada Fronta Dnes)

Brussels concedes. Sustainability reports to impact only the biggest Czech players, the rest will get a countermeasure (E15)

Attack on the fortress. Brutal Assault metal festival begins (Pravo)

• Cumulative sales rose by 5.2% y/y in January-July
• Skoda was the growth driver, with sales rising by 9.7% y/y in July and 13.2% y/y in January-July
• Battery electric cars led sales in both July and January-July, likely due to rising fuel prices
• Yet, the EV segment still has a low market share, at 11.8% in January-July, compared to 86% for internal combustion cars

New passenger car sales rose by 1.2% y/y (wda) in July, adding up to 20,147 units, according to figures from the SDA, the car importers' association. In non-adjusted terms, sales fell by 3.2% y/y, but it was because of a one working day fewer last month than a year ago. In cumulative terms, passenger car sales increased by 5.2% y/y in January-July, reaching 149,585 units. Skoda remained the top make sold, as it reported an increase of 9.7% y/y (wda) in July, and 13.2% y/y in January-July, accounting for almost a 37% market share.

Data Download

By fuel type, the EV sector came back to the lead, particularly battery electric cars. It was likely due to the renewed conflict between the United States and Iran, which pushed oil prices upwards, at least for a while. Thus, sales of battery electric cars rose by 50.3% y/y in July, being the primary growth driver, followed by plug-in hybrids, whose sales were higher by 17.3% y/y. In contrast, petrol car sales fell by 4.4% y/y, being their worst performance since January. In cumulative terms, battery electric car sales increased by 28.3% y/y, and had the strongest contribution to overall growth. Meanwhile, petrol cars and plug-in hybrids were effectively tied for second place, reporting an increase of 2.4% y/y and 29.0% y/y, respectively. Diesel car sales lagged, reporting an increase of 4.2% y/y in July and 5.5% y/y in January-July.

We should note that despite the robust increase in EV sales, the segment's market share remains low, at 11.8% in January-July. While it rose by 2.1pps y/y, internal combustion cars still represent the bulk of passenger car sales, at 86% over the period. If this rate of replacement continues, it will take until the end of the next decade before the EV segment is on par with internal combustion vehicles. Arguably, more energy crises could accelerate the process, but at least for now, EV expansion remains slow.

Back to the passenger car market, used car sales rose by 8.3% y/y in July and 10.1% y/y in January-July. A recent SDA report indicated that the average car age reached 16.7 years in H1 2026, the second-highest in the EU. New passenger car sales are mostly due to company purchases, while private customers mostly prefer used cars, primarily because of a lower price tag.

Total vehicle sales, including buses, motorcycles, trucks, tractors, and trailers, rose by 6.5% y/y in July, out of which new vehicle sales were higher by 5.9% y/y. In January-July, total vehicle sales rose by 6.3% y/y, with new vehicle sales being higher by 7.8% y/y.

• Retail sales start to cool with fading impact from one-off bonus payments, we assess
• Consumer spending propensity remains solid, in our view
• Fuel sales decline y/y despite fuel price caps covering most of June

Retail sales growth slowed down to 3.0% y/y in June, compared to the 4.8% y/y increase in the previous month, the statistical office (KSH) reported. The smoothed, three-month rolling data also showed some easing after a temporary spike in the previous months. We think that this pattern was caused by the large bonus wage and pension payments in the beginning of the year and their one-off impact on household consumption has started to wear off. Seasonally-adjusted output slipped by 0.4% m/m in June and the adjusted series has started to stabilise since the one-off income transfers despite the sharp improvement in consumer confidence after the elections.

Data Download

Data Download

All major retail sales segments contributed to the growth slowdown in June. Food sales growth moderated to 1.8% y/y and non-food sales growth slowed to 5.1% y/y. The slowdown in non-food sales was mostly on account of normalisation of the dynamics of clothing sales, possibly influenced by different seasonal discount patterns, we think. On the other hand, sales of consumer durables retained stable dynamics during the month, which we consider an indication of solid consumer spending propensity. Books and electronics sales also picked up during the month.

Data Download

Fuel sales dipped by 0.2% y/y in June despite the fuel price caps being in effect for most of the month and prices were lower than the cap in the immediate weeks after the caps were lifted. The removal of the caps might have had some psychological impact on fuel sales, we believe. We expect that fuel prices might fall further in August as prices took an upward turn with the escalation of the conflict in the Middle East.

• Calendar-adjusted figures confirm ongoing industrial recovery, we assess
• Output increases in majority of manufacturing branches
• Industry likely to be affected negatively by energy crisis

Industrial output rose by 10.1% y/y in June, correcting after the 0.4% y/y contraction in the previous month, the statistical office (KSH) published preliminary data. The strong growth was affected by working-day effects as this June had two more working days compared to Jun 2025, the KSH pointed out. Calendar-adjusted output rose at a milder pace of 4.1% y/y, which we still consider a favourable print. The adjusted y/y output growth slowed down compared to May, but it generally confirmed the ongoing recovery in the industry that has started since March, we assess. Seasonally-adjusted output shrank by 1.4% m/m in June, but we think this did not detract yet from the gradual upward trend.

Data Download

Output increased y/y in most manufacturing branches in June, the KSH revealed, but we think this was partly the result of the favourable calendar effects. Three of the largest branches - transport equipment, electric equipment and electronics expanded y/y, while food production declined y/y in June. The broad growth among the sectors should provide a favourable read on the general industrial outlook, in our view. The short-term prints, however, will be most likely depressed by the heatwave and the resulting energy saving measures by large industrial consumers, we note. The scale of the impact cannot be estimated with any certainty, while industrial association representatives have commented that companies will have flexibility to adapt to the energy savings without cutting production but not if the energy crisis proves sustained.

The KSH is due to publish the detailed industrial output data for June on Aug 13.

• Energy development to be financed out of EU funds
• Tenders for wind farm construction with mandatory state stake to be launched by end-August

The government has adopted a HUF 868bn energy development plan, PM Peter Magyar announced in a social media post. The current energy crisis has been exacerbated by the failures of the previous government to invest in wind farm construction, energy storage capacities and to prepare the Paks nuclear power plant for low river levels, he argued. The EU fund conflict also led to the insufficient investments in the power sector, while the Tisza government will succeed in absorbing these funds and finance the energy development programme, he stated. The programme will include facilitating the connection of households' solar panels to the electricity network, simplifying the licensing of geothermal energy exploration and installing smart meters for residential consumers for free. The installation of smart meters will be mandatory for households with annual consumption above 4,000kWh, Magyar noted.

The government will introduce a new model in the electricity sector and will launch tenders for wind farm construction by the end of August, Magyar said. The tenders will impose a condition for state participation in the project and the financial benefits will accrue directly to the state and local government budgets, he added.

PM Peter Magyar to elect new President of the Republic within one week (Magyar Nemzet)

Presidential candidate casting continues: PM Peter Magyar and PM Office head Balint Ruff meet with former Supreme Court chairman Andras Baka (Magyar Nemzet)

PM Peter Magyar declares energy revolution and wind power plant tenders will be announced immediately (Vilaggazdasag)

Bulgarians receive thousands of MW of demand from Hungarian and Romanian traders after shutdown of nuclear power plants (Vilaggazdasag)

Finance minister Andras Karman is appointed to IMF Board of Governors (Vilaggazdasag)

Slovakia announces that it cannot significantly increase flow of water from Danube to Hungary at this time (Heti Vilaggazdasag)

Parliament sets date for presidential election (Heti Vilaggazdasag)

Amnesty: It is not right for PM Peter Magyar to decide who can work in public media (Heti Vilaggazdasag)

Median: One-third of Fidesz members would be happy to vote for civic movement breaking away from Fidesz (Heti Vilaggazdasag)

• Nine attending members vote in favour of 25bps rate cut
• MPC reiterates room for further policy easing in August, stance to be reassessed in September
• Members highlight caution with respect to external risks

The MPC cut the base rate by 25bps to 5.75% with a unanimous decision in July, the meeting minutes published by the National Bank of Hungary (NBH) showed. All attending members voted in favour of this decision, which was the only one on the agenda. External members Jozsef Dancso and Eva Buza were absent from the meeting. The MPC returned to unanimity after some members had dissenting opinions at the previous meetings, entirely tilted in favour of a looser monetary policy stance, we note. The minutes confirmed that the MPC considered further policy easing in August, saying that there was room for reducing the policy rate during the summer in case favourable developments persisted. The real interest rate will be kept positive during this easing cycle and the rate-cut cycle will be re-evaluated in September, based on the updated NBH Inflation Report, the minutes reiterated.

The inflation outlook was below expectations and the decline in the risk premium on domestic assets has created headroom for monetary policy, the MPC agreed. In addition, household inflation expectations have declined recently, it pointed out. The real interest rate could be also considered high in comparison to other emerging markets, some members argued. The forint exchange rate has depreciated with the rise in global energy prices, but domestic financial markets can be still characterised as stable, the MPC observed. The rate-cut cycle could be therefore maintained during the summer, it concluded and some members pointed out that this stance was consistent with the principle of policy predictability. The MPC did call for caution with respect to external risks, noting that it was constantly monitoring new developments that could affect Hungary's risk assessment. We think this statement mainly referred to the conflict in the Middle East and the related further increase in global energy prices and, consequently, domestic inflation.

• Vote to be held on Aug 11
• No nominations have been submitted to parliament so far, but Tisza has obviously picked a candidate

The parliamentary faction of the ruling Tisza has initiated an extraordinary parliamentary session on Aug 10-11 with the election of a new President on the agenda, local media reported. The actual vote has been scheduled for Aug 11 in particular. No more details have been announced yet, but as we reported earlier, PM Peter Magyar has held talks with a number of prospective presidential candidates, including lawyer Botond Fulop, academician Ignac Romsics and former Supreme Court chairman Andras Baka. Magyar had leaked no details from these meetings, making us speculate that they were mostly unsuccessful, but the scheduling of a parliamentary session for the presidential election should mean that Tisza has picked a suitable candidate.

Tisza adopted a constitutional amendment, terminating the mandate of President Tamas Sulyok on Jul 19 and setting a 30-day period for the election of a new President. Parliamentary speaker Agnes Forsthoffer acts as interim President in the meantime, we note. The qualified majority of Tisza makes it certain that the parliament will elect its presidential candidate, which requires two-thirds of MP votes, we assess.

Development of Morawiecki's Development Plus is an unknown [story notes will succeed only if he keeps party fresh and expands beyond PiS voters; party's founding convention set for Oct 15] (Rzeczpospolita)

PiS officials look enviously at Morawiecki (Gazeta Wyborcza)

Konfederacja begins preparing its electoral lists [dispute will be whether Bosak's National Movement or Mentzen's New Hope secures more seats; share of each could be key for future coalition; Bosak wants coalition with PiS whereas Mentzen isn't keen; talk is even that party could split after next election over the issue of coalition] (Gazeta Wyborcza)

Americans take over the site of Polish nuclear power plant (Rzeczpospolita)

Govt is preparing new holidays (Rzeczpospolita)

Poland will fight with Pfizer over PLN 5.6bn (Rzeczpospolita)

• Funds Minister Pelczynska-Nalecz tweeted Tues. that Domanski had agreed to up threshold
• Domanski says 2027 budget, to be ready by end-Aug, still being decided

Finance Minister Andrzej Domanski denied Wed. having agreed to increase the tax threshold to PLN 140,000 between the 12% and 32% tax brackets from the current 120,000 and said decisions were currently being made, according to an interview with broadcaster TVN24. Domanski said that the 2027 state budget draft, which would be presented by the end of August, would make everything clear. Fund and Regional Policy Minister Katarzyna Pelczynska-Nalecz posted Tues. on X that 'Domanski had agreed' to a move that has been proposed by the fund minister's junior ruling Polska 2050 party. Her post was called "baseless" by the finance minister.

Domanski said Tues. on radio station RMF FM that his ministry is working on raising the tax threshold among a set of changes to the tax system, though it was too early for details. Domanski indicated the changes would go into effect this parliamentary term. Domanski cautioned, though, that the coming weeks would show whether a hike was possible, noting too that defense and health spending needs were high. In the end, he said he would like to up the tax threshold next year. The FinMin has said that hiking the tax threshold to PLN 140,000 would cost some PLN 11.6bn. Domanski also said the ministry was looking at raising the standard tax deduction to PLN 60,000 from PLN 30,000, as was promised by the senior ruling Civic Coalition (KO) during the 2023 election campaign.

Overall, it does appear that the government is preparing to offer some sort of tax cuts as part of the 2027 state budget even though that budget would seem likely to be tight. The tax threshold hasn't been changed in several years and some 11% of taxpayers now pay according to the 32% bracket, well up from 2% not that long ago, meaning many of the ruling coalition's core voters have seen a big tax increase. The failure to meet the standard tax deduction increase has also been a thorn in the KO's side. We think there could be action on both fronts, but whatever will be proposed is likely to see gradual phase-in measures, delaying the brunt of the fiscal cost until after the scheduled autumn 2027 election.

• Morawiecki and PiS recently split, leading Morawiecki to go on political offensive with new Development Plus group
• He and PiS have traded accusations regarding their track record in 2015-23
• PiS leader Kaczynski has even said Morawiecki has 'gone mad'
• Morawiecki's group may be a future kingmaker but intensity of clash suggests dim prospects for potential coalition

The opposition Law and Justice (PiS) and the party's ex-PM Mateusz Morawiecki have been clashing fiercely since Morawiecki was as good as kicked out of the party recently with an intensity that might make a future coalition much harder to form. PiS leader Jaroslaw Kaczynski recently gave Morawiecki and his allies in the Development Plus association an ultimatum: either they sign a loyalty declaration to PiS or they go their own way. Morawiecki and his rebels refused to sign anything and they were as good as kicked out of the party (though this hasn't in fact technically been done). Morawiecki has since created the Development Plus caucus in the lower house and held events preceding the launch of a new party that has polled at about 7%, which is above the 5% threshold.

During this past week, Morawiecki and PiS members have traded barbs over who was to blame for the most unpopular among the hard right decisions during PiS's rule in 2015-23. Kaczynski and others have tended to blame Morawiecki for the decisions, suggesting he went rogue, whereas Morawiecki has countered that all decisions were closely consulted with Kaczynski and all other PiS leaders. He has released some behind-the-scenes information, saying he opposed some controversial PiS-era decisions. He has also warned former PiS colleagues not to fib about events in the past, saying he will reveal details that might make it harder for PiS to win back or win over far-right voters.

Kaczynski has apparently had enough and accused Morawiecki of not acting rationally. Morawiecki was accused of hypocrisy, and Kaczynski said that "apparently, Mateusz Morawiecki has a plan to look for his allies elsewhere." There has been some idea that PiS and Development Plus could form a joint electoral list, but Kaczynski apparently believes this is less likely due to Morawiecki's path.

Overall, the intensity of the PiS-Morawiecki clashes is surprising since they are still natural coalition allies. There is also the lingering suspicion this is part of a show to help PiS win over the far right and then have a softer PiS version in Morawiecki that can compete with the Civic Coalition (KO) for the centre-right. In fact, despite the latest clashes, one can't rule that out. But sometimes the situation does spin out of control and it might be hard for the sides to back down if the fight goes too far. This is important since with the creation of the new Development Plus group, the post-autumn 2027 election scenario will see many parties fighting to create a majority coalition and Development Plus might just be the main kingmaker.

• Tusk says he will discuss partial re-launch of fuel tax cut program
• But he also notes positive news about Middle East conflict

PM Donald Tusk said Wed. that he would meet Finance Minister Andrzej Domanski on Thurs. to discuss the potential partial re-launch of the fuel tax cut program later this month. Tusk noted he had already mentioned that the government might cut fuel prices for the final couple of weeks of August, when many families return from their summer holidays. However, Tusk also noted that the situation requires constant monitoring as US President Donald Trump said talks with Iran were going in the right direction and that it was possible the Strait of Hormuz would soon be unblocked. That has helped take global fuel prices down, he added.

Overall, officials have made it clear that if there is government action on fuel prices, it will come via lower VAT on fuel. That is in part a practical decision since lowering excise would require legislative action and that brings President Karol Nawrocki into the equation. But the VAT can be lowered to 8% via executive action. Still, if the Middle East conflict does not escalate again and global oil prices remain near where they are through the end of the month, the government will probably not cut the VAT in order not to reduce tax receipts. But if the oil price jumps again, one shouldn't be surprised if the government takes some short-term action later this month.

• Registration growth slows from 19.7% y/y in June
• Registrations fall 6.0% m/m to 62,446 units in July from 66,443 units in June
• Registrations rise 10.2% y/y to 412,315 units in Jan-Jul
• Samar ups forecast vehicle registration growth to 8.2% for 2026

Polish passenger car and light commercial vehicle (LCV) registrations rose 11.8% y/y to 62,446 units in July from 55,844 units the year before, according to data published Wed. by the car-market monitoring company Samar. The rise slowed from the 19.7% y/y jump seen in June. The July total marked a 6.0% m/m fall from registrations of 66,443 units the month before, even though July had two more working days m/m (the same total y/y). In Jan-Jul, registrations rose 10.2% y/y to 412,315 units, quickening from the 9.9% rise posted in Jan-Jun.

Samar commented that the registration total in July was a record this century, though the figure did fall from the June level due to the traditional slowdown in the holiday season. It noted that the share of Chinese passenger cars in the market increased in July from June, rising to 15.5% from 14.9% in June and setting another record. The share of new electric passenger cars did, however, fall in July, dropping to 4.2% from 5.1% in June.

With the July data, Samar raised its forecast for passenger car registrations this year to 645,000 from the previous 635,000. It also lifted its LCV forecast to 77,000 from 75,000. The registration total this year is thus to be 722,000, which would give growth of 8.2% this year, up from the previous forecast of 6.4%.

In the monthly breakdown, passenger car registrations rose 11.8% y/y to 56,205 units, which marked a 4.7% m/m decline. In Jan-Jul, the total rose 9.7% y/y to 368,253 units. LCV registrations rose 12.0% y/y to 6,241 units in July in a total that marked a 16.4% m/m decrease. In Jan-Jul, LCV registrations rose 14.0% y/y to 44,062 units.

Overall, vehicle registrations continue to grow strongly. Since the new car market mostly reflects institutional and corporate strength, this points to a business class that is buying relatively strongly. Chinese makes also continue to do well, as do EVs. The fate of the market, to some degree, will depend on the corporate outlook, which should be relatively strong considering the influx of EU funds and solid economic fundamentals, though the situation in the Middle East continues to provide risks.

Sympathisers donate TRY 283.3mn to New Party in 7 days (Sozcu)

Disappointing news for those expecting fuel price reductions (Sozcu)

High interest rates have put brakes on automotive sector; the contraction may deepen (Sozcu)

Natural gas bills will double in November (Sozcu)

Cost of terrorism to Turkey: USD 2tn! Peace and tranquility will accelerate economic development (Sabah)

CHP leader Kemal Kilicdaroglu launches scathing attacks on New Party and its leader Ozgur Ozel: One cannot stand alongside corrupt individuals and thieves (Sabah)

State house developer TOKI will sell housing and workplaces in 51 provinces with 120-month payment plan (Sabah)

Trade minister Omer Bolat visits Spain to promote bilateral economic and trade relations (Sabah)

New Party provincial chair in Manisa Ilksen Ozalper has been detained (Hurriyet)

President Erdogan's Turkey Without Terrorism post: It will strengthen our national unity (Hurriyet)

AK Party spokesperson Omer Celik: We have reached the most important stage of two-year peace process (Hurriyet)

BCRA gross reserves exceed USD 50bn, the highest level since 2019 (La Nación)

Private property bill: ruling coalition drops chapter on land sales to foreigners (Infobae)

BCRA renews USD 19bn currency swap with China for five years (Clarin)

Caputo defends economic model and criticizes "idiots who talk about industry": "We used to pay 10 times more for everything" (Clarin)

Mercado Libre grows but warns that consumption in Argentina "faces a challenging environment" (Clarin)

Bausili defends bill to amend the BCRA charter in the lower house (Clarin)

Vaca Muerta: at least 15 oil companies interested in new areas Neuquén is tendering through provincial state-owned company GyP (EconoJournal)

• Chapter would have removed most limits on rural land purchases by private foreign buyers
• Negative social reaction led to usual allies rebelling, so govt lacked Senate votes for approval
• Govt is getting more pragmatic about resolving conflict that could hurt activity or presidential approval

Ruling-party Senate leader Patricia Bullrich confirmed the removal of a proposal to reform rural land ownership restrictions from a government bill to strengthen private property rights, after the proposal received widespread criticism on social media and allied senators made clear they would reject it. The government formally described the decision as a postponement intended to build greater consensus, but the chapter is unlikely to return during the current legislative process if the remaining bill passes the Senate and moves to the lower house.

The withdrawn proposal would have eliminated the general restrictions on rural land purchases by foreign individuals and private companies. The current law caps foreign ownership at 15% of the land in each province and municipality, among other limits. The government initially sought to eliminate the cap entirely and later offered a 25% provincial limit, but the concession failed to recover support from allied governors and senators. More importantly, a negative campaign claiming that the reform would lead to rich foreigners buying all the land in tourist destinations and turning them into private businesses somehow spread widely on social media.

The remaining bill introduces stricter requirements and broader compensation for expropriations, accelerates eviction proceedings, reduces some restrictions on properties affected by fires, and promotes the digitalization of property registries.

Overall, together with the suspension of a pilotage deregulation decree earlier this week in order to end a port activity strike, the government is showing pragmatism about its deregulation agenda when it threatens trouble for economic activity or social support in the short term. With presidential approval going through lows for Milei and the 2027 general election getting closer, it is important for the government to be more pragmatic than idealistic in policy decisions or contentious issues.

• Extension maintains RMB 35 active tranche for BCRA to draw if it needs liquidity

The BCRA announced Wed. that it renewed its RMB 130bn (USD 19.2bn) bilateral currency swap with the People's Bank of China for five years, according to a press release. BCRA President Santiago Bausili had already signaled that an extension was likely coming ahead of the swap's expiration later in August. The extension was signed for five years this time, whereas prior extensions of the agreement originally signed in 2009 were for three years.

The BCRA said the extension will maintain an active tranche of the swap of RMB 35bn (USD 5.2bn), to support financial stability in Argentina and commerce between the two countries. This active tranche can be drawn by the BCRA if it has liquidity needs, and only carries a cost for the drawn part. The BCRA did not disclose if it currently holds a share of this active tranche in cash, but we would assume that it doesn't.

Overall, the currency swap has been mostly there to inflate the BCRA's gross FX reserves over the last decade and a half. Activating a tranche requires a negotiation with the PBoC, and before the agreement to activate RMB 35bn in 2023 there was a single withdrawal for the equivalent of USD 3.1bn back in 2015, which was quickly repaid. Assuming there is currently no cash in use from the active tranche, the RMB 35bn should be counted as one of the sources of FX liquidity the BCRA can count on in a pinch, which could be relevant if Argentina sees a return of FX market pressure around the general election of 2027.

• Maritime pilots resume operations after stoppage that stranded more than 140 vessels
• Government suspends decree that opened sector to competition, pilots agree to 20% fee cut

The government reached an agreement with maritime pilots to restore navigation services, ending a stoppage that had paralyzed the country's main ports for a couple of days and stranded more than 140 vessels. The protest was triggered by a government deregulation decree that opened pilotage services to greater competition and introduced maximum tariffs, among other changes intended to reduce logistics costs. However, to end the strike the government agreed to suspend the decree, while pilots agreed to reduce pilotage fees by 20%. According to the government, monopolistic behavior enabled local pilotage fees that are four times higher than the standard in other countries.

Overall, the rapid resolution means the macroeconomic impact should be marginal, with most exports only delayed and the risk to domestic fuel supplies receding. However, the government failed to implement the broader opening of the sector, which was a rare concession from the Milei administration in giving up one of its deregulation decrees. This sets an interesting precedent that shows the government being more flexible on its policies if necessary to avoid conflicts that could hurt activity or add pressure on inflation.

BCB cuts Selic rate to 14% and leaves the door open for the next meeting (CNN Brasil)

Genial/Quaest: Lula leads in first and second rounds, but Flávio is gaining ground (Metrópoles)

Alfredo Gaspar will be the vice-presidential candidate on Flávio Bolsonaro's ticket (JOTA)

Flávio's running mate is under investigation for suspicion of raping a vulnerable person and embezzling BRL 6mn in parliamentary amendments (Folha de São Paulo)

How the Liberal Party's 'Alagoas solution' for [former Speaker] Lira pushed Gaspar into the role of Flávio's running mate (UOL)

Lula calls the US decision to revoke the Brazilian ambassador's visa 'irresponsible' (G1)

After a period of distance, Lula and [Senate leader] Alcolumbre meet at a meeting arranged by Supreme Court justices (O Globo)

Treasury plans to issue its first Panda Bonds as early as this year (Poder360)

• Copom says scenario is marked by elevated uncertainties, de-anchored inflation expectations, and high risks surrounding baseline scenario, warranting caution
• Copom says it will continue to monitor the environment to ensure the Selic is at a restrictive level sufficient to bring inflation back to target
• Copom says economic activity growth is moderating, but labor market remains robust
• Copom keeps the inflation risk balance tilted to the upside

The BCB's Monetary Policy Committee unanimously decided Wed. to cut the Selic rate by 25bps to 14.00%, marking the fourth consecutive cut of the same magnitude and bringing the scale of easing since March to 100bps, according to its post-meeting statement. The Copom said the scenario is marked by elevated uncertainties, de-anchored inflation expectations, and high risks surrounding the baseline scenario, thus warranting caution. The Copom added that it will continue to monitor the evolution of the environment to ensure the Selic remains restrictive enough to bring inflation back to the 3.00% target, leaving its options open for future decisions. The committee reinforced that the scale of the ongoing "calibration" cycle will depend on incoming data amid elevated uncertainties.

Data Download

The Copom said the external environment remains highly uncertain due to the Middle East conflict and the monetary policy of some advanced economies, requiring caution from emerging markets.

On the domestic front, the Copom said recent data indicated that growth is gradually moderating, but economic activity remains resilient alongside a robust labor market. The committee noted the recent easing in headline inflation but stressed that it remains above the 4.50% upper limit of the +/- 1.50-pp fluctuation band around the target. Core inflation measures, in turn, have recently slipped slightly below that threshold, it added. The Copom trimmed its inflation forecast for 2026 to 5.1% from 5.2% at the previous meeting, while edging it up for 2027 to 3.8% from 3.7%. For Q1 2028, the relevant policy horizon, the committee forecasts inflation to ease to 3.2%.

The Copom kept its inflation risk balance unchanged from the June policy meeting, maintaining it tilted to the upside due to demand-supporting measures. Upside risks include persistently de-anchored inflation expectations over longer horizons considering potential second-round effects from the energy shock and impact from climate events on agricultural productivity and energy costs; resilient services inflation due to a positive output gap; pressure from both external and domestic sources, such as sustained FX depreciation; and demand-supporting measures, mainly through consumption, which push the output gap up and weaken the traditional transmission channels of monetary policy. Downside risks include a sharper-than-expected domestic slowdown and its disinflationary effects; a more pronounced global deceleration due to trade and oil shocks; a more uncertain global environment; and declining commodity prices.

The committee added that it will continue to monitor the government's fiscal policy and its impact on monetary policy, reinforcing its cautious stance. It also said it will continue to monitor de-anchored inflation expectations over longer horizons, as they increase the costs of disinflation.

Overall, the Copom continued its calibration cycle with its fourth consecutive 25-bp Selic cut but left its options open for future decisions amid elevated uncertainties, as expected. The committee adjusted its statement to reduce noise after the previous statement raised questions about the relevant horizon for monetary policy. In addition, the Copom delivered a clearer message that the monetary stance will remain restrictive even after the recent cuts, which may indicate a preference to hold a more conservative approach. As stated by the committee, future decisions will depend on incoming data, especially economic activity and inflation. In our view, the Copom's next decision could either be another 25-bp cut if incoming data continue to point to slower growth and easing inflation, or a pause to reassess the outlook if inflationary pressures resume.

• Flávio chooses a running mate from within his party amid challenges in securing support from Centrão parties
• Gaspar has a public security background, which is a key issue in the election

Senator and presidential candidate Flávio Bolsonaro announced Wed. that Congressman Alfredo Gaspar will be his running mate for the October presidential elections, according to remarks made during an event. Gaspar is a federal lawmaker from the state of Alagoas representing Flávio's Liberal Party (PL), thus consolidating an all-PL ("pure-blood") ticket. Gaspar is a former prosecutor and has served as state attorney general and secretary of public security, thus bringing experience in public security, which is a key issue in this year's election. He also gained prominence as rapporteur of the Parliamentary Inquiry Committee (CPMI) investigating the social security (INSS) fraud scheme. The fact that he is from a state in Brazil's northeast region likely also played an important role in his selection as the region is President Lula da Silva's biggest supporter. The choice dashed hopes that a woman would be selected as vice president in an effort to garner support from that segment of the population, which tipped the scales in Lula's favor in the 2022 election.

Overall, Flávio chose his running mate on the last day allowed by the Electoral Court and selected a name from within his own party, highlighting the difficulties he faced in securing support from Centrão parties, which have largely decided to remain neutral in the presidential race. Senator and former Agriculture Minister Tereza Cristina, for instance, declined the invitation to become his running mate because her party intends to remain on the fence. This neutrality reflects Lula's lead in the opinion polls as Centrão parties prefer not to officially back a candidate and risk losing influence on the next administration.

The choice of a PL member also reinforces the fragmentation of the right in the first round as Novo's Romeu Zema and PSD's Ronaldo Caiado also selected running mates from within their own parties. These decisions also affect television campaign time as parties with larger political alliances receive more airtime, and Lula was the only major candidate to secure the support of another party (VP Alckmin's PSB). However, although television remains important in Brazil, social media has become an increasingly important campaign tool, and the right appears to have a stronger presence on such platforms. Moreover, while the fragmentation of the right is negative for Flávio in the first round, it could benefit him in a runoff as voters who support other right-wing candidates may ultimately shift their support to him, although current polling does not yet point in that direction.

• PMI falls below 50-pt neutral mark for the first time since Oct 2025
• S&P attributes decline to project postponements, inflationary pressures, and cooling demand, alongside challenges in the industrial sector

The S&P Global Brazil Services PMI Business Activity Index fell 1.6pts m/m to 49.7pts in July from 51.3pts in June, according to data released Wed. by S&P Global. The decline extends to eight months the period of mixed signals, but takes the index below the 50-pt neutral mark for the first time since October 2025. S&P attributed the decline to project postponements, inflationary pressure, and weaker demand, as well as challenges in the industrial sector and household financial difficulties. New orders also fell in July at their fastest pace in ten months, prompting the second consecutive decline in employment. Business expectations improved in July, as companies expect demand to recover after the October elections and as inflation slows.

Data Download

Input and selling prices in July grew at their slowest pace in four months, but remained above historical levels. Companies reported higher prices for energy, labor, materials, transport, agricultural products, computer parts, dairy products, electronic components, meat, and packaging.

Overall, the Services PMI for July suggests a slowing services sector at the beginning of Q3 2026, likely reflecting the lagged effects of the Copom's monetary tightening and reduced fiscal support as the elections approach. Although it may be too soon to conclude that this trend is persistent, uncertainties surrounding the elections, US tariffs, and the Middle East conflict are likely to continue weighing on the sector. As the services sector remains a key concern for the Copom, this data is likely to support the committee's decision to cut the Selic by 25bps to 14.00% at its meeting Wed.

• Lula's lead narrows from 8pps in July as he loses ground among independent voters
• Lula still leads in the first round and all other runoff scenarios
• Some 52% say STF Justice Moraes was wrong to prohibit Flávio from visiting Jair Bolsonaro, and 46% say Flávio and Michelle's reconciliation should support his bid
• Some 43% also say Lula responded poorly to the US tariffs, but he is still seen as the best defender of Brazil's interests

President Lula da Silva's runoff lead over Flávio Bolsonaro fell to 5pps (44% vs. 39%) from 8pps the month before, according to a Jul 31-Aug 3 poll published Wed. by Quaest. Lula fell 1pp from 45% in July whereas Flávio gained 2pps from 37%. The share of those who did not know or did not answer fell to 17% from 18%. Within political affiliations, Lula lost significant support among independent voters as his voting intention there fell to 33% from 40% the month before. Flávio's standing among the same group rose to 30% from 27%. Lula's voting intentions among left-wing voters remained broadly steady, while Flávio's support among right-wing voters resumed its upward trend after falling the month before. Lula still leads against all other candidates in runoff scenarios. This lead follows a steady approval rating of 48%, which exceeds his 47% disapproval rating, unchanged from June.

Data Download

In the first round, Lula also remains the frontrunner but with a 9-pp lead over Flávio (39% vs. 30%), though that was down from 12pps the month before. This is the first time this margin has narrowed since May, when Flávio's relationship with Banco Master's former owner Daniel Vorcaro became public. Other candidates remain below the 5% threshold, while undecided voters and those who said they will not vote slipped to 18% from 19%. Some 69% of respondents said their vote was decided, up from 65% in June, while 31% said they could still change it, down from 35%.

Flávio's rejection rate fell to 54% from 57% the month before, while Lula's rose to 52% from 50%. Some 44% of respondents said they were more concerned about the return of the Bolsonaros (down from 46%), compared with 41% who were more concerned about Lula's reelection (up from 38%). Regarding economic perceptions, 43% said the economy had worsened over the past year, unchanged from June, while 19% said it had improved and 35% said it had remained unchanged. Looking ahead, 46% expect the economy to improve (a significant jump from 39% in June), 24% expect it to worsen, and 25% expect it to remain unchanged. Violence remained voters' main concern, followed by social issues and corruption. The economy fell to fifth place, behind health.

Some 53% said they were aware that Federal Supreme Court (STF) Justice Alexandre de Moraes had prohibited Flávio Bolsonaro from visiting his father, Jair Bolsonaro, and 52% said the decision was wrong. This view was shared by a majority of independent voters. Regarding Flávio's feud with his stepmother Michelle Bolsonaro, although the previous poll showed that roughly half of respondents were aware of the case, only 41% said knew they had reconciled. Some 59% said the reconciliation was positive, and 46% believed it should improve Flávio's electoral prospects.

On US tariffs, 43% said Lula responded poorly, up from 36% in May, while 38% said he reacted well, down from 39%. Some 15% said they did not know and 4% said his reaction was neither good nor bad. This is interesting and could indicate that the population is becoming less receptive to Lula's sovereignty narrative. Alternatively, it could suggest that he has adopted an overly confrontational stance and that US Secretary Marco Rubio's statement blaming Lula for the tariffs resonated more broadly than we had expected. Still, 46% said Lula best defends Brazil's interests today (down from 51% in July), compared with 38% for Flávio (albeit up from 34%).

Overall, as the October elections draw closer, the race is beginning to show more meaningful changes as voter attention increases. Although Lula continues to hold a relatively comfortable lead over Flávio in a runoff, this is the first Quaest poll since May in which his advantage has narrowed, likely reflecting the fading impact of the Banco Master case and more recent developments that have hurt Lula's campaign, such as STF Justice Moraes's decision to bar Flávio from visiting his father. It is also worth noting Lula's loss of support among independent voters, who will be important in October. In our view, the poll reinforces expectations of a competitive presidential race that is likely to be decided in a runoff. As the ongoing Federal Police investigations into the Banco Master case and the alleged influence-peddling case involving Lula's son develop, the electoral landscape could still change significantly. Official campaigning begins on Aug 16, and we expect a somewhat aggressive race, with both Lula and Flávio likely to use each other's controversies to drive up rejection rates, which will be a key factor in this year's highly polarized election.

Trump says Mexico hurts the US, Canada is repulsive (Reforma)

Trump says Mexico and other countries have been hurting the US with tariffs for years (LatinUS)

Mexico wins international arbitration, avoids paying USD 219mn to US funds (El Financiero)

PEMEX advances only 4 of 9 mixed contracts; the strategy to boost production has failed to add barrels (Expansión)

MORENA, PAN and PRI question the electoral institute's MXN 36bn budget for 2027 (La Razón)

Alito Moreno asks the opposition to set their egos aside to instead run united in 2027 (Político MX)

Ken Salazar asks to leave the case of alias El Mayo Zambada behind us (Animal Político)

DEA launches warning vs Mexican narco-politicians, says 'nothing will defend them' (Político MX)

US temporarily suspends Michoacan avocado exports because of a security alert (La Jornada)

• 0.33pps revision over the last four fortnights shows an improving inflationary outlook

CPI inflation will close the year at 4.02%, according to the latest consensus forecast reached by experts polled by Citi, as published on Wednesday. This adds to a downward revision of 0.33pps over the last four fortnights, in a remarkable correction that aligns with the better-than-expected performance by CPI inflation in recent months. On this, we note the stats-office INEGI will publish its July CPI inflation print on Friday.

The polled experts upheld their 2027-end CPI inflation forecast at 3.80%.

Overall, CPI inflation expectations are improving in line with a positive showing in recent months. Still, we highlight that all expectations remain well above the CB's 3.00% target. We note the CB may feel complacent with inflation declining below 4.00%, as inflation enters its tolerance band. This might be particularly evident with the more dovish board members, who might praise the disinflation process that has come despite questioned monetary easing. Still, we would be very surprised if even one board member suggests there are conditions for further monetary easing in the mid-term; thus, we remain confident the CB will hold its policy rate at 6.50% on Thursday and throughout the rest of the year.

Click here for our comprehensive database of macro forecasts.

• m/m contraction does not nearly erase Mar-Apr gains
• GFI grows 1.2% y/y in May, slowing swiftly m/m
• Residential construction posts sharp swing, suggesting April hike was a fluke

Gross Fixed Investment (GFI) fell by 0.41% in May, per seasonally adjusted data published by the stats office INEGI on Wednesday. This contraction came fully on the back of the construction component. The decline is not too worrying, in our view, considering it shows a relative correction after GFI rose swiftly in March and, more significantly, in April.

Data Download

Non-adjusted data show GFI up by 1.2% y/y in May. This shows a rapid deceleration m/m, only part of which is explained by a calendar effect. The non-adjusted hike came on the back of the construction component; however, the negative residential construction swing is particularly notable, suggesting the April improvement was a fluke.

Overall, investment is set to remain depressed through 2026, in our view, hurt by weak growth expectations, lingering uncertainty and a poor business climate. Still, available Q2 data suggest there was a significant recovery from a weak base, suggesting investment may have had a stronger positive impact on growth than we had anticipated. Still, we do not expect investment to become a significant contributor in H2, insisting general conditions remain adverse after the failure to come to a successful revision of the US-Mexico-Canada Agreement (USMCA) with the US, and giving the negative impact on business confidence of local policies, including the judicial reform.

Question:

Under what conditions could the CB ease policy in 2027, even if service inflation does not reach 3%? What will be their key reasoning, and what could they be pointing at to justify it?

The question was asked in relation to the following story: CB to hold policy rate at 6.50% on Thursday, anticipate no adjustment soon

Answer:

The more dovish members of the CB's board made all sorts of arguments to justify monetary easing in late 2025 and early 2026 even as CPI inflation stood on no path to converge to their 3.00% target, disregarding the pressures seen on core inflation and loosely anchored mid-term market expectations. We will not be surprised if the CB takes a similar position in 2027, trimming its policy rate even while service prices maintain upward pressure and as mid-term market expectations remain solidly above the CB's punctual target.

Given the arguments given recently, some of the excuses we would expect from the dovish board members are 1) The currency's strength, which might continue into 2027. Although we note there is little evidence suggesting the currency's strength is having a significant role in pressuring goods' prices down. 2) The economy's weak growth and modest mid-term outlook. Although the economy is expected to gain momentum in coming years, it will not surprise us if growth expectations remain below potential, given a weak business climate. Indeed, the output gap should remain among the factors favoring disinflation ahead. 3) The claim that inflationary pressures show a correction in relative prices. One of the most repeated arguments by the more dovish board members in recent months, trying to minimize lingering service inflation, is likely to come up again. On this, we note the dovish board members might have a point, considering service inflation since the pandemic does show a correction in relative prices, even if this is unlikely to be the whole story.

We'd expect any 2027 monetary easing to come with inflation below 4.0%; thus, we expect the board to cite the fact that inflation has converged to its tolerance band. On this, we note only Deputy Governor Jonathan Heath has stressed the CB's target is punctual, insisting the bank cannot be complacent with meeting this tolerance band. This already unpopular position is likely to lose relevance in monetary sittings with Heath's departure at the turn of the year.

There might be other less orthodox arguments in favor of monetary easing, particularly from the most dovish board members. We believe one of the best windows into such unorthodox pretexts came in an interview with Deputy Governor Omar Mejía, where he questioned the own CB's view that the policy rate was already in neutral territory and cherry-picking inflationary data to justify a new rate cut.

To be clear, we assume the dovish board would like to cut its policy rate in 2027; however, we believe it won't do so at any cost and might have to hold or even raise its policy rate if CPI inflation accelerates significantly, if mid-term expectations converge well outside of the CB's tolerance band or if the Federal Reserve engages in sharper-than-expected monetary tightening.

• Consumption grows 1.5% y/y in May, losing momentum m/m on an adverse calendar effect
• Private consumption favored by healthy acquisition of domestic non-durable goods and durable imported goods

Private consumption grew by 0.10% m/m in May, per seasonally adjusted data published by the stats office INEGI on Wednesday. This is the third consecutive m/m sa improvement, showing a welcome correction after a lousy start to the year. With this, private consumption grew by 1.5% y/y in May, slowing m/m on the back of an adverse calendar effect. Indeed, private consumption growth accelerated by 0.2pps m/m when looking at working days adjusted data.

Data Download

Per non-adjusted data, private consumption grew on the back of the healthy performance of the non-durable domestic goods and durable imported goods components. This shows an interesting divergence that hadn't appeared in previous months, considering the consumption of non-durable imported goods had performed robustly so far in 2026. Indeed, the 2.8% y/y contraction in the consumption of non-durable imported goods in May might prove to be a fluke that ended a five-month two-digit growth trend.

Overall, private consumption posted mixed results in May. On the bright side, seasonally adjusted and working-days-adjusted data show relative recovery that builds up on the improvements seen in March and April. On the other hand, it's notable to see the consumption of domestic durable and semi-durable goods maintain a disappointing trend, suggesting the currency's strength is weighing on competitiveness of these components, suggesting a large part of the domestic market's impulse might be translating into stronger consumer imports, something that matches the pace of non-oil consumer imports recorded by the stats office through H1.

• Next MPC meeting: August 6
• Current policy rate: 6.50%
• EmergingMarketWatch forecast: Hold

We are confident that the CB will not alter its Monetary Policy Rate (MPR) on Thursday, holding it at 6.50%. This is consistent with the comments made in the latest sitting, when the board unanimously held the rate and it's in line with the latest minutes, which failed to show when the next move will come but was clear to suggest no rate moves are likely during the rest of the year. Indeed, we are confident the decision to hold will be unanimous.

Data Download

Further, we are confident the CB will not anticipate any MPR adjustments in the foreseeable horizon, saying the current position of the rate is consistent with current inflationary pressures and macroeconomic conditions. We expect the minutes to give more clues on the Monetary Policy Council's (MPC) reasoning, including their position on the possibility of monetary tightening by the Federal Reserve. However, we are rather confident this analysis will not be present on the Thursday communiqué.

We believe the main issue to watch is whether the CB will be lifting its 2027 inflation forecasts in this sitting, given lingering service pressure and recent comments by Deputy Governor José Gabriel Cuadra. Such correction would be a little off with the fact CPI inflation has been slowing in recent months, on the back of non-core inflation mostly, and the fact that the year-end projection came down quickly in the consensus poll published by the CB earlier this week, to 4.00%. In any case, we won't be surprised if the CB waits until its September sitting to adjust its 2027 forecasts, recognizing inflation will not slow to meet the punctual target by Q2 2027 (read our reasoning here).

We expect the debate on service prices to be crucial in the coming sittings, although the sitting communiqué is unlikely to show so, with the minutes being a better way to understand the policymakers' view of these sticky prices. We insist service inflation might be showing the upward pressure brought by growing real wages, which persist despite poor economic growth and unseen productivity gains. Indeed, new two-digit increases to the minimum wage over the next few years will add to this pressure.

Some board members have claimed the resilience of services prices might be also reflecting a change in relative prices that shouldn't worry the CB too much. Particularly Deputy Governor Omar Mejía, the most dovish board member, in our view. However, while a relative price adjustment cannot be disregarded, the pressure is enough and broad enough to prevent a deceleration of core inflation to 3.00% in the foreseeable horizon, suggesting the CB will need to pay attention to service prices if it plans to have general inflation ever converge to its punctual target.

All in all, we continue to believe the chances of a Monetary Policy Rate (MPR) cut by year-end are very low, despite the dovish stance of most of the board and the positive performance by non-core inflation seen recently. Indeed, we believe easing in 2027 cannot be disregarded, even as the market consensus continues to anticipate stability throughout this and the next year. In the latest minute, only one board member said the CB should hold its MPR steady over the next nine months. We fully assume this was the position of Deputy Governor Jonathan Heath, the lone hawk on the MPC, whose term is set to expire at the end of the year.

On this, we insist the CB's credibility will depend much on who President Claudia Sheinbaum appoints to join the board next year, taking the seat of Deputy Governor Heath. We continue to assume the president will select a candidate with the right credentials, probably someone respected from within the CB. We'd like to see her replace the outside role played by Heath by picking someone respected and linked to the private sector, although we do not expect this. In any case, selecting a new loyalist, as we see Governor Victoria Rodríguez and Deputy Governor Mejía, would significantly weaken the CB's credibility, in our view.

Overall, we expect the board will hold the policy rate at 6.50% throughout the rest of the year, hoping for core inflation to slow while it does so. We assume the dovish majority would like to clip the policy rate further in 2027; however, it remains to be seen if they'll do so even if CPI inflation, as expected, shows no clear convergence towards the CB's 3.00% target. Indeed, late 2026 comments and the pace of CPI inflation to close the year might increase the chances of easing next year. Currently, the market expects monetary policy stability through the rest of 2026 and through 2027, something that might not be recognizing how dovish the board is.

• Proposed project to be developed under PPP model

The government mulls developing a fully integrated USD 1bn solar-panel manufacturing plant in Zafarana, according to the local press. The complex is expected to cover the entire value chain and replace the import of renewable energy components with locally manufactured ones. The proposed project would be developed under a public-private partnership (PPP). No investor or timeline has been disclosed.

We note that there is a similar project that is currently under construction in New Alamein. Egypt hopes that local production will address the drain on FX reserves and the reliance on imported supply lines, as some 70% of solar project costs are tied to imported panels and cells.

• Govt and consortium work toward final technical, financial, and regulatory terms

An unnamed global consortium plans to build two integrated medical cities in the New Capital (USD 2.8bn) and New Alamein (USD 2.5bn), according to a cabinet statement. The proposed cities would include specialized hospitals equipped with advanced medical systems, as well as administrative, educational, and training facilities. They would provide preventive and therapeutic services while supporting medical education, research, and professional training. Under the proposed agreement, the state would receive a substantial share of the hospitals' beds for patients covered by Egypt's Universal Health Insurance System, health minister Abdel-Ghaffar said, adding the two projects are 100% foreign direct investment. Abdel-Ghaffar added that the projects would be based on successful international medical city models and would help establish Egypt as a regional centre for specialized healthcare and medical tourism.

PM Madbouly said that a joint working group - comprising representatives of the consortium and the relevant Egyptian authorities - will be formed to complete technical, financial, and legal negotiations and reach a final agreement before implementation begins.

Egypt, Saudi Arabia, Turkey and Pakistan urge return to US-Iran accord at R4 meeting (Ahram)

Egypt net int'l reserves reach new record USD 56.3bn in July 2026: CBE (Ahram)

Egypt reviews USD 5.3bn FDI proposal for New Capital, New Alamein medical cities (Ahram)

Egypt drops multi-year operating requirement for industrial land transfers (Ahram)

10% global energy price rise could add USD 6bn to Egypt's annual fuel import bill: CI Capital (Zawya)

Damietta Port Handles 24 Ships as Cargo, Container Traffic Remains Strong (Sada Elbalad)

CBE forms inter-ministerial working group to develop Sustainable Finance Taxonomy (Daily News Egypt)

Egypt targets full local vehicle body manufacturing (Daily News Egypt)

• Government aims to lower public debt to 71-73% by mid-2029
• Egypt's debt management focuses on extending ATM, diversifying debt portfolio and investor base, utilizing asset-liability management
• Domestic budget sector debt amounted to 64.3% of GDP, external debt/GDP was 19.6%

Egypt's budget sector debt rose by a strong 8.8% q/q to EGP 17.85tn (USD 358bn or 83.9% of GDP) as of end-Mar, according to a new report by the finance ministry. The q/q increase was due to the rising stock of both domestic and external debt components, but the debt/GDP ratio actually declined from 86.8% three months earlier. We note that Egypt wants to lower debt to more sustainable levels and targets a 71-73% ratio by mid-2029. Egypt's debt management strategy focuses on extending the Average Time to Maturity (ATM) of debt, diversifying the budget sector debt portfolio through accessing new markets and the issuance of debt instruments in different currencies, while also utilizing Asset-Liability Management strategies and tools. Egypt also wants to reduce international issuances in favour of concessional and semi-concessional financing sources. The ministry of finance said Egypt remained committed to maintaining prudent fiscal policies, reinforcing macroeconomic resilience, and ensuring sustainable access to domestic and international financing markets.

Domestic budget sector debt - focus on extending ATM

Domestic budget sector debt rose by 7.1% q/q to EGP 13.68tn, accounting for three quarters of total debt and constituting 64.3% of GDP. As noted, the finance ministry has focused on extending ATM of new domestic debt and it has achieved some success. The ATM of new domestic issuances reached 1.1 years in Q2 2026 - the highest in 3 years - coming from 0.86 years in Q4 2025 and 1.04 years in the first quarter of 2026. The ministry started to shift the concentration of issuance from 3M T-bills to 9M and 12M bills. Further, the share of bond issuances in total domestic issuances increased by 4pps to 15% as of end-March. The ministry estimates that shifting to longer-term T-bills and bonds lowered gross financing needs by 1.65% of GDP in the quarter. The ministry said earlier this week that it has managed to lower gross financing needs by 5% of GDP for the whole of 2025/26 and projected gross financing needs at 51% of GDP in 2026/27.

Despite the concentration on T-bills investment by some sectors, the ministry of finance was able to diversify its investor base by:

• Issuing new debt instruments such as retail bond and Islamic Sukuk
• Issuing a 10-year floating bond along with the reissuance of 5-year Treasury bonds
• Enhancing the direct investment of retail in T-securities
• Increasing the activity of Fixed income and Money Market Funds.

This focus on diversifying its investor base has helped the government reduce borrowing costs and rollover risk, the ministry concluded.

External public debt

External budget sector debt inched up 0.2% q/q to USD 76.6bn, accounting for 19.6% of GDP. Multilateral creditors accounted for around 52% of total external budget sector debt, bilateral loans accounted for 13%, and international bond issuances represented 35% of the total. Egypt has managed to raise USD 4bn in debt issuances during 2025/26 and successfully met the budget targets despite geopolitical shocks. USD Eurobond yields rose by an average of 156bps along the yield curve between December 2025 and March 2026 due to regional insecurity and global uncertainty.

• Rescued hostages included 163 from Kwara State, 145 from Niger State
• Joint operation involved National Counter-Terrorism Centre, military, DSS, police

On Wednesday (Aug 5), the Nigerian government announced that security forces recently rescued 308 kidnapping victims in what is described as the country's largest single-day hostage rescue operation. Presidential spokesperson Bayo Onanuga said the victims included 163 people abducted during a February attack on Woro village in Kwara State and 145 others kidnapped in separate attacks in Niger State. The hostages were freed from a camp in the Kainji Lake National Park forest during a joint operation involving the National Counter-Terrorism Centre, the military, the Department of State Services and the police.

While welcoming the operation, president Tinubu called on security agencies to reinforce early warning mechanisms and improve community-based intelligence gathering to respond quickly to these incidents. Kidnapping for ransom by armed criminal gangs and bandits remains a major security challenge across northern and central Nigeria, where large areas of lightly governed forests have become safe havens for militant groups. According to a 2025 report by SBM Intelligence, Nigeria's kidnap-for-ransom industry has evolved into a structured profit-driven enterprise that generated an estimated USD 1.66mn between July 2024 and June 2025.

• Anti-graft agency says investigation into Osun accounts began in March 2026
• Governor alleges account freeze is politically motivated, linked to upcoming election

The Economic and Financial Crimes Commission (EFCC) froze an Osun State government bank account this week, which has led to uproar and legal threats from state officials. The EFCC said it froze the state's statutory allocation account after uncovering suspicious transfers during an investigation into the alleged diversion of NGN 11bn in ecology funds, intervention funds and Federal Account Allocation Committee (FAAC) allocations. The commission said the probe has been underway since March 2026 and already involved interviews with senior officials including the accountant-general. Citing the EFCC Act and Money Laundering Act, the EFCC instructed First Bank to prevent withdrawals from the account pending the conclusion of the investigation.

On Wednesday (Aug 5), the EFCC issued a statement strongly rejecting claims that the freeze is intended to influence the state's upcoming governorship election on Aug 15. Ogun State governor Ademola Adeleke in particular alleges that the EFCC action is an attempt to disrupt his administration. He further argues that the agency has no legal authority to direct First Bank to place a post-no-debit restriction on a state's accounts. Adeleke has directed the state's attorney-general to challenge the EFCC's actions.

Tinubu's troop pay hike divides opposition (Punch)

NBA faults EFCC as Osun account freeze sparks row (Punch)

Army places bounty on wanted ISWAP leaders (Punch)

FG targets mid-August for outstanding wage award payments (Punch)

NPC launches nationwide digital birth, death registration (Punch)

Adeleke Heads to Court as EFCC Freezes Osun Salary Account (ThisDay)

Tinubu Welcomes Rescue of 308 Abducted Citizens in Kwara, Niger States (ThisDay)

Healthcare Providers' Association Of Nigeria Rejects Proposed NHFRA Bill (ThisDay)

Mimiko Seeks Devolution Of Power, Insists Centralised Governance Fuelling Problems (ThisDay)

EFCC breaks silence on freezing Osun State Government Account (Nairametrics)

Court dismisses N100 million privacy breach suit against FCMB (Nairametrics)

• JSE is seeking secondary listing after planned Nigerian Exchange IPO
• Dual listing would provide access to South Africa's deeper capital markets

The Johannesburg Stock Exchange (JSE) is actively pursuing a secondary listing for the Dangote Refinery once the company completes its planned initial public offering (IPO) on the Nigerian Exchange later this year (expected around October). JSE chief executive officer Valdene Reddy confirmed on Wednesday (Aug 4) that the refinery is included in a pipeline of potential listings in the second half of the year, spanning mining, fintech, property and construction. The planned IPO is valued at USD 5bn according to insiders and is expected to be the largest ever in Africa. Funds will support expansion of the refinery's facilities in Nigeria and the development of a similar refinery in Kenya. The IPO has reportedly also drawn interest from exchanges in Kenya, Egypt, Ghana and Rwanda. Experts say a dual listing would keep the primary listing in Nigeria while giving the company access to South Africa's deeper more liquid capital markets and a broader investor base.

• NCS reached 30% of its NGN 11tn annual revenue target in first 5 months
• NCS asked lawmakers to determine if net economic benefits are still delivered
• Import duty exemptions totalled NGN 34tn in 2025; 60% was for military hardware

The Nigeria Customs Service (NCS) reported that it generated NGN 3.35tn in revenue in the first five months of 2026, achieving 30.3% of its approved NGN 11.07tn revenue target for the year. This leaves NGN 7.72tn to be collected over the rest of the year. The annual revenue target was recently approved by the Senate in July after the NCS exceeded its 2025 target by 10.2% and collected NGN 7.28tn. Comptroller-general Wale Adeniyi reported these figures on Wednesday (Aug 5) during a retreat for the senate committee on customs in Abuja. He however cautioned that nominal revenue growth can be inflated by exchange-rate movements and said lawmakers should judge revenue performance by underlying systems and efficiency gains from ongoing modernisation rather than headline collections alone.

At the same retreat, Adeniyi called on the National Assembly to review Nigeria's import-waiver and concession regime to determine whether the incentives continue to justify their fiscal cost and meet their stated economic objectives. The appeal follows his earlier disclosure that Import Duty Exemption Certificates approved by the federal government reached NGN 34tn in 2025, significantly reducing the agency's revenue potential. Nearly 60% of this was granted for military hardware. The balance covers CNG, electric and hybrid vehicles, healthcare equipment, industrial machinery, manufacturing inputs and food-import programmes. He is now asking legislators to assess whether these concessions still deliver net economic benefits relative to the forgone customs revenue.

• Fourteen districts are affected
• Sivasagar accounted for the largest share of displaced residents
• More than 16,950 hectares of cropland remain submerged

Flooding across the state of Assam has affected more than 160,600 people in 14 districts, while the death toll has risen to 95, according to state officials. The affected districts include Biswanath, Charaideo, Darrang, Dhemaji, Golaghat, Jorhat, Kamrup Metropolitan, Karbi Anglong, Lakhimpur, Nagaon, Sivasagar, Sonitpur, Tinsukia and Udalguri.

Sivasagar has the largest affected population at about 57,000, followed by Golaghat with 34,000 and Jorhat with 25,000. The number of affected people has risen sharply from 122,000 across five districts earlier in the week, indicating a rapid deterioration in conditions.

More than 100 relief camps and distribution centres are operating across six districts and currently support 44,523 people. Around 16,951.76 hectares of cropland remain submerged, while floodwaters have damaged embankments, roads, bridges and other infrastructure.

According to the Union Health and Family Welfare Minister J P Nadda, the scale of destruction was extensive and that restoring normal conditions would take time. The central government has pledged assistance to affected communities.

In our view, the immediate priority will remain relief access, healthcare and restoration of transport links. The wider economic impact will depend on the duration of flooding, further rainfall and the extent of crop and infrastructure losses, with agriculture, local trade and rural incomes facing the greatest near-term disruption.

India Can Emerge As World's Affordable Caregiving Capital, Says NITI Aayog (www.ndtv.com)

Bangladesh government 'outraged' over Sheikh Hasina's press conference in India (The Hindu)

India safely moves 60 ships through Strait of Hormuz during Gulf crisis (newsonair.gov.in)

India-Sri Lanka focus on infrastructure projects; updating FTA to boost Comprehensive Partnership (economictimes.com)

Assam flood: Death toll climbs to 95 (Economic Times)

India's economic growth may moderate in H2FY27, accelerate to 7.2% in FY28: Report (Economic Times)

RBI proposes new rules to standardise how lenders set interest rates (Economic Times)

Govt moves to end ISI's 94-yr society status, defends Bill amid backlash (Business Standard)

Liquidity surplus likely to peak around September, impact marginal: RBI Guv (Financial Express)

Pulses from public stocks may be offloaded to cool prices (Financial Express)

• Proposed framework will harmonise lending-rate rules across regulated entities
• RBI says changes will improve transparency and consumer protection without materially altering loan EMIs

The Reserve Bank of India (RBI) plans to rationalise the regulatory framework governing interest-rate setting across banks, non-bank lenders and other regulated entities, moving towards a more principle-based approach. The proposal was among three developmental and regulatory measures announced alongside the latest monetary policy decision. The RBI said the objective is to harmonise rules across different categories of lenders while preserving proportionality and avoiding a one-size-fits-all framework.

Governor Sanjay Malhotra said the changes were primarily intended to standardise existing rules, improve transparency and strengthen consumer protection. Borrowers should gain greater clarity on how interest rates are determined and applied.

Detailed provisions will be set out in draft guidelines to be released for public consultation. According to the RBI, the review will address operational issues in the marginal cost of funds-based lending rate and external benchmark-linked lending rate frameworks. The central bank also plans to standardise divergent market practices related to interest charging. These include day-count conventions and the timing of benchmark resets, where differences across lenders can affect the interest payable by borrowers and make loan comparisons more difficult.

In our view, the proposal is more regulatory clean-up than a fundamental change in India's lending-rate architecture. Its significance will depend on how far the final rules reduce inconsistencies in benchmark resets, interest computation and borrower disclosures. Clearer standards could improve comparability across lenders and limit disputes, although the direct impact on borrowing costs is likely to remain modest unless the RBI introduces stricter requirements on pass-through and repricing.

• Next MPC meeting: October 5-7, 2026
• Current policy rate: 5.25%
• Last decision: Hold (August 5)
• Our forecast: 25bps hike
• Rationale: Rising food and fuel inflation owing to a multitude of external risks alongside sustained INR depreciation will prompt the RBI to hike rate in October.

The RBI's August decision confirmed that the easing cycle is over and that the policy debate has shifted from whether to cut rates to when tightening should begin. Although the MPC kept the repo rate unchanged and retained a neutral stance, it acknowledged that food, fuel and other input-cost pressures could broaden into more generalised inflation. With inflation projected to rise sharply in the second half of FY27, domestic growth remaining resilient and the rupee still exposed to oil and capital-flow pressures, we expect the MPC to raise the repo rate by 25 bps at its next meeting. The MPC kept the repo rate unchanged at 5.25% at its August 3-5 meeting. The standing deposit facility rate remained at 5%, while the marginal standing facility rate and bank rate were held at 5.5%. This was the fourth consecutive pause following cumulative rate cuts of 125 basis points between February and December 2025.

Data Download

Inflation environment

Retail inflation rose to 4.4% y/y in June from 3.9% in May, moving above the RBI's 4% target for the first time since January 2025. Although inflation remains within the 2-6% tolerance band, the breach of the midpoint is significant because it reduces the MPC's ability to look through repeated supply shocks. The RBI noted that generalised inflation pressures remain modest, but warned that higher food, fuel and other input costs could become more broad-based. Wholesale inflation rose to 9.9% y/y in June, while the Output Producer Price Index increased by 9.6%. These indicators suggest that firms are facing substantially stronger cost pressures than are currently visible in consumer prices.

Data Download

The latest PMI data reinforce this concern. Input-cost inflation eased across manufacturing and services in July, but firms continued to report higher transport, fuel, labour and material expenses. Selling-price inflation also strengthened in services, indicating that businesses are increasingly passing higher costs on to consumers.

Food inflation remains vulnerable to uneven rainfall. Although the cumulative monsoon deficit narrowed in July, rainfall distribution has remained irregular, with shortages in parts of east and northeast India. El Niño continues to pose a risk to the timing and geographical spread of rainfall, particularly for paddy, pulses and oilseeds. Fuel is the larger external risk. Global crude prices remain volatile amid geopolitical tensions, while higher energy costs are feeding into freight, logistics and production expenses. Government tax reductions and supply-side measures have limited the immediate pass-through, but these interventions carry a fiscal cost and cannot fully offset a prolonged oil-price shock. Further, according to the RBI's monetary policy statement, the quarterly inflation trajectory remains uncomfortable. The central bank expects inflation to average 5.3% in Q1, 4.7% in Q2, 5.9% in Q3 and 5.5% in Q4 FY27. In our view, this profile leaves limited room for another passive pause, particularly if oil and food prices remain elevated.

Growth

The economy remains sufficiently resilient to absorb a limited increase in rates. The RBI raised its FY27 GDP growth forecast to 6.7%, with quarterly expansion projected at 7% in Q1, 6.4% in Q2, 6.5% in Q3 and 6.8% in Q4. High-frequency indicators point to steady domestic demand. Private consumption remains robust, while investment is being supported by construction activity, capital-goods demand and bank credit. External demand has also held up, with strong services exports accompanied by a recovery in merchandise shipments.

Data Download

Momentum is nevertheless moderating. The manufacturing PMI fell to 53.5 in July from 54.2, its lowest level since August 2021. The services PMI declined more sharply to 53.3 from 57.4, marking the weakest expansion in 53 months. The composite PMI fell to 54.3, its lowest since March 2022.

The slowdown argues against aggressive tightening, but not against a precautionary 25bps increase. Output and new orders remain in expansion territory, hiring continues and capital-goods manufacturers are outperforming consumer-goods producers. The growth backdrop therefore provides the MPC with greater room to prioritise inflation control.

External sector

The external account remains an important constraint. India's merchandise trade deficit widened to USD 30.4bn in June from USD 28.2bn in May and USD 19.1bn a year earlier. Imports rose 31% y/y to USD 70.8bn, outpacing a 16% increase in exports.

Data Download

The import surge was driven by crude oil, electronics and gold. Higher oil imports reflect the global energy shock, while strong electronics imports point to resilient domestic and investment demand. Elevated gold imports add pressure to the current account and signal continued household demand for imported stores of value.

The rupee remains exposed to oil prices, portfolio flows and movements in the US dollar. The RBI has relied on spot and forward-market intervention, alongside measures intended to attract foreign capital, to contain excessive volatility. These tools can smooth currency movements, but they cannot indefinitely offset unfavourable interest-rate differentials or a persistent deterioration in the trade balance.

Policy outlook

We expect the MPC to raise the repo rate by 25bps at its next meeting. The move would be precautionary and aimed at preventing a supply-led inflation shock from becoming embedded in expectations and underlying price pressures. The case for tightening rests on three factors. Inflation is above the 4% target and is projected to rise close to 6% in Q3. Growth remains resilient enough to absorb a limited increase in borrowing costs. External pressures, particularly from oil prices and the rupee, have increased the cost of maintaining a prolonged pause. A sharp decline in oil and food prices or a material weakening in domestic demand could delay the move. However, in our view, another hold would risk leaving the RBI behind the curve and could require a larger tightening response later in FY27. The next policy decision is therefore likely to mark the beginning of a cautious and limited tightening cycle rather than a return to aggressive rate increases.

Further Readings

Monetary policy statement

Governor's statement

Indonesia's Policy Framework Weakens after Perry's Exit (Tempo)

Indonesia Stocks Rise as Strong GDP, Fresh Rp 70T Liquidity Boost Lift Sentiment (Jakarta Globe)

Danantara Targets Release of First Consolidated Financial Statements Within Two Months (Jakarta Globe)

Security minister brushes off unrest concerns ahead of Independence Day (The Jakarta Post)

Indonesia seeks stronger IP protection for export growth (Antara News)

Economy Grows 5.29%, a Positive Achievement Amid Global Turmoil (CNBC Indonesia)

Indonesia Targets Global Hajj and Umrah Supply Chain Through Food Products (Republica)

• Employment rises by 0.4% compared to February
• Average monthly wage rises by 1.3% from February
• We see labour market at close to full employment

The LFS unemployment rate fell to 4.65% in May from 4.68% in February, according to the LFS survey carried out by BPS. We should note that this is the first survey carried out in May; hence there is no comparable data from 2025.

Data Download

Compared to the last survey in February, the labour force expanded by 0.3%, while employment growth was slightly stronger at 0.4%. The unemployed continued to decline, down by 0.3%. By age groups, unemployment was lowest among those aged 60+ at 2.4%, though it climbed from 1.9% in February. In addition, youth unemployment also rose to 17.4%, up from 16.4% in February. On the other hand, unemployment in the main group 25-64 years fell to 2.56% from 2.93% in February.

The average monthly wage rose by 1.3% to IDR 3.33tn compared to February, returning to the level from Nov 2025 after the marginal drop earlier this year.

Overall, we should note that the current LFS unemployment rate is the lowest on record, suggesting the labour market is close to full employment. This is further reinforced by the fact that it has fluctuated in a very narrow range over the last two years, ranging between 4.65% and 4.91%.

• Household, government consumption growth both slow compared to Q1
• Household consumption remains main GDP growth driver, govt spending helps offset weak export performance
• Demand-side breakdown shows manufacturing is still main growth driver, followed by wholesale and retail trade and construction
• We expect GDP growth to ease in Q3 as govt spending slows down, exports remain far from 2025 growth rates

GDP growth slowed to 5.29% y/y in Q2 from 5.61% y/y in Q1, according to BPS data. In quarterly terms, the economy expanded by 3.73% q/q, recovering from a 0.77% q/q decline in Q1. As a result, economic growth gained pace to 5.45% y/y in H1 compared with 5.10% in 2025.

Data Download

On the demand side, the slowdown in annual growth in Q2 was on the back of both household and government consumption, both of which expanded at a slower pace. On the other hand, gross fixed capital formation gained pace, reflecting a recovery in investment in buildings and vehicles. Inventory accumulation was only marginal, while net exports still contributed negatively, though exports regained some pace during the quarter.

In annual terms, household consumption remains the main GDP growth driver, accounting for 2.7pps of GDP growth, followed by investment with 2.1pps. Government spending contributed 1.2pps, still remaining an important factor to sustain GDP growth at the average levels of 5.0-5.1%.

On the supply side, the slowdown in GDP growth in Q2 was spread across a multitude of sectors, including agriculture, manufacturing, transportation, accommodation, financial and real estate and other services. In annual terms, only the mining sector output fell in Q2, while all other sectors' output expanded. The manufacturing sector remains the main GDP growth driver, contributing 0.9pps to GDP growth, followed by wholesale and retail trade with 0.8pps and construction with 0.6pps. The agriculture and information and communication sectors both contributed 0.5pps each.

Overall, although GDP growth eased in Q2, it remains above the expansion rates seen in 2025. Government spending clearly plays a significant role in offsetting the deterioration in exports, while household consumption remains rather robust. Looking forward, we expect to see further easing in Q3 as government spending subsides, while export growth remains far from the rates seen in 2025.

US firms look to Pakistan for critical mineral supplies (Dawn)

Govt will complete tenure, Shehbaz to remain PM for five years: Naqvi (Dawn)

KP CM Afridi warns of march on Islamabad as PTI holds rallies to mark 3rd anniversary of Imran's arrest (Dawn)

Investors seek tariff guarantees before bidding for Discos (Dawn)

Pakistan, Netherlands target $5b trade (Express Tribune)

SBP to offer fresh remittance incentives (Express Tribune)

Pakistan to self-finance KKH Phase-II if external financing fails (www.thenews.pk)

Pakistan seeks ML-1 rail project co-financing by JICA (www.thenews.pk)

Imran not being held in solitary confinement, jail official tells IHC (www.thenews.pk)

Money supply growth slows to 6pc (www.thenews.pk)

Crude oil, petroleum imports top 17m tonnes in FY26 (www.thenews.pk)

Govt increases petrol price by Rs4.45, reduces diesel's by Rs2 per litre (Business Recorder)

Pakistan, Iran agree to expedite finalisation of FTA (Business Recorder)

• Demand strengthens, yields broadly trend lower amid easing geopolitical tensions

The government raised PKR 939.1bn through T-bills in a scheduled auction on Wednesday, according to results published by the State Bank of Pakistan. The borrowing exceeded the target of PKR 400bn but was slightly less than the maturing amount of PKR 976bn. Demand strengthened notably, with bids totalling PKR 2.3tn, or 5.7 times the debt on offer. This reflects ample liquidity in the banking system as well as robust appetite for sovereign securities. However, bids continued to be concentrated in the 1-month bill, which attracted PKR 811bn, accounting for nearly a third of the total.

Cut-off yields showed a mixed trend. While yields for 1- and 3-month papers remained unchanged, 6- and 12-month yields declined by 9.5bps and 4.5bps respectively. This reflects improved investor sentiment amid the easing of geopolitical tensions and a sharp fall in global oil prices. Last week, the SBP kept its key rate unchanged at 11.50% for the second consecutive meeting, citing an improved inflation outlook and modest external sector pressure. Inflation in July eased to a four-month low of 9.2% y/y.

• Import growth outpaces strong rebound in exports
• FY27 trade deficit likely to widen on elevated oil prices, strong domestic demand

The merchandise trade deficit rose by 25.2% y/y to USD 3.95bn in July, according to data released by the PBS. Imports increased by 18% y/y to USD 6.89bn, reflecting a renewed rally in global energy markets. Non-oil imports may also have contributed to the increase, as seen in June, when they grew by 24.1% y/y, driven largely by higher shipments of vehicles, plastic materials, and iron and steel amid strong domestic demand. Meanwhile, exports rebounded sharply in July, reaching a six-month high of USD 2.94bn, up 9.5% y/y.

Data Download

The goods trade deficit, which reached USD 39.6bn in FY26, is likely to widen further in FY27. The SBP expects exports to recover on the back of higher rice shipments and government support measures, including subsidized financing, the removal of the super tax on exporters, and lower industrial electricity tariffs. However, these gains are likely to be offset by higher imports as global oil prices remain elevated and domestic demand continues to strengthen.

That said, the external sector is likely to remain resilient. Strong remittance inflows and lower external interest payments should help keep the current account deficit contained. The SBP expects remittances to rise by 5.1% y/y to a fresh record of USD 44bn in FY27, while external interest payments are projected to decline to USD 3.5bn from USD 4bn in FY26.

• Manufacturing of coke and refined petroleum products; food products; transport equipment key drivers of acceleration
• Manufacturing production rose by 1.6% m/m sa
• Producer prices climb 3.0% y/y

The volume of manufacturing production increased by 10.1% y/y in June, speeding up from a revised 9.1% y/y growth in May, the statistics office said. The seasonally adjusted volume of production index rose by 1.6% m/m in June, after climbing 0.7% m/m in May. The average capacity utilisation rate for total manufacturing was 78.9% in June, unchanged from May and higher than 76.8% in Jun 2025. Some 35.3% of the establishments operated at full capacity (90-100%), whereas 24.7% operated at below 70% capacity. Manufacturing production increased by 5.7% y/y in H1.

Data Download

In June, output rose y/y in 15 industry divisions and fell in seven. Annual growth accelerated in the manufacturing of coke and refined petroleum products (to 84.5% in June from 73.3% in May) and food products (to 3.9% from 0.02%). The production of transport equipment rose by 4.9% y/y in June, reversing a 0.5% y/y decline in May. These three industry divisions made the largest contributions to the acceleration of the y/y growth of the headline index in June, the statistics office said.

With regard to other indicators of the manufacturing sector's performance, the production value increased by 13.5% y/y in June. The producer price index rose by 3.0% y/y in June, decelerating from 3.1% y/y in May. In June, the value and the volume of the net sales index increased by 10.1% y/y and 6.9% y/y, respectively.

The Manufacturing PMI increased to 51.8 in July from 50.9 in June, according to the monthly survey by S&P Global. The index has been above the 50.0 no-change threshold for three consecutive months. The latest reading is a five-month high and is broadly consistent with the long-run average. Production grew at a rate that was the highest since February and above the long-run average.

• June unemployment rate higher both m/m and y/y
• Number of employed rises by 0.4% y/y, reversing a y/y decline in May
• LFPR improves m/m but is lower y/y

The unemployment rate increased to 4.9% in June, up from 4.8% in May and 3.7% in Jun 2025, according to the results of the latest labour force survey (LFS) announced by the statistics office. In the y/y comparison, the number of unemployed rose by 32.8% to 2.59mn in June. The number of employed climbed 0.4% y/y to 50.66mn. The labour force hence increased by 1.6% y/y to 53.25mn.

Data Download

In June, the largest y/y increase in employment was reported for accommodation and food service activities - by 481,000 persons. The second and third largest increases were reported for administrative and support service activities, as well as public administration and defence; compulsory social security. The largest y/y decline took place in wholesale and retail trade; repair of motor vehicles and motorcycles.

The labour force participation rate (LFPR) among Filipinos 15 years and older was 65.1% in June, higher m/m but lower y/y. The average number of hours worked per week was 40.6, lower m/m but higher y/y. The underemployment rate edged down m/m to 12.1%, but was higher y/y.

The youth unemployment rate increased to 13.5% in June from 12.4% in May and 9.4% in Jun 2025. The unemployed youth rose by 56.8% y/y in June, whereas the employed youth increased by 4.1% y/y. The youth labour force hence rose by 9.0% y/y. The youth LFPR was 33.7% in June, up from 32.3% in May and 33.1% in Jun 2025.

Services, agriculture and industry accounted for 62.7%, 20.0% and 17.3% of the total employed persons, respectively. Wage and salary workers accounted for 64.1% of employed persons, followed by self-employed persons without any paid employees (26.9%); unpaid family workers (7.4%); and employers in their own family-operated farm or business (1.6%).

All in all, the June LFS data are mixed, in our view. The unemployment rate is at a three-month high and the number of the underemployed rose. On the other hand, the number of the employed returned to positive y/y growth after dropping in May. Unemployed youth accounted for 55.5% of the y/y increase (in absolute terms) in the number of the unemployed.

Philippine Jobless rate rises to 4.9% in June (BusinessWorld)

PHL factory output growth accelerates in June (BusinessWorld)

First-quarter GDP growth unchanged at 2.8% (BusinessWorld)

TDF yield goes up on rate hike bets as inflation stays elevated (BusinessWorld)

LGU applications to incur debt hit P8.49B in July (BusinessWorld)

PHL lobbies US for removal of 12.5% forced-labor tariff (BusinessWorld)

Farm output rises 2.9% in Q2 on strong crop, livestock, poultry, fisheries output (BusinessWorld)

PH logs nearly 4-decade record-high palay harvest in Q2 - DA (Philippine News Agency)

Gov't work, classes in NCR, 21 areas suspended Aug. 6 amid heavy rains (Philippine News Agency)

SC junks petition vs House impeachment of Sara (Philstar)

Sara's lead over Leni narrows in hypothetical matchup - OCTA (Philstar)

RS opposition leader Blanusa urges opposition to unite: Citizens expect seriousness, not internal conflicts (Dnevni Avaz)

Management of Nova Zeljezara Zenica rejects both proposals of FBiH government: Insists that bankruptcy is the only solution (Dnevni Avaz)

Reduced electricity production in BiH, no shortages or price increases (Nezavisne Novine)

Eighteen miners from Zenica mine are still in the Rastopocje pit, protest continues (Nezavisne Novine)

More than 21,000 BiH employees receive retroactive payment of wage base difference (Glas Srpske)

• Government will continue legal battle to preserve production
• Steel mill faces bankruptcy

The majority owner of Nova Zeljezara Zenica (New Steelworks Zenica) has rejected two proposals put forward by the FBiH government aimed at preserving production, jobs and the company's industrial infrastructure, the government said today. The government has offered either to purchase the majority owner's entire stake or to assume financing and operational management of the steelworks as a single production system. Both proposals required the withdrawal of the bankruptcy application and included an independent valuation, alongside full legal, financial, technical and environmental assessments. Energy minister Vedran Lakic voiced disappointment and pledged that the government will continue the battle with an appeal to the FBiH Supreme Court and will consider all legal options to preserve production.

In July, the Cantonal Court in Zenica upheld an earlier first-instance ruling refusing the FBiH government's bid to impose emergency administration. The government claims that the company is considered an important segment of the Federation's economic chain, with direct links to railways, power utility Elektroprivreda BiH, Energoinvest, and other state-linked companies, meaning that its closure would carry significant negative consequences for the economy and the labour market. The government holds less than 8% of the company and lacks management control. In 2025, H&P, a member of the Pavgord group owned by local businessman Gordan Pavlovic, acquired ArcelorMittal's Prijedor iron ore mine and the Zenica steel plant. The New Steelworks Zenica started shutting down steel production in April due to its inability to compete with imports.

• Three ministries and NHIF announce personnel cost-reduction initiatives
• Seemingly, cost reduction to take place mostly via cuts to vacant positions

Three ministries and the National Health Insurance Fund (NHIF) have launched personnel cost-reduction initiatives to comply with the recently enacted 2026 budget law, local media reported. The law mandates a 10% reduction in state personnel expenses in most institutions starting Sep 1, local media reported. The savings will not impact current wage levels, according to the information. Instead, the cuts will be achieved by closing vacant positions, restructuring and potentially dismissing employees, depending on each institution's internal strategy.

Several ministries have already announced their plans. The finance ministry will reduce staff numbers by restructuring and reshuffling five distinct directorates. While these cuts will primarily target unfilled roles, proposed amendments to the organisational regulations leave it unclear if any current employees will face layoffs. Meanwhile, the regional development ministry has drafted a project outlining a 6% reduction in total headcount through unit restructuring. The innovation ministry faces the steepest reduction, with plans to slash positions by 23%. Media reports indicate that similar restructuring efforts are also underway at the NHIF, the Social Assistance Agency, and the labour ministry.

These cuts come as the government intensifies efforts to curb rising personnel and maintenance costs to secure a gradual return to fiscal consolidation over the coming years. The 2026 budget projects a fiscal deficit of 5.7% of GDP for the year, with the government deferring stricter, long-term consolidation measures until the drafting of the 2027 budget bill.

Stricter requirements for business, industry and buildings for energy efficiency (Capital Daily)

Utility regulator proposes new model for the participation of batteries in balancing energy system (Capital Daily)

Engineers and batteries save Bulgaria from Danube drought (Sega)

Borissov already has 200 new people prepared for renewal of GERB (24 Chasa)

Layoffs in state administration are underway, but only in vacant positions, not in civil servants (24 Chasa)

Bulgaria remains grey spot on Europe's infrastructure roadmap (Trud)

Danube level continues to fall (Trud)

Job postings in country decrease by 11% y/y (Trud)

• Hungary and Romania seek energy purchases from Bulgaria
• NPP Kozloduy continues to operate in full regime, supported by autonomous safety systems used to cool reactors and fuel pools independently of Danube's water level
• NPP Kozloduy's operation at full capacity guaranteed for a few more weeks

Bulgaria is currently seeing unprecedented electricity exports, reaching between 32,000 and 33,000 MWh per day, due to the reduced production at Hungary's Paks and Romania's Cernavoda nuclear power plants, both affected by record low water levels on the Danube River, local media reported. Dimitar Zarchev, director of the central dispatching department at the Electricity System Operator, noted the unusual scale of the activity, highlighting that Hungarian and Romanian traders have requested cross-border capacity and energy purchases ranging from 3,500 to 4,000 MWh. As a result, Bulgaria's export capabilities have been fully utilised.

Even if production at the Bulgarian NPP Kozloduy needs to be restricted in the following weeks if the Danube River levels remain low, Zarchev stated that domestic electricity supplies will remain secure. The country can rely on thermal power plant Maritsa Iztok 2, which is currently operating five units, while full water reservoirs mean hydroelectric facilities are prepared to contribute more heavily to power generation.

The Nuclear Regulatory Agency explained that the resilient position of the domestic electricity market is rooted in the specific design of the NPP Kozloduy. Separate, autonomous safety systems cool the reactors and fuel pools independently of the Danube's water level, ensuring continuous operations during both standard and emergency scenarios. The plant utilises alternative water sources, including reserves in its cold channel and additional wells, ensuring the operator retains ample technological solutions to maintain safety. The nuclear regulator emphasised that the plant's safety under these specific conditions has been verified through periodic reviews and international inspections, including post-Fukushima European stress tests. These evaluations identified no structural flaws that could undermine safety during significant drops in river levels.

Given the current state of the Danube, operational monitoring has been implemented at the site. Energy Minister Iva Petrova recently visited the Kozloduy plant and confirmed that if the river levels remain stable, the facility can continue operating at its full capacity for a few more weeks. However, the regulator added that if low water levels persist and available water to cool the turbine condensers is not sufficient, predefined measures will be taken to gradually reduce the power output of one or both units.

• Changes to cost additional EUR 100mn per year

PM Andrej Plenkovic has announced legislative changes that will benefit 200,000 veterans, the news agency Hina reported. Speaking at the central ceremony marking the 31st anniversary of Operation Storm on Aug 5, he said that the government would amend two laws that would introduce a pension supplement for all retired Croatian veterans, based on the length of their participation in the defence of Croatia's sovereignty. Plenkovic added that the same criteria would apply to increases in the lowest veteran pensions. The government will also scrap the remaining pension reduction affecting members of the armed forces, police and other authorised officials. The changes will cost additional EUR 100mn per year, the PM said.

• HEP to cover shortfall using its own generation sources and by purchasing power on wholesale market
• Krsko supplies about 16% of Croatia's annual electricity needs

The power utility HEP told the news agency Hina that if the Krsko nuclear power plant were to halt production, it would cover the shortfall using its own generation sources and by purchasing power on the wholesale market. The reaction came after the Krsko nuclear plant announced it would reduce reactor output to 80% capacity overnight on Aug 6 due to continued poor hydrological and meteorological conditions on the Sava River. Full-power operation will resume once conditions allow. The economy ministry said that the Croatian and Slovenian governments are taking all necessary steps to keep Krsko running stably and safely despite high river temperatures, and are in constant contact to safeguard supply security. The Krsko nuclear plant, jointly owned by Croatia and Slovenia, supplies about 16% of Croatia's annual electricity needs.

PM Plenkovic announces higher veterans' pensions at the Storm celebration: These changes will cover around 200,000 people (Slobodna Dalmacija)

HEP announces how it will react in the event of a shutdown of the Krsko nuclear power plant (Dnevnik)

Will salaries increase from next year? (Poslovni Dnevnik)

HEP has a solution in the event of a shutdown of the Krsko nuclear power plant (Poslovni Dnevnik)

Croatian rivers are on the brink of an unprecedented hydrological crisis: The most dramatic situation is on the Danube in Batina (Vecernji List)

Krsko nuclear power plant is reducing reactor power tonight (Vecernji List)

PM Plenkovic announces higher pensions for 200,000 veterans (Vecernji List)

EmergingMarketWatch coverage of Croatia will be limited on 05 Aug 2026 due to a public holiday.

• Producers of electronics, metals and non-metallic mineral goods remain optimistic
• Chemical industry sentiment sinks deeper into contraction

The Lithuanian Industrial Expectations Index rose marginally m/m to 47.7pts in July, registering its first monthly increase since March, suggesting nascent stabilisation in industrial confidence, according to the latest data published by the Confederation of Lithuanian Industrialists (LPK). This marks the first update by the LPK following a five-month pause in survey publications. The headline uptick stands in contrast to broader survey-based data, including Lithuania's economic sentiment indicator, which pointed to further deterioration in industrial confidence in July, meaning that a more meaningful and broader sector-wide recovery remains uncertain.

Data Download

The sectoral breakdown provided by the LPK showed a continuation of previously established trends, with manufacturers of electronics, fabricated metals and non-metallic mineral products reporting a generally upbeat outlook. Meanwhile, confidence among chemical, plastics, clothing and wood products manufacturers remained below the neutral 50pts threshold. Chemical producers reported a particularly downbeat outlook, with sentiment sinking further into contraction below 30pts. While the latest headline improvement shows the first signs of stabilisation, we think the recovery remains fragile, with ongoing geopolitical uncertainty and volatility in key global commodity prices limiting any potential gains over the coming months.