Deutsche Bank Markets Research Emerging Markets CEEMEA Cross-Discipline Date 22 January 2018 EMEA Monthly Politicking _Deutsche Bank AG/London DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 083/04/2017. Elina Ribakova Chief Economist (+44) 20 7547-1340 elina.ribakovadb.com Kubilay Ozturk Chief Economist (+90) 212 3170124 kubilay.ozturkdb.com Danelee Masia Economist (+27) 11 775-7267 danelee.masiadb.com Christian Wietoska Strategist (+44) 20 754-52424 christian.wietoskadb.com Gautam Kalani, Ph.D. Strategist (+44) 20 754-57066 gautam.kalanidb.com Himanshu Porwal Research Analyst (+44) 20 754-74234 himanshu.porwaldb.com Carlos Galindo Research Analyst (+44) 20 754-76269 carlos.galindodb.com Rebecca Klausen Strategist +44(20)754-55173 rebecca.klausendb.com Alireza Kharazi Research Associate +44(20)754-50083 alireza.kharazidb.com Twisha Roy Research Associate twisha.roydb.com South Africa is turning the page, hopefully. With the ANC elections out of the way and the more market friendly Ramaphosa elected party President, positive surprises on sentiment and growth more likely. The possibility that Zuma may now be recalled as State President, sooner rather than later, is more positive for markets which will welcome political stability and an end to (hopefully) policy paralysis. It appears likely Zuma will be recalled before the 8 Feb State of the Nation Address by the President. SARB has revised inflation forecasts lower, closer to our estimates, on the back of lower political risks and lower electricity tariff hike approval for Eskom. We continue to believe that risks to inflation will persist and the decline in upside risks do not yet justify rate cuts. We thus expect SARB will keep rates on hold at 6.75% for the rest of the year. Everything needs to go well for SARB to consider cuts and more than 25bps we see as unlikely even in the most positive scenario.In Turkey main risks are political. Economic activity looks set to remain competitive throughout 2018 following some deceleration in Q4 2017. CPI should remain mostly in double-digits this year. We think the CBT is likely done with tightening and policy rates already peaked, assuming the absence of another external or domestic shock and its ensuing impact on the lira. The main risks are geopolitical (possibility of a military intervention in Syria) and domestic politics (extension of state of emergency for the sixth time). Given Turkeys structural bottlenecks, such as large external financing requirements, a renewed bout of excessive TRY depreciation could propagate a negative feedback loop between the real and the nominal economy.Russia is boring, unless US sanctions strike. Economic recovery has been uneven in 2017, but we expect growth to improve further in 2018. Inflation looks set to remain below target in H1-2018. We expect the CBR to ease by another 150bps this year before inflation begins to revert towards 4% by end 2018. The US Treasury report on the impact of extending sanctions due at the end of this month may turn out to be less of an event than originally feared. The US may compromise with extending sanctions to individuals and further companies, but not the sovereign debt. The other key developments to watch are the ongoing Mueller investigations in the US as well as Russias own Presidential elections in March.In CEE, positive spillover from robust Euro zone activity and protractedly accommodative macro policy mix will ensure regional growth remains at or above potential this year. Czech inflation will likely remain above the target for the forecasting horizon, peaking in mid-2018. Hungarian CPI looks set to oscillate below the 3% target for most of 2018 thanks to VAT cuts and other administered price adjustments. Headline in Poland will likely flirt around the 2.5% target in H2 2018. We still expect one preemptive hike through end-2018 in Poland after some overshooting in wage growth and ahead of a likely move in headline CPI towards the 3.0% psychological barrier in 2019. We expect Hungary to continue with theDistributed on: 23/01/2018 06:30:00 GMT7T2se3r0Ot6kwoPa22 January 2018 EMEA Monthly: Politicking Page 2 Deutsche Bank AG/London unorthodox approach and keep monetary conditions loose with an aim to flatten its yield curve. The more orthodox CNB is likely to hike 2 times in 2018. We maintain our positive view on CEE currencies on the back of strong macro performance and external inflows, except for the Hungarian forint due to NBHs lingering ultra-dovish stance. In Egypt, we are less optimistic on inflation, on the recovery in domestic demand and higher oil prices. Improvements in the fiscal and current account balances are expected in the coming two years with pickup in economic growth on the back of more investment and recovery of private consumption from rising l