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2019/11/25 / Erste Group Research

Strength of CEE economies lies in domestic demand


This week, we should get confirmation that the strength of CEE economies lies in domestic demand as GDP structure will be published. Consumer confidence is strong, as the unemployment rate hit historically low levels and wages keep growing. Such a situation translates into robust private consumption - the pillar of the growth. There should thus be no surprise that trade, transport, accommodation and food services create the highest share of added value across the region. So far, investment activity has been relatively solid as well, while the weakening external environment is likely to weigh on the net exports contribution to growth. While in most of the countries the flash estimates from mid-November should be confirmed, in Croatia and Slovenia we will get to see the 3Q19 GDP dynamics for the first time. With the end of the week approaching, we will move our mindset into the fourth quarter already, as the data on industrial output and retail sales for October will be available for Croatia, Serbia, and Slovenia. These releases, alongside the Polish data, will become the first footprint of the economic performance of the region in the last quarter

Last week, the Czech koruna managed to gain even amid the worsening of global sentiment, while the Polish zloty weakened the most. The Hungarian forint was a bit strange, as immediately after the (non-event) central bank meeting, an unexpectedly strong appreciation came, followed by a decline by the weekend. The Romanian leu mostly weakened, on the back of the worrying fiscal situation, but after the adviser to the central bank governor carried out a verbal intervention (by saying that they do not expect the leu’s depreciation tendency to be long-term), the RON gained. A more sustained stability in the RON could only be warranted by reassuring fiscal news. CEE exchange rates are not far from our year-end forecasts.

Apart from the slight increase of Croatian LCY yields, and relative stability in Czech yields, 10Y bond yields declined across CEE by 6-15 basis points w/w. The fall in German Bund yields was not that pronounced, but UST yields fell 8-9 basis points in the same time. The strongest decrease in yields came in Hungary, but given that the outcome of the central bank meeting was no surprise, and there is no major change in fundamentals, we see 10Y Hungarian yields going up slightly from current levels. Generally speaking, 10Y yields are not far from our current forecasts in CEE.


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General information

AuthorErste Group Research
Date2019/11/25
Languageen
Product nameCEE Insights
Topic in focusFX, Macro/ Fixed income
Economy in focusCEE, Croatia, Czech Republic, Hungary, Poland, Romania, Serbia, Slovakia, Slovenia
Currency in focusCroatian Kuna, Czech Koruna, Euro, Hungarian Forint, Polish Zloty, Romanian Leu, Serbian dinar
Sector in focus-
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